UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission file number 000-23249
PRIORITY HEALTHCARE CORPORATION
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(Exact name of registrant as specified in its charter)
INDIANA 35-1927379
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 TECHNOLOGY PARK, SUITE 124
LAKE MARY, FLORIDA 32746
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 804-6700
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $.01 PAR VALUE
CLASS B COMMON STOCK, $.01 PAR VALUE
------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
$769,757,812
Aggregate market value of the voting stock held by nonaffiliates of
the Registrant based on the last sale price for such stock on March 3, 2000
(assuming solely for the purposes of this calculation that all Directors and
executive officers of the Registrant are "affiliates").
4,870,708
Number of shares of Class A Common Stock, $.01 par value, outstanding at March
3, 2000.
17,175,754
Number of shares of Class B Common Stock, $.01 par value, outstanding at March
3, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document have been incorporated by reference into this
Annual Report on Form 10-K:
PART OF FORM 10-K INTO WHICH
IDENTITY OF DOCUMENT DOCUMENT IS INCORPORATED
Definitive Proxy Statement for the Annual PART III
Meeting of Shareholders
to be held May 15, 2000
<PAGE>
PRIORITY HEALTHCARE CORPORATION
Lake Mary, Florida
Annual Report to Securities and Exchange Commission
December 31, 1999
PART I
ITEM 1. BUSINESS.
BACKGROUND
Priority Healthcare Corporation ("Priority" or the "Company") was
formed by Bindley Western Industries, Inc. ("BWI") on June 23, 1994 as an
Indiana corporation to focus on the distribution of products and provision of
services to the alternate site segment of the healthcare industry. The Company
conducts the business activities of alternate site healthcare companies acquired
by BWI or the Company in seven transactions since February 1993. The principal
executive offices of the Company are located at 250 Technology Park, Suite 124,
Lake Mary, Florida 32746 and its telephone number at that address is (407)
804-6700. On October 29, 1997, the Company consummated an initial public
offering of its Class B Common Stock (the "IPO"). On December 31, 1998, BWI
distributed to its common shareholders all of the 15,321,429 shares of the
Company's Class A Common Stock then owned by BWI in a spin-off transaction and
BWI no longer has any ownership interest in the Company. Unless otherwise
indicated, "Priority" and the "Company" refer to Priority Healthcare Corporation
and its subsidiaries, and "BWI" refers to Bindley Western Industries, Inc. and
its subsidiaries other than the Company.
ACQUISITION HISTORY
Effective as of February 28, 1993, BWI acquired substantially all of
the assets of Charise Charles, Ltd., Inc. ("Charise Charles"), a specialty
wholesale distributor of oncology and renal care biopharmaceuticals located in
Altamonte Springs, Florida. On October 6, 1993, BWI acquired substantially all
of the assets of PRN Medical, Inc. ("PRN"), a specialty wholesale distributor of
renal care supplies and dialysis equipment located in Orlando, Florida. In
August 1994, PRN was combined with Charise Charles as part of the formation of
the Company. On October 31, 1994, the Company acquired the stock of 3C Medical,
Inc. ("3C"), a specialty distributor of acute dialysis products located in Santa
Ana, California. Effective January 1, 1995, the Company acquired all of the
outstanding stock of IV-1, Inc., IV-One Services, Inc. and National Pharmacy
Providers, Inc., three related companies located in Altamonte Springs, Florida
that provided specialty pharmacy and other related healthcare services. On
August 6, 1997, the Company acquired substantially all of the assets of Grove
Way Pharmacy, Inc. ("Grove Way Pharmacy"), a specialty distributor of vaccines
located in Castro Valley, California. On April 12, 1999, the Company acquired
substantially all of the assets of Pharmacy Plus, Ltd. ("Pharmacy Plus"), a
specialty pharmacy located in Philadelphia, Pennsylvania. On September 2, 1999,
the Company acquired substantially all of the assets of Monitors Unlimited, Inc.
("Monitors Unlimited"), a distributor in the oral surgery market located in
Miamisburg, Ohio.
The operations of Charise Charles, PRN, 3C, Grove Way Pharmacy and
Monitors Unlimited are now included in the Company's Priority Healthcare
Distribution division. Effective December 31, 1998, IV-One Services, Inc. and
National Pharmacy Providers, Inc. were merged into IV-1, Inc. and the name of
the corporation was changed to Priority Healthcare Pharmacy, Inc. The operations
of Pharmacy Plus are now included in the Company's Priority Healthcare Pharmacy
division.
GENERAL
Priority is a national distributor of specialty pharmaceuticals and
related medical supplies to the alternate site healthcare market and is a
provider of patient-specific, self-injectable biopharmaceuticals and disease
treatment programs to individuals with chronic diseases. Through Priority
Healthcare Distribution, the Company sells over 3,500 SKUs of specialty
pharmaceuticals and medical supplies to outpatient renal care centers and
office-based physicians in oncology and other physician specialty markets.
Priority Healthcare Distribution offers value-added services to meet the
specific needs of these markets by shipping refrigerated pharmaceuticals
overnight in special
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packaging to maintain appropriate temperatures, offering automated order entry
services and offering customized distribution for group accounts. From
distribution centers in Tustin, California and Grove City, Ohio, Priority
Healthcare Distribution services over 2,500 customers in all 50 states and
Puerto Rico, including approximately 600 office-based oncologists and 800 renal
dialysis clinics.
Through Priority Healthcare Pharmacy, the Company fills individual
patient prescriptions for self-injectable biopharmaceuticals. These
patient-specific prescriptions are filled at the licensed pharmacies in Lake
Mary, Florida and Philadelphia, Pennsylvania and are shipped directly to the
patient overnight in specialized packages. Priority Healthcare Pharmacy also
provides disease treatment programs for hepatitis, cancer, human growth
deficiency, rheumatoid arthritis, Crohn's disease, respiratory syncytial virus
(RSV), infertility, the complications of HIV and others.
Priority's net sales have increased from $107.4 million in 1994 to
$427.9 million in 1999. In the same period, operating income has increased from
$2.3 million in 1994 to $30.1 million in 1999. The Company's objective is to
continue to grow rapidly and enhance its market position as a leading healthcare
company by capitalizing on its business strengths and pursuing the following
strategy: (i) continue to focus on and further penetrate the alternate site
market; (ii) enter new markets by distributing new product categories and
patient-specific biopharmaceuticals; (iii) accelerate growth of its higher
margin, patient-specific pharmacy business by leveraging relationships with
existing distribution customers; (iv) maintain intense cost control while
investing in infrastructure; (v) pursue acquisitions to complement existing
product offerings and further penetrate markets; and (vi) continue to develop
physician and patient networks that enhance Priority's alliance capabilities
with manufacturers.
INDUSTRY AND MARKET OVERVIEW
Priority sells the majority of its products and services into large and
growing markets--oncology, gastroenterology, rheumatology and chronic renal
dialysis. The Company also operates in certain segments of the vaccine, oral
surgery and other chronic disease markets. The common characteristics of these
markets are that most products are administered in an alternate site setting by
physicians or the patients themselves and require specialized shipping and
support services.
INDUSTRY OVERVIEW. The alternate site supply market is fragmented with
many public and private companies focusing on different product or customer
niches. Few companies offer a wide range of pharmaceuticals and related supplies
targeted to multiple customer groups, specifically office-based physicians and
patients self-injecting at home. Historically, cancer therapy, renal dialysis
and most other treatments for chronic and life-threatening medical conditions
were administered almost exclusively in a hospital inpatient setting. During the
1990s, the frequency with which these treatments have been administered outside
the hospital has increased dramatically in response to cost containment efforts
and the introduction of new biopharmaceutical products, such as interferon,
ribavirin-Intron A combination therapy ("Rebetron"), erythropoietin ("EPO") and
cancer drugs.
The service needs of office-based physicians and patients
self-injecting at home differ markedly from those of the hospital market,
creating logistical challenges and increasing administrative costs for those
offices. Office-based physicians and clinics generally order relatively small
quantities of drugs at irregular intervals and do not have inventory management
systems or sufficient pharmacy staffing. Challenges facing these caregivers
include providing necessary administrative and financial resources, managing
relationships with multiple suppliers, managing inventories, billing patients
and third-party payors, and monitoring new clinical developments. The Company
believes that the shift from hospital-based to office-based or home-based care
delivery has created a significant opportunity, particularly in the oncology,
gastroenterology, rheumatology, pediatric, endocrinology, infertility, renal
dialysis, vaccine, oral surgery and homecare markets. The Company is focused
primarily on the oncology, renal dialysis, vaccine and gastroenterology markets,
but is developing its business in the other growing markets.
ONCOLOGY. Cancer continues to grow in the United States. According to
American Health Consultants, Inc. more than 1.2 million cases of cancer will be
diagnosed in the United States in 2000. The principal treatments for cancer are
surgery and a regimen of pharmaceutical treatments. Surgery typically involves
hospitalization, but radiation and chemotherapy are increasingly being delivered
in alternate site settings such as the physician office
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and the home. According to USA Today, cancer drugs generate in excess of $6
billion per year in sales worldwide, which is predicted to grow to $62.7 billion
by the year 2030.
According to SunTrust Equitable Securities Research, the National
Institutes of Health ("NIH") stated that direct medical spending on oncology
services reached approximately $37 billion in 1998, and it should continue to
grow at 8-10% annually over the next several years. The Company believes that
the office-based segment of the cancer pharmaceutical market represents
approximately 25% of such market and has been growing faster than the cancer
pharmaceutical market. Growth in the cancer pharmaceutical market is expected to
be driven by the continued introduction of new pharmaceuticals and increases in
the incidence of cancer. Of 350 biotechnology medicines currently in
development, nearly one half are cancer related, according to a 1998 survey
conducted by Pharmaceutical Research and Manufacturers of America ("PhRMA"). In
addition, the overall incidence of cancer is expected to increase as the average
age of the U.S. population continues to increase. According to the NIH, over 50%
of all cancers are diagnosed in people age 65 or over.
RENAL DIALYSIS. End stage renal disease ("ESRD") is characterized by
the irreversible loss of kidney function and requires kidney transplantation or
routine dialysis treatment (either periodialysis or hemodialysis), which
involves removing waste products and excess fluids from the blood. According to
the Health Care Financing Administration ("HCFA"), as of December 31, 1997, over
85% of dialysis patients were receiving hemodialysis in outpatient treatment
centers. Hemodialysis typically utilizes various specialty pharmaceuticals and
related medical supplies as part of the treatment. Hemodialysis treatments
usually last three hours and are performed three times a week at over 3,000
outpatient facilities in the United States. According to HCFA, ESRD enrollment
was 230,190 as of December 31, 1997 and is growing by approximately 6% per year.
The medication most frequently prescribed to hemodialysis patients is EPO, which
stimulates the production of red blood cells, as well as Calcijex (calcium),
INFeD (iron), hepatitis vaccine and other nutrient compounds. The Company
estimates that the United States market for EPO alone easily exceeds $1 billion.
VACCINE MARKET. The worldwide vaccine market exceeded $3 billion in
1997, and is expected to grow to $7 billion by 2001, according to SmithKline
Beecham, one of the leading vaccine manufacturers. The Company estimates that
pediatric vaccines represent 40% of the world market, and hepatitis vaccines
represent over 20% of the world market.
Growth in the vaccine market is expected to be driven by the growth of
combination pediatric vaccines, travelers' vaccines, vaccines for adolescent
protection, vaccines for the elderly and vaccines to treat chronic infectious
disease and cancer. According to the 1998 PhRMA survey, 77 vaccines are
currently in development.
GASTROENTEROLOGY. Priority operates in the gastroenterology market,
principally through the sale of interferon and Rebetron for the treatment of
hepatitis C. NIH estimates that more than four million Americans are infected
with hepatitis C and that approximately 30,000 new acute hepatitis C infections
occur each year. According to NIH, the incidence of hepatitis C infection
appears to be declining from its peak in 1989. However, because only 25% to 30%
of new hepatitis C infections are currently diagnosed, as estimated by NIH, the
Company believes the treated portion of this population is likely to increase as
awareness of hepatitis disease management programs increases. According to NIH,
hepatitis C is responsible for 8,000 to 10,000 deaths annually and is currently
the leading reason for liver transplantation in the United States.
BUSINESS STRENGTHS
Priority believes the following represent the Company's business
strengths and have been the principal factors in the Company's business success
to date.
KNOWLEDGEABLE SALES, MARKETING AND SUPPORT STAFF. The Company has a
well-trained, knowledgeable telemarketing and sales support staff of
approximately 70 full-time associates. The Company's sales support staff and
telemarketers are most experienced in the areas of oncology, gastroenterology,
rheumatology, renal care, vaccines and oral surgery. Priority holds frequent
meetings and training sessions with its suppliers to enable the sales and
support staff to be well-informed about current and new biopharmaceuticals. The
sales and support staff provides not only superior and knowledgeable customer
service, but also promotes the sale of new products.
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CLINICAL EXPERTISE. The Company provides disease treatment programs to
patients and physicians through its highly trained clinical staff of
pharmacists, nurses and patient care coordinators. These personnel are available
for ongoing consultation with the patient and the dispensing physician regarding
the patient's therapy and progress seven days a week, 24 hours a day. In order
to serve the specific needs of its customers, Priority operates a licensed
pharmacy which has been accredited with commendation by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO").
BROAD PRODUCT OFFERINGS TO TARGETED MARKETS. Priority sells over 3,500
SKUs of pharmaceuticals and medical supplies which enable the Company to provide
"one-stop shopping" to its customers. Priority targets its selling efforts of
this broad range of products and services to customers in alternate site
settings, such as physicians' offices, renal dialysis clinics and patients
self-injecting at home. The Company continually evaluates new products that it
can add to its offerings to continue to meet the needs of these specialized
markets.
COMMITMENT TO CUSTOMER SERVICE. The Company is committed to providing
superior customer service that includes shipping products ordered before 6 p.m.
for delivery the next day and filling 99% of its orders within one day of being
ordered. Priority's software enables its salespeople to quickly determine
product availability, pricing, customer order history and billing information.
In addition, Priority Healthcare Pharmacy provides patient education, counseling
and follow-up with 24-hour on-call nurses to assist its patients in better
understanding and complying with their treatments.
EFFICIENT INFRASTRUCTURE. Priority has focused considerable time and
expense on building an infrastructure, including computer systems and training,
that would enable the Company to operate efficiently and manage rapid growth.
Management also focuses on tightly controlling expenses and is constantly
re-evaluating the efficiency of its operations, including purchasing and
distribution.
GROWTH STRATEGY
The Company's objective is to continue to grow rapidly and enhance its
market position as a leading specialty distributor and specialty pharmacy
provider by capitalizing on its business strengths and pursuing the following
strategy.
CONTINUE TO FOCUS ON AND FURTHER PENETRATE THE ALTERNATE SITE MARKET.
By focusing on the alternate site market, the Company has targeted growth
segments of the health care industry. The Company intends to increase its
alternate site market presence by expanding its product and service offerings,
increasing its sales and marketing personnel and focusing on group accounts.
ENTER NEW MARKETS BY DISTRIBUTING NEW PRODUCT CATEGORIES AND
PATIENT-SPECIFIC BIOPHARMACEUTICALS. By targeting chronic disease therapies that
require patient-specific, self-injectable biopharmaceuticals, the Company
continues to expand its markets. An example is the Uniprost therapy for patients
suffering from pulmonary hypertension which was added through an agreement with
United Therapeutics. This agreement is expected to have a significant positive
impact on Priority's revenues beginning in 2001, assuming the Uniprost therapy
is approved by the Food and Drug Administration.
ACCELERATE GROWTH OF ITS HIGHER MARGIN, PATIENT-SPECIFIC PHARMACY
BUSINESS BY LEVERAGING RELATIONSHIPS WITH EXISTING DISTRIBUTION CUSTOMERS. The
Company has over 2,500 customers, including physicians focusing on oncology,
gastroenterology, rheumatoloy, pediatrics, renal care, vaccines and oral
surgery. The Company believes that a number of physicians that order
pharmaceuticals and supplies from the Company also treat patients who require
patient-specific, self-injectable biopharmaceuticals. The Company's information
database identifies these cross-selling opportunities, and Priority believes it
is well-positioned to capture incremental revenue from these customers. Priority
also continues to expand its relationships with payers who often influence the
decision on which pharmacy service provider to use.
MAINTAIN INTENSE COST CONTROL WHILE INVESTING IN INFRASTRUCTURE. The
Company's goal is to remain a low cost provider of specialty products and
services yet increase the value-added services it provides to customers such as
24-hour on-call nurse support, internet community care neighborhood web sites,
patient counseling and specialized shipping. The Company's selling, general and
administrative expense was only 5.0% of revenues in 1999 even as the Company
continued to invest in its infrastructure.
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PURSUE ACQUISITIONS TO COMPLEMENT EXISTING PRODUCT OFFERINGS OR FURTHER
PENETRATE MARKETS. The Company believes that the highly fragmented specialty
distribution and pharmacy industries afford it an opportunity to grow through
selective acquisitions. By acquiring complementary businesses, the Company can
increase its customer base, expand its product and geographic scope and leverage
its existing infrastructure. The Pharmacy Plus and Monitors Unlimited
acquisitions during 1999 are examples that fit this criteria.
CONTINUE TO DEVELOP PHYSICIAN AND PATIENT NETWORKS THAT ENHANCE THE
COMPANY'S ALLIANCE CAPABILITIES WITH MANUFACTURERS. The Company believes that
with strong physician and patient networks the relationships with its
manufacturers will be enhanced, thereby increasing the potential for alliances
which could expand its products, service and geographic scope.
PRODUCTS AND SERVICES
PRIORITY HEALTHCARE DISTRIBUTION. Priority Healthcare Distribution
provides a broad range of services and supplies to meet the needs of the
alternate site market, including the office-based oncology market, outpatient
renal care market, other physician office specialty markets that are high users
of vaccines and the oral surgery market. Priority Healthcare Distribution offers
value-added services to meet the specialized needs of these markets by shipping
refrigerated pharmaceuticals overnight in special packaging to maintain
appropriate temperatures and offering automated order entry services and
customized group account distribution. Priority Healthcare Distribution
distributes its products from distribution centers in Tustin, California and
Grove City, Ohio. The Company sells over 3,500 SKUs of pharmaceuticals such as
EPO, Neupogen, Calcijex and INFeD and related medical supplies such as IV
solutions, IV sets, gloves, needles, syringes and sharps containers. During
1999, approximately 18% of the Company's revenues were attributable to sales of
EPO to the renal care market. EPO for the renal care market is available from
only one manufacturer, Amgen. Priority Healthcare Distribution services over
2,500 customers located in all 50 states and Puerto Rico, including
approximately 600 office-based oncologists and 800 renal dialysis clinics.
Priority believes its knowledgeable salesforce provides a competitive
advantage when selling into the alternate site market. Since a majority of
customer orders are placed by telephone, the Company offers its customers a
toll-free telephone number, fax line, electronic data interchange ("EDI")
ordering capability and plans to offer internet ordering capabilities in the
near future. Orders typically are received by the Company's telemarketing sales
and service personnel who use PC-based computer systems to enter customer
orders, and to access product information, product availability, pricing,
promotions and the customer's buying history. As part of the Company's
commitment to superior customer service, the Company offers its customers ease
of order placement. Once an order is received, it is electronically sent to the
appropriate distribution center where it is filled and shipped. The Company
estimates that approximately 98% of all items are shipped without back ordering,
and that 99% of all orders received before 6 p.m. are shipped on the same day
that the order is received. See "--Sales and Marketing."
PRIORITY HEALTHCARE PHARMACY. Priority Healthcare Pharmacy provides
patient-specific, self-injectable biopharmaceuticals and related disease
treatment programs to individuals with chronic diseases. In Lake Mary, Florida,
and Philadelphia, Pennsylvania, Priority Healthcare Pharmacy fills
patient-specific prescriptions and ships them via overnight delivery in special
shipping containers to maintain appropriate temperatures. These services are
provided in combination with the Company's disease treatment programs, through
which the Company's pharmacist and nursing staff provide education, counseling
and other services to patients. Priority Healthcare Pharmacy is a recognized
national leader in the specialty pharmacy market, as reported by Goldman Sachs,
which called Priority "the top choice in specialty pharmacy" in its January 20,
2000 research report on United States Healthcare Distribution.
Priority Healthcare Pharmacy has traditionally provided disease
treatment programs for hepatitis and cancer, with biopharmaceuticals that
primarily consist of Interferon, a synthetic biopharmaceutical used to treat
hepatitis B and C, Rebetron, an oral antiviral and a synthetic biopharmaceutical
used to treat hepatitis C, Octreotide, a synthetic hormone used to treat
diarrhea associated with intestinal peptide tumors, and Epoetin Alfa, a
synthetic biopharmaceutical used to treat anemia. Priority Healthcare Pharmacy
has added many more products, including Temodar, an oral chemotherapy used to
treat Anaplastic astrocytoma (a brain malignancy), Thalomid, an oral product
with antiangiogenesis properties and is used to treat a variety of cancers,
Synagis, an injectable vaccine product used to treat RSV (Respiratory Syncytial
Virus) in premature infants, Remicade, an intravenous product
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used to treat Crohn's Disease and rheumatoid arthritis patients, and Enbrel, an
injectable product used to treat patients suffering from rheumatoid arthritis.
The disease treatment programs provided by the Company offer a number
of advantages to patients, physicians, third-party payors and drug
manufacturers. The advantages include: (i) increasing patient compliance with
the recommended therapy, thereby avoiding more costly future treatments; (ii)
facilitating patient education required to prepare and administer the products;
(iii) reducing the potential for patient errors in dosing or wastage of product;
(iv) decreasing patient or caregiver anxiety; (v) reducing the overall cost of
delivery; and (vi) collecting better outcomes data.
In addition to outside selling efforts that focus on payers, the
Company's telemarketing efforts focus on marketing to physician offices where
new patient referrals occur. Upon referral, patients are contacted via telephone
by the Company's intake nurses who explain the program and provide education on
self-injection techniques, side effects and potential drug interactions.
Following the initial prescription delivery, patients are contacted by patient
care coordinators who assess patient compliance and progress, inquire regarding
any potential side effects, arrange the next scheduled prescription delivery,
verify the shipping address, listen to patient concerns and direct questions to
the Company's clinical staff. The Company's pharmacists and registered nurses
are available for ongoing consultation with the patient and the dispensing
physician regarding the patient's therapy and progress seven days a week, 24
hours a day.
Most parenteral or injectable prescriptions are prepared in sterile
conditions under class 100 laminar flow hoods. Licensed pharmacists verify the
prescription with the prescribing physician and recheck the prescription before
shipping. In order to ensure the safe delivery of prescriptions to the patient,
the Company telephones the patient several days before shipping to confirm that
the patient or another person will be at home to receive the package immediately
upon delivery. In addition, the Company requires the overnight delivery service
to obtain a signed receipt before leaving the drugs at a residence.
SALES AND MARKETING
The Company employs approximately 70 full-time telemarketing and sales
support staff personnel. The Company strives to generate new customers and
solidify existing customer relationships through frequent direct marketing
contact that emphasizes the Company's broad product lines in specialty markets,
competitive prices, responsive service and ease of order placement. The Company
telemarkets to oncology clinics, physician offices and dialysis centers. The
Company targets larger customers with customized approaches developed by
management and its key account team. The Company also links the Priority
Healthcare Distribution and Priority Healthcare Pharmacy databases to facilitate
cross-selling efforts between the two divisions. The Company believes that there
is a significant opportunity to provide its specialty pharmacy services to
patients of physicians that currently order pharmaceuticals and supplies from
Priority Healthcare Distribution.
The Company's sales personnel service both in-bound and out-bound calls
and are responsible for assisting customers in purchasing decisions, answering
questions and placing orders. Sales personnel also initiate out-bound calls to
market the Company's services to those customer accounts identified by the
Company as being high volume accounts, high order frequency accounts or
cross-selling opportunity accounts. The Company's sales personnel use PC-based
computer systems to enter customer orders and to access information about
products, product availability, pricing, promotions and customer buying and
referral history. All telemarketing sales personnel work to establish long-term
relationships with the Company's customers through regularly scheduled phone
contact and personalized service.
Training for sales personnel is provided on a regular basis through
in-service meetings, seminars and field training and is supported by print and
video materials. Initial and ongoing training focuses on industry and product
information, selling skills, ethics and compliance requirements and computer
software skills. The Company believes that its investment in training is
critical to establishing its competitive position in the marketplace.
CUSTOMERS
Priority Healthcare Distribution serves over 2,500 customers located in
all 50 states and Puerto Rico, including approximately 600 office-based
oncologists and 800 renal dialysis clinics.
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During 1999, the Company's largest 20 customers accounted for
approximately 26% of the Company's revenues and one customer, Everest Healthcare
Services Corporation, accounted for approximately 10% of the Company's revenues.
Significant declines in the level of purchases by one or more of the Company's
largest customers could have a material adverse effect on the Company's business
and results of operations. As is customary in its industry, the Company
generally does not have long-term contracts with its customers. Management
believes that the retention rate for the Company's customers is very favorable.
An adverse change in the financial condition of any of these customers,
including an adverse change as a result of a change in governmental or private
reimbursement programs, could have a material adverse effect on the Company.
PURCHASING
Management believes that effective purchasing is key to both
profitability and maintaining market share. In 1997, 1998 and 1999, the
Company's single largest supplier, Amgen, accounted for approximately 40%, 32%
and 21%, respectively, of the Company's revenues. The Company continually
evaluates its purchase requirements and likely increases in manufacturer prices
in order to obtain products at the most advantageous cost. It has negotiated
several partnership relationships with manufacturers that offer favorable
pricing, volume-based incentives and opportunities to reduce supply chain costs
for both parties.
COMPETITION
The alternate site specialty pharmaceutical and medical supply industry
is highly competitive and is experiencing both horizontal and vertical
consolidation. The industry is fragmented, with many public and private
companies focusing on different product or customer niches. Some of the
Company's current and potential competitors include regional and national
full-line, full-service medical supply distributors; independent speciality
distributors; national full-line, full-service wholesale drug distributors, such
as Bergen Brunswig Corporation and Cardinal Health, Inc., that operate their own
specialty distribution businesses; institutional pharmacies; hospital-based
pharmacies; home healthcare agencies; mail order distributors that distribute
medical supplies on a regional or national basis; and certain manufacturers,
such as Bristol-Myers Squibb, that own distributors or that sell their products
both to distributors and directly to users, including clinics and physician
offices. Some of the Company's competitors have greater financial, technical,
marketing and managerial resources than the Company. While competition is
primarily price and service oriented, it can also be affected by depth of
product line, technical support systems, specific patient requirements and
reputation. There can be no assurance that competitive pressures will not have a
material adverse effect on the Company.
GOVERNMENT REGULATION
As a provider of healthcare services and products, the Company is
subject to extensive regulation by federal, state and local government agencies.
LICENSING. The Company is required to register with the United States
Drug Enforcement Administration ("DEA"), the Food and Drug Administration
("FDA") and appropriate state agencies for various permits and/or licenses, and
it also must comply with the operating and security standards of such agencies.
The Company's Tustin and Grove City distribution centers are licensed to
distribute pharmaceuticals in accordance with the Prescription Drug Marketing
Act of 1987. The Grove City location is also licensed to distribute or dispense
certain controlled substances in accordance with the requirements of the
Controlled Substances Act of 1970. Similarly, the Company's pharmacy program and
provider businesses are subject to licensing by the DEA as well as by the state
boards of pharmacy, state health departments and other state agencies where they
operate.
On November 14, 1995, an investigator for the FDA, accompanied by an
inspector from the State of Florida Board of Pharmacy, inspected the Company's
pharmacy in 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
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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 this
pharmacy in either of these inspections.
On March 16, 1992, the FDA issued a Compliance Policy Guide (CPG
460.200), which explains the criteria the FDA uses to distinguish between
pharmacy operations that are properly regulated under state law and drug
manufacturing regulated by the FDA. The Company's response to the FDA in
December 1995 cited this CPG and explained the Company's contention that,
according to the FDA's own criteria, the facility is a pharmacy properly
regulated under state and local laws.
On November 21, 1997, the President signed into law the FDA
Modernization Act of 1997, which, among a number of other items, added a new
section on pharmacy compounding to the Federal Food, Drug and Cosmetic Act. In
this provision, Congress clarified a gray area by explicitly identifying the
circumstances in which pharmacies may compound drugs without the need for filing
a New Drug Application, observing the FDA's Good Manufacturing Practice
regulations or complying with certain other specific Federal Food, Drug and
Cosmetic Act requirements. Congress provided that the term "compounding" does
not include mixing or reconstituting that is done in accordance with directions
contained in approved labeling provided by the manufacturer of the product. The
Company believes that, as a result of this amendment, so long as it follows the
manufacturer's approved labeling in each case, and prepares drugs only for
identified individual patients using licensed practitioners, the Company's
activities should be regulated by the Florida State Board of Pharmacy and not be
subjected by the FDA to a full New Drug Application requirement demonstrating
the basic safety and effectiveness of the drugs.
If the Company is correct and its operations are limited to those
engaged in by pharmacies, there should be no material adverse effect from the
FDA Form-483s because the Company believes it is currently in compliance in all
material respects with applicable state and local laws. If the Company is deemed
to be a sterile product manufacturer or a sterile product repackager, it would
be subject to additional regulatory requirements. If for some reason the FDA or
other legal authorities decide that the Company must file for approval of a New
Drug Application, such an event could have a material adverse effect on the
Company.
There can be no assurance that future legislation, future rulemaking or
active enforcement by the FDA of a determination that the Company is a drug
manufacturer will not have a material adverse effect on the business of the
Company.
The State of Florida Board of Pharmacy regulates the compounding
activities of Florida pharmacies, including certain activities of the Company.
The Company has obtained a Community/Special Parenteral/Enteral Compounding
Pharmacy Permit. Over the past several years, the Florida Board of Pharmacy has
proposed certain changes to its compounding requirements. The Company believes
that it is in compliance with such current requirements, but there can be no
assurance that other conditions or requirements would not be imposed in the
future that would have a material adverse effect on the Company.
REFERRAL RESTRICTIONS. The Company is subject to federal and state laws
which govern financial and other arrangements between healthcare providers.
These laws include the federal anti-kickback statute, which prohibits, among
other things, knowingly and willfully soliciting, receiving, offering or paying
any remuneration directly or indirectly in return for or to induce the referral
of an individual to a person for the furnishing of any item or service for which
payment may be made in whole or in part under Medicare or Medicaid. Many states
have enacted similar statutes which are not necessarily limited to items and
services for which payment is made by Medicare or Medicaid. Violations of these
laws may result in fines, imprisonment and exclusion from the Medicare and
Medicaid programs or other state-funded programs. Federal and state court
decisions interpreting these statutes are limited, but have generally construed
the statutes to apply if "one purpose" of remuneration is to induce referrals or
other conduct within the statute.
In part to address concerns regarding the anti-kickback statute, the
federal government has promulgated regulations that provide exceptions, or "safe
harbors", for transactions that will be deemed not to violate the anti-kickback
statute. In November, 1999, final regulations were adopted to clarify these safe
harbors and to provide additional safe harbors. Although the Company believes
that it is not in violation of the anti-kickback statute, its operations do not
fit within any of the existing safe harbors. Until 1997, there were no
procedures for obtaining binding interpretations or advisory opinions from the
Health and Human Services Office of the Inspector General
9
<PAGE>
("OIG") on the application of the federal anti-kickback statute to an
arrangement or its qualification for a safe harbor upon which the Company can
rely. However, the Health Insurance Portability and Accountability Act of 1996
requires the Secretary of Health and Human Services to issue written advisory
opinions regarding the applicability of certain aspects of the anti-kickback
statute to specific arrangements or proposed arrangements. Advisory opinions are
binding as to the Secretary and the party requesting the opinion.
The OIG has issued "Fraud Alerts" identifying certain questionable
arrangements and practices which it believes may implicate the federal
anti-kickback statute. The OIG has issued a Fraud Alert providing its views on
certain joint venture and contractual arrangements between healthcare providers.
The OIG also has issued a Fraud Alert concerning prescription drug marketing
practices that could potentially violate the federal anti-kickback statute.
Pharmaceutical marketing activities may implicate the federal anti-kickback
statute because drugs are often reimbursed under the Medicaid program. According
to the Fraud Alert, examples of practices that may implicate the statute include
certain arrangements under which remuneration is made to pharmacists to
recommend the use of a particular pharmaceutical product. In addition, a number
of states have recently undertaken enforcement actions against pharmaceutical
manufacturers involving pharmaceutical marketing programs, including programs
containing incentives to pharmacists to dispense one particular product rather
than another. These enforcement actions arise under state consumer protection
laws which generally prohibit false advertising, deceptive trade practices and
the like. Further, a number of the states involved in these enforcement actions
have requested that the FDA exercise greater regulatory oversight in the area of
pharmaceutical promotional activities by pharmacists. It is not possible to
determine whether the FDA will act in this regard or what effect, if any, FDA
involvement would have on the Company's operations.
Significant prohibitions against physician referrals were enacted by
Congress in 1993. These prohibitions, commonly known as "Stark II," amended
prior physician self-referral legislation known as "Stark I" by dramatically
enlarging the field of physician-owned or physician-interested entities to which
the referral prohibitions apply. Effective on January 1, 1995, Stark II
prohibits a physician from referring Medicare or Medicaid patients to an entity
providing "designated health services" in which the physician has an ownership
or investment interest, or with which the physician has entered into a
compensation arrangement. Stark II also prohibits the entity from billing the
government for services rendered pursuant to a prohibited referral. The
designated health services include clinical laboratory services, radiology
services, radiation therapy services and supplies, physical and occupational
therapy services, durable medical equipment and supplies, parenteral and enteral
nutrients, equipment and supplies, prosthetic devices, orthotics and
prosthetics, outpatient prescription drugs, home health services, and inpatient
and outpatient hospital services. The penalties for violating Stark II include a
prohibition on payment by these government programs, civil penalties of as much
as $15,000 for each violative referral and $100,000 for participation in a
"circumvention scheme", and exclusion from further participation in Medicare or
Medicaid.
In January, 1998, the HCFA published proposed regulations implementing
Stark II. The proposed rules provide interpretations of the Stark II provisions,
some of which are more restrictive than previously assumed. As of the date
hereof, it is impossible to predict when the proposed rules will be published in
final form or what changes may be made to the rules before they are finalized.
The financial or other impact of the anti-referral provisions of Stark II on the
Company cannot be determined.
Since the mid-1990s, federal regulatory and law enforcement authorities
have increased enforcement activities with respect to Medicare and Medicaid
fraud and abuse regulations and other reimbursement laws and rules, including
laws and regulations that govern the activities of many of the Company's
customers. There can be no assurance that increased enforcement activities will
not indirectly have a material adverse effect on the Company.
OTHER REGULATORY ISSUES. Certain states have adopted, or are
considering adopting, restrictions similar to those contained in the federal
anti-kickback and physician self-referral laws. Although the Company believes
that its operations do not violate applicable state laws, there can be no
assurance that state regulatory authorities will not challenge the Company's
activities under such laws or challenge the dispensing of patient-specific,
self-injectable biopharmaceuticals by the Company as being subject to state laws
regulating out-of-state pharmacies.
The Company believes that its pharmacy practices and its contract
arrangements with other healthcare providers and pharmaceutical suppliers are in
compliance with these laws. To address the risks presented by such laws, the
Company has appointed an employee trained as a lawyer as Vice President of
Administration, arranged for
10
<PAGE>
compliance reviews conducted by outside advisors and implemented an ethics and
corporate compliance program. There can be no assurance that such laws will not,
however, be interpreted in the future in a manner inconsistent with the
Company's interpretation and application.
REIMBURSEMENT
A substantial portion of the sales of Priority Healthcare Pharmacy is
derived from third-party payors, including private insurers and managed care
organizations such as HMOs and PPOs. Similar to other medical service providers,
the Company experiences lengthy reimbursement collection periods as a result of
third party payment procedures. Consequently, management of accounts receivable
through effective patient registration, billing, collection and reimbursement
procedures is critical to financial success.
Private payors typically reimburse a higher amount for a given service
and provide a broader range of benefits than governmental payors, although net
revenue and gross profits from private payors have been affected by the
continuing efforts to contain or reduce the costs of healthcare. A portion of
the Company's revenue has been derived in recent years from agreements with
HMOs, PPOs and other managed care providers. Although these agreements often
provide for negotiated reimbursement at reduced rates, they generally result in
lower bad debts, provide for faster payment terms and provide opportunities to
generate greater volumes than traditional indemnity referrals.
In 1999, the Company's revenues included no reimbursement from Medicare
and Medicaid. Nevertheless, due to the reliance of office-based oncologists and
renal dialysis clinics on Medicare and Medicaid reimbursement, changes in such
governmental programs could have a material effect on the Company's financial
condition and results of operations.
Because the Medicare program represents a substantial portion of the
federal budget, Congress takes action in almost every legislative session to
modify the Medicare program for the purpose of reducing the amounts otherwise
payable from the program to healthcare providers. Legislation or regulations may
be enacted in the future that may significantly modify the end stage renal
dialysis program or substantially reduce the amount paid for dialysis or
oncology treatments. Further, statutes or regulations may be adopted which
impose additional requirements in order for the Company's customers to be
eligible to participate in the federal and state payment programs. Such new
legislation or regulations could adversely affect the Company's business
operations.
Additionally, the Balanced Budget Act of 1997 (the "Budget Act"), which
was enacted in August 1997, contained numerous provisions related to Medicare
and Medicaid reimbursement. While very complicated, the general thrust of the
provisions dealing with Medicare and Medicaid contained in the Budget Act is
intended to significantly slow the growth in Medicare spending. The Budget Act
contains changes to reimbursement rates for certain Medicare and Medicaid
covered services, as well as certain limitations on the coverage of such
services. Although the Company's revenues in 1999 included no reimbursement from
Medicare and Medicaid, the Budget Act may affect the Company's suppliers and
customers, which in turn could have an adverse effect on the Company.
In addition, the Company expects that private payors will continue
their efforts to contain or reduce healthcare costs through reductions in
reimbursement rates or other cost-containment measures. The continuation of such
efforts could have a material adverse effect on the Company's financial
condition and results of operations.
EMPLOYEES
At December 31, 1999, the Company had approximately 225 full-time
equivalent employees. None of the Company's employees is currently represented
by a labor union or other labor organization. Approximately 8% of the employees
are pharmacists or nurses. The Company believes that its relationship with its
employees is good.
11
<PAGE>
ITEM 2. PROPERTIES.
The Company's headquarters and a specialty pharmacy facility are
located in Lake Mary, Florida, and consist of approximately 46,500 square feet
of space leased through December 2004. 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. Priority Healthcare Pharmacy has a 1,500 square foot
specialty pharmacy and administrative office in Philadelphia, Pennsylvania,
which is leased through April 2004.
The Company's distribution centers have been constructed or adapted to
the Company's specifications for climate control, alarm systems and, where
required, segregated security areas for controlled substances.
Overall, the Company believes that its facilities are suitable and
adequate for its current needs, and for projected internal growth through at
least 2001.
ITEM 3. LEGAL PROCEEDINGS.
IV-1, Inc. ("IV-1") and IV-One Services, Inc. ("IV-One Services")
(which was merged into IV-1 on December 31, 1998) have been named as defendants
in a second amended counterclaim filed by Amgen, Inc. ("Amgen") on May 14, 1996,
in the Circuit Court of the Eighteenth Judicial District of Seminole County,
Florida. Amgen has asserted that these entities tortiously interfered with a
license agreement (the "License Agreement") between Amgen and Ortho
Pharmaceutical Corporation ("Ortho"). Pursuant to this agreement, Amgen licensed
Ortho to sell EPO for use in the treatment of non-dialysis patients, while Amgen
reserved the exclusive right to sell EPO for use in the treatment of dialysis
patients. Amgen has asserted that, prior to the purchase of IV-1 and IV-One
Services by the Company, these entities induced Ortho to sell EPO to them for
resale in the dialysis market in contravention of the License Agreement. Amgen
has also alleged that IV-1 and IV-One Services were involved in a civil
conspiracy to circumvent the terms of the License Agreement to allow the resale
of EPO to the dialysis market. Furthermore, Amgen has asserted unfair
competition claims against IV-1, including that IV-1 manufactured and
distributed unapproved prefilled syringes of EPO and another product
manufactured by Amgen in container systems unapproved by Amgen. Amgen did not
specify a time frame for the acts complained of in the civil conspiracy and
unfair competition allegations. In each count, Amgen has demanded an unspecified
amount of compensatory damages, including costs and interest.
The Company believes that the sellers of IV-1, IV-One Services and
Charise Charles are contractually obligated to provide legal defense and to
indemnify the Company for losses and liabilities with respect to this
litigation, to the extent that the alleged acts occurred prior to the purchase
of such entities by the Company. To date, the sellers have provided the legal
defense for IV-1 and IV-One Services in the litigation. Indemnification from the
sellers of IV-1 and IV-One Services is limited to no more than $1.5 million and
indemnification from the sellers of Charise Charles is limited to no more than
$2.0 million. As of December 31, 1999, approximately $161,000 of charges have
been incurred on behalf of the sellers for claims for indemnification to be
submitted to the sellers. The Company does not expect the Amgen litigation to be
material to the Company's results of operations, financial condition or cash
flows; however, no assurance can be given that this litigation will not have a
material adverse effect on the Company. In addition, Amgen is the Company's
largest supplier. Consequently, this litigation presents the risk of adversely
affecting the Company's business relationship with Amgen, which could have a
material adverse effect on the Company.
The Company is also subject to ordinary and routine lawsuits and
governmental inspections, investigations and proceedings incidental to its
business, none of which is expected to be material to the Company's results of
operations, financial condition or cash flows.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of security holders
during the fourth quarter of 1999.
EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE POSITION
------------------ --- ------------------------------------------
William E. Bindley 59 Chairman of the Board
Robert L. Myers 54 President, Chief Executive Officer and
Director
Steven D. Cosler 44 Executive Vice President and Chief
Operating Officer and Director
Donald J. Perfetto 53 Executive Vice President, Chief Financial
Officer, Treasurer and Director
Guy F. Bryant 41 Executive Vice President and Chief
Marketing Officer
Melissa E. McIntyre 39 Vice President--Clinical Services
Barbara J. Luttrell 59 Vice President--Administration
William M. Woodard 41 Vice President--Strategic Alliances
WILLIAM E. BINDLEY is the Chairman of the Board, Chief Executive
Officer and President of BWI, positions he has held since founding BWI in 1968.
He is also a director of BWI and Shoe Carnival, Inc., a shoe retailer. Mr.
Bindley was the Chief Executive Officer of the Company from July 1994 until May
1997 and the President of the Company from May 1996 until July 1996. He has
served as a director of the Company since June 1994.
ROBERT L. MYERS has been the President of the Company since July 1996
and the Chief Executive Officer of the Company since May 1997. From July 1996 to
May 1997, he was the Chief Operating Officer of the Company. From June 1995
through June 1996, Mr. Myers was a consultant to the healthcare industry. From
1971 to June 1995, he was employed by Eckerd Corporation, a retail drug store
chain, where he served as a corporate officer from 1981 through 1995 and as
senior vice president of pharmacy from 1990 to 1995. Mr. Myers has served as a
director of the Company since May 1997. Mr. Myers is a registered pharmacist.
STEVEN D. COSLER became Executive Vice President and Chief Operating
Officer in January 2000. From August 1997 to January 2000 he was Executive Vice
President--Priority Pharmacy Services. Prior to that time and since July 1996,
he was Senior Vice President and General Manager of Priority Healthcare Services
Corporation, a subsidiary of BWI. From April 1992 to October 1995, he was senior
vice president of Coresource, a managed care and third party administrator. From
November 1995 to June 1996, Mr. Cosler performed independent consulting
services. Mr. Cosler has served as a director of the Company since February
2000.
DONALD J. PERFETTO became Executive Vice President in November 1998.
Prior to that time and since June 1997 he was a Vice President. Mr. Perfetto
also has served as Chief Financial Officer and Treasurer of the Company since
June 1997. From 1986 to May 1997, he was employed by Bimeco, Inc., a distributor
of medical products. During such time, Mr. Perfetto held the positions of vice
president of finance and operations and secretary/treasurer of Bimeco, Inc. Mr.
Perfetto has served as a director of the Company since February 1999.
GUY F. BRYANT serves as the Executive Vice President and Chief
Marketing Officer, a position that he has held since January 2000. From
September 1995 to January 2000 he was Executive Vice President--Priority
Healthcare Distribution. Prior to joining the Company, he was employed in sales
and general management positions by Major Pharmaceuticals, a distributor of
generic pharmaceuticals, since September 1992 and was vice president of sales
from August 1994 to August 1995.
13
<PAGE>
MELISSA E. MCINTYRE, RN, OCN, is the Vice President--Clinical Services
of the Company, a position that she has held since August 1997. She has also
held various positions with subsidiaries of the Company since June 1994. Prior
to joining the Company, and since June 1991, she was employed by Intracare, an
outpatient infusion center, as clinical director of nursing.
BARBARA J. LUTTRELL is the Vice President--Administration of the
Company, a position she has held since May 1997. Prior to joining the Company in
January 1997, she was employed by Physician's Alliance, a physician group, as
director of human resources since September 1996. She attended law school from
May 1993 to December 1995 and practiced as an attorney from May 1996 to
September 1996. From December 1995 to May 1996, Ms. Luttrell prepared for the
bar examination. Ms. Luttrell has 16 years of experience in human resource
management.
WILLIAM M. WOODARD has held the positions of Vice President--Strategic
Alliances or Vice President--Marketing of the Company since May 1997. Prior to
such time, Mr. Woodard held various positions with subsidiaries of the Company.
The above information includes business experience during the past five
years for each of the Company's executive officers. Executive officers of the
Company serve at the discretion of the Board of Directors. There is no family
relationship between any of the Directors or executive officers of the Company.
(Pursuant to General Instruction G(3) of Form 10-K, the foregoing
information regarding executive officers is included as an unnumbered Item in
Part I of this Annual Report in lieu of being included in the Company's Proxy
Statement for its 2000 Annual Meeting of Shareholders.)
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET PRICES
The Company's Class B Common Stock trades on The Nasdaq Stock Market
("Nasdaq") under the symbol PHCC. On May 4, 1999, a 3-for-2 stock split of the
Company's Common Stock was effected in the form of a stock dividend to
shareholders of record at the close of business on April 20, 1999. The prices
set forth below, adjusted to reflect retroactively the May 1999 stock split,
reflect the high and low sales prices for the Company's Class B Common Stock as
reported by Nasdaq for the years ended December 31, 1998 and December 31, 1999.
As of March 3, 2000, there were 87 holders of record of the Company's Class B
Common Stock.
HIGH LOW
----- -----
1998:
First Quarter 12.17 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 42.75 29.58
Third Quarter 48.75 22.63
Fourth Quarter 30.75 19.13
The Company's Class A Common Stock is not listed for trading. However,
because the Class A Common Stock is automatically converted into Class B Common
Stock upon transfer (except in limited circumstances), the Class A Common Stock
is freely tradable except by affiliates of the Company. As of March 3, 2000,
there were 715 holders of record of the Company's Class A Common Stock.
DIVIDENDS
The Company does not intend to pay cash dividends on its Common Stock
in the foreseeable future, but rather intends to use future earnings principally
to support operations and to finance expansion and possible acquisitions. The
payment of cash dividends in the future will be at the discretion of the
Company's Board of Directors and will depend on a number of factors, including
the Company's financial condition, capital requirements, future business
prospects, the terms of any documents governing indebtedness of the Company, and
such other factors as the Board of Directors of the Company may deem relevant.
Subject to the terms of any preferred stock created by the Company's Board of
Directors, each outstanding share of Common Stock will be entitled equally to
such dividends as may be declared from time to time by the Board of Directors.
SALES OF UNREGISTERED SECURITIES
The following information is furnished as to securities of the Company
sold during 1999 that were not registered under the Securities Act of 1933, as
amended (the "Securities Act").
(a) On October 13, 1999, the Company issued 1,212 shares of Class B
Common Stock to its four non-employee Directors as the stock
portion of their annual retainer.
(b) On September 10, 1999, the Company issued 6,530 shares of Class B
Common Stock to Monitors Unlimited, Inc.
(c) On May 4, 1999, all of the 12,578,973 shares of the Company's
Common Stock outstanding on the record date of April 20, 1999 were
split on a 3-for-2 basis, paid as a stock dividend.
The transactions described in paragraphs (a) and (b) above are exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) thereof.
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<PAGE>
The transaction described in paragraph (c) above was exempt from the
registration requirements of the Securities Act because it did not involve a
"sale" of a security within the meaning of Section 2(3) of the Securities Act.
USE OF PROCEEDS
The Company's Registration Statement on Form S-1 (File No. 333-34463)
was declared effective on October 23, 1997. The Company registered 3,450,000
shares of Class B Common Stock, all of which were sold in a firm commitment
underwriting at an aggregate offering price to the public of $33,350,000. After
the underwriters' discount of $2,334,500, the Company received proceeds
aggregating $31,015,500 before expenses of the Offering.
Through December 31, 1999, the aggregate amount of expenses incurred
for the Company's account in connection with the issuance and distribution of
its Class B Common Stock was $1,048,000. Included in the offering expenses is
$156,000 that was paid to BWI for services provided by BWI to facilitate the
marketing and sale of the Offering. None of the other expenses were direct or
indirect payments to affiliates.
The net offering proceeds to the Company, after deducting the
underwriters' discount and offering expenses, was $30.0 million. As of December
31, 1999, $16.7 million of the net offering proceeds have been used to repay
indebtedness to BWI, and the balance was used in the Company's stock repurchase
program.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
In 1993, BWI acquired substantially all of the assets of Charise
Charles, Ltd., Inc. Since that time six additional acquisitions were made by or
on behalf of Priority Healthcare Corporation. See "Item 1. Business--Acquisition
History." These acquisitions were accounted for under the purchase method of
accounting and, accordingly, the results of operations of the acquired entities
are included in our financial statements from their respective dates of
acquisition. As a result, period-to-period comparisons of financial position and
results of operations are not necessarily meaningful. The following data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our Consolidated Financial Statements
and related notes included elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997 1998 1999
------------------------------------------------------------------
(000'S OMITTED, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales......................... $ 123,990 $ 158,247 $ 230,982 $ 275,626 $ 427,887
Cost of products sold............. 111,448 141,074 207,755 244,485 375,263
Gross profit...................... 12,542 17,173 23,227 31,141 52,624
Selling, general and
administrative expense.......... 7,836 8,443 10,620 13,989 21,228
Depreciation and
amortization.................... 998 1,009 1,161 1,234 1,290
Earnings from operations.......... 3,708 7,721 11,446 15,918 30,106
Stock option expense.............. -- -- 350 -- --
Interest expense (income), net.... 511 437 887 (916) (3,432)
Earnings before income taxes...... 3,197 7,284 10,209 16,834 33,538
Provision for income taxes........ 1,311 2,915 4,058 6,691 12,844
Net earnings...................... $ 1,886 $ 4,369 $ 6,151 $10,143 $20,694
Earning per share :.... ..........
Basic............ $ .12 $ .29 $ .39 $ .54 $1.02
Diluted.......... $ .12 $ .29 $ .39 $ .54 $1.00
Weighted average
shares outstanding :..........
Basic............ 15,321,429 15,321,429 15,934,411 18,772,974 20,251,703
Diluted.......... 15,321,429 15,321,429 15,939,883 18,854,041 20,767,821
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996 1997 1998 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................. $16,000 $20,792 $57,488 $61,875 $145,770
Receivable from BWI ............. -- -- 5,290 16,517 --
Total assets..................... 41,584 57,220 91,728 107,519 217,704
Payable to BWI................... 3,873 9,290 -- -- --
Long-term obligations............ 751 560 272 -- --
Note payable to BWI.............. -- -- 6,000 -- --
Total liabilities................ 16,553 27,820 31,845 37,478 59,097
Shareholders' equity............. 25,031 29,400 59,883 70,041 158,607
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This discussion and analysis should be read in conjunction with our
Consolidated Financial Statements and related notes included elsewhere in this
report.
INTRODUCTION
Priority Healthcare Corporation was formed in June 1994 to succeed to
the business operations of companies previously acquired by BWI, as described
below. From our formation through our initial public offering ("IPO") on October
24, 1997, we operated as a wholly owned subsidiary of BWI, and procured a number
of services from, and engaged in a number of financial and other transactions
with, BWI. After the IPO, we continued to be controlled by BWI, but operated on
a stand-alone basis. On December 31, 1998, BWI distributed to the holders of BWI
common stock on December 15, 1998 all of the shares of our Class A Common Stock
owned by BWI, making Priority Healthcare Corporation a stand-alone public
company. Accordingly, since the IPO 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 BWI. The financial information included in this
Annual Report on Form 10-K prior to 1999 is not necessarily indicative of our
future results of operations, financial position and cash flows as a stand-alone
public company.
Priority Healthcare Corporation provides specialty pharmaceuticals and
related medical supplies as well as disease treatment services to the
office-based physician, outpatient renal dialysis and homecare markets. Our
operations are derived from the acquisition by BWI of substantially all of the
assets of Charise Charles, a specialty wholesale distributor of oncology and
renal care biopharmaceuticals, in February 1993 and of PRN, a specialty
wholesale distributor of renal care supplies and dialysis equipment, in October
1993. We subsequently acquired 3C, a specialty distributor of acute dialysis
products, in October 1994, IV-1, Inc., IV-One Services, Inc. and National
Pharmacy Providers, Inc., three related companies that provided specialty
pharmacy and related healthcare services, in January 1995, Grove Way Pharmacy, a
vaccine and injectable drug distributor, in August 1997, Pharmacy Plus, Ltd., a
specialty pharmacy, in April 1999, and Monitors Unlimited, Inc., a distributor
in the oral surgery market, in September 1999. These acquisitions were accounted
for under the purchase method of accounting and, accordingly, the results of
operations of the acquired companies are included in our financial statements
from their respective dates of acquisition. As a result, period-to-period
comparisons of financial position and results of operations are not necessarily
meaningful.
The operations of Charise Charles, PRN, 3C, Grove Way Pharmacy and
Monitors Unlimited are now included in our Priority Healthcare Distribution
division, and IV-1, Inc. (which now is named Priority Healthcare Pharmacy, Inc.
and includes the operations of IV-One Services, Inc. and National Pharmacy
Providers, Inc., which merged into IV-1, Inc. on December 31, 1998) and Pharmacy
Plus comprise the Priority Healthcare Pharmacy division. During 1997, 1998 and
1999, Priority Healthcare Distribution represented 92%, 88% and 77% of net
sales, respectively, and Priority Healthcare Pharmacy represented the balance.
Historically, Priority Healthcare Pharmacy has generated substantially higher
margins than Priority Healthcare Distribution and has contributed a significant
portion of our earnings.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
NET SALES. Net sales increased to $427.9 million in 1999 from $275.6
million in 1998, an increase of 55%. The growth reflected primarily the addition
of new customers, new product introductions, additional sales to existing
customers, the acquisitions of Pharmacy Plus, Ltd. and Monitors Unlimited, Inc.
and inflationary price increases.
GROSS PROFIT. Gross profit increased to $52.6 million in 1999 from
$31.1 million in 1998, an increase of 69%. The increase in gross profit
reflected increased sales by both Priority Healthcare Distribution and Priority
Healthcare Pharmacy and the acquisitions of Pharmacy Plus and Monitors
Unlimited. Gross profit as a percentage of net sales increased in 1999 to 12.3%
from 11.3% in 1998. This increase was primarily attributable to the change
18
<PAGE>
in sales mix resulting from the significant increase in sales by Priority
Healthcare Pharmacy which generated higher gross margins than those of Priority
Healthcare Distribution sales. Competition continues to exert pressure on
margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative ("SGA") expense increased to $21.2 million in 1999 from $14.0
million in 1998, an increase of 52%. SGA expense as a percentage of net sales
decreased to 5.0% in 1999 from 5.1% in 1998. Management continually monitors SGA
expense and remains focused on controlling these increases through improved
technology and efficient asset management. The increase in SGA expense reflected
the growth in our business and the acquisitions of Pharmacy Plus and Monitors
Unlimited. The decrease in SGA expense as a percentage of net sales resulted
from the spreading of fixed costs over a larger sales base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization ("D&A)
increased to $1.3 million in 1999 from $1.2 million in 1998, an increase of 5%.
The increase in D&A was primarily the result of depreciation of new equipment,
particularly management information systems, offset, in part, by a decrease in
amortization of intangible assets that became fully amortized.
INTEREST INCOME, NET. Interest income, net, increased to $3.4 million
in 1999 from $916,000 in 1998, an increase of 275%. In 1999, interest income of
$2.8 million was primarily related to amounts earned by investing cash and funds
received from the June and July 1999 secondary public offering of our Class B
Common Stock (the "Secondary Offering") in overnight repurchase agreements with
major financial institutions and in marketable securities, and interest income
of $662,000 was related to loaning funds to BWI. In 1998, interest income of
$348,000 and $1.1 million was primarily related to amounts earned by investing
funds received from the IPO in overnight repurchase agreements with a major
financial institution and loaning funds to BWI, respectively. This interest
income was partially offset by interest expense of $326,000 on the subordinated
note issued to BWI on March 31, 1997 (which was paid September 30, 1998) and
interest expense of $155,000 on the deferred compensation of one of our
executives. The interest income or expense on the loans to or borrowings from
BWI is calculated by applying BWI's average incremental borrowing rate, which
was 5.4% and 6.3% for 1999 and 1998, respectively, to the average outstanding
balances. During 1999 and 1998 the average outstanding loans to BWI were $12.3
million and $16.9 million, respectively.
INCOME TAXES. For the year ended December 31, 1999, we will separately
file consolidated federal and state income tax returns. Through December 31,
1998, we participated in the consolidated federal and state income tax returns
filed by BWI. BWI 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 1999 and 1998 represented 38.3% and 39.7%, respectively, of
earnings before taxes. During 1999, we implemented selected tax strategies which
reduced our effective tax rate.
1998 COMPARED TO 1997
NET SALES. Net sales increased to $275.6 million in 1998 from $231.0
million in 1997, an increase of 19%. The growth reflected primarily the addition
of new customers, new product introductions (including Rebetron), additional
sales to existing customers and, to a lesser extent, the acquisition of Grove
Way Pharmacy and inflationary price increases.
GROSS 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 Distribution and Priority
Healthcare Pharmacy. Gross profit as a percentage of net sales increased in 1998
to 11.3% from 10.1% in 1997. This increase was primarily attributable to the
change in sales mix resulting from 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. SGA expense increased to
$14.0 million in 1998 from $10.6 million in 1997, an increase of 32%. SGA
expense as a percentage of net sales increased to 5.1% in 1998 from 4.6% in
1997. Management continually monitors SGA expense and remains focused on
controlling these increases through improved technology and efficient asset
management. The increase in SGA expense reflected the growth in our business.
The increase in SGA expense as a percentage of net sales resulted from incurring
expenses associated
19
<PAGE>
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. D&A was $1.2 million in both 1998 and
1997.
INTEREST INCOME, NET. Interest income, net, equaled $916,000 in 1998 as
opposed to interest expense, net, which equaled $887,000 in 1997. In 1998,
interest income of $348,000 and $1.1 million was primarily related to amounts
earned by investing funds received from the IPO in overnight repurchase
agreements with a major financial institution and loaning funds to BWI,
respectively. This interest income was partially offset by interest expense of
$326,000 on the subordinated note issued to BWI on March 31, 1997 (which was
paid September 30, 1998) and interest expense of $155,000 on the deferred
compensation of one of our executives. During 1997 the interest expense was
primarily related to borrowings from BWI and $324,000 of interest expense on the
subordinated note issued to BWI. The interest income or expense on the loans to
or borrowings from BWI is calculated by applying BWI's average incremental
borrowing rate, which was 6.3% and 6.4% for 1998 and 1997, respectively, to the
average outstanding balances. During 1998 the average outstanding loans to BWI
were $16.9 million, while in 1997 the average outstanding borrowings from BWI
were $10.3 million.
INCOME TAXES. Through December 31, 1998, we participated in the
consolidated federal and state income tax returns filed by BWI. BWI 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 and
1997 represented 39.7% and 39.8%, respectively, of earnings before taxes.
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, there can be no assurance that we will
not incur some collection loss on major customer accounts receivable in the
future.
We had cash and cash equivalents of $24.8 million, marketable
securities of $56.8 million and working capital of $145.8 million at December
31, 1999. In addition, we have a $10.0 million unsecured line of credit which
has not been used during the two years ended December 31, 1999.
NET CASH PROVIDED BY OPERATING ACTIVITIES. Our operations generated
$3.8 million in cash during 1999. Accounts receivable, net of acquisitions,
increased $31.8 million, primarily to support the increase in sales and the
extension of credit terms to meet competitive conditions. Inventory, net of
acquisitions, increased $6.0 million in 1999 primarily to support the increase
in sales. The $19.9 million increase in accounts payable partially reduced the
cash requirements for accounts receivable; this increase was attributable to the
increase in inventory, the timing of payments and the credit terms negotiated
with vendors. We anticipate that our operations may require cash to fund our
growth. D&A totaled $1.3 million in 1999.
NET CASH USED BY INVESTING ACTIVITIES. In 1999 we purchased $56.8
million of marketable securities with a portion of the funds received from the
Secondary Offering. Effective April 12, 1999, we acquired the majority of the
operating assets of Pharmacy Plus, Ltd., a specialty pharmacy in Philadelphia,
Pennsylvania, for $3.5 million and effective September 2, 1999, we acquired the
majority of the operating assets of Monitors Unlimited, Inc., a distributor in
the oral surgery market, for $1.0 million. In 1999 we purchased $1.6 million in
fixed assets, primarily computer hardware and software, furniture and equipment
for the new corporate facility and transportation equipment. We expect that
capital expenditures during 2000 will be approximately $1.5 million. We
anticipate that these expenditures will relate primarily to the purchase of
computer hardware and software and telecommunications equipment.
20
<PAGE>
NET CASH PROVIDED BY FINANCING ACTIVITIES. In June and July 1999 we
received $96.1 million from our Secondary Offering. We also had advanced excess
cash to BWI on an interest-bearing basis under the terms of a $25.0 million
Revolving Credit Promissory Note which was effective through December 31, 1999.
On December 30, 1999 all outstanding amounts were paid in full on such Note.
During 1999 our receivable from BWI decreased by $16.5 million. Also during 1999
we received proceeds of $2.1 million, including the income tax benefit, from
stock option exercises. From August to December 1999, we purchased treasury
stock for $30.3 million because our management team felt the market undervalued
our stock.
We believe that the net proceeds from the Secondary Offering, cash from
operations and availability under our line of credit will be sufficient to meet
our working capital needs for at least two years.
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.
YEAR 2000 ISSUES
During the past three years, we replaced our hardware and software
systems for reasons other than year 2000 compliance. One software package was
upgraded during 1999 to be year 2000 compliant. The total cumulative costs
relating to the upgrade of our software programs was approximately $75,000.
Year 2000 issues have not had a material adverse effect on our
operations and we believe that we successfully avoided any significant
disruption from the year 2000 issue.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements which represent
our expectations or beliefs, and which involve certain risks and uncertainties,
including but not limited to, changes in interest rates, competitive pressures,
changes in customer mix, financial stability of major customers, investment
procurement opportunities, changes in governmental regulations or the
interpretation thereof and asserted and unasserted claims which could cause
actual results to differ from those in the forward-looking statements. For this
purpose, any statement contained in this report that is not a statement of
historical fact may be deemed to be a forward-looking statement. These
statements by their nature involve substantial risks and uncertainties, certain
of which are beyond our control, and actual results may differ materially
depending on a variety of important factors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our primary exposure to market risk consists of a decline in the market
value of our investments in marketable debt securities as a result of potential
changes in interest rates. Market risk was estimated as the potential decrease
in fair value resulting from a hypothetical 10% increase in interest rates on
securities included in our portfolio, and given the short term maturities of all
of our investments in interest-sensitive securities, this hypothetical fair
value was not materially different from the period end carrying value.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PRIORITY HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(000'S OMITTED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1998 1999
----------------------------------------------
<S> <C> <C> <C>
Net sales ................................. $ 230,982 $ 275,626 $ 427,887
Cost of products sold ..................... 207,755 244,485 375,263
------------ ------------ ------------
Gross profit .............................. 23,227 31,141 52,624
Selling, general and administrative expense 10,620 13,989 21,228
Depreciation and amortization ............. 1,161 1,234 1,290
------------ ------------ ------------
Earnings from operations .................. 11,446 15,918 30,106
Stock option expense ...................... 350 -- --
Interest income (expense), net ............ (887) 916 3,432
------------ ------------ ------------
Earnings before income taxes .............. 10,209 16,834 33,538
------------ ------------ ------------
Provision for income taxes:
Current ......................... 4,495 6,875 13,615
Deferred ........................ (437) (184) (771)
------------ ------------ ------------
4,058 6,691 12,844
------------ ------------ ------------
Net earnings .............................. $ 6,151 $ 10,143 $ 20,694
============ ============ ============
Earnings per share:
Basic ........................... $ .39 $ .54 $ 1.02
Diluted ......................... $ .39 $ .54 $ 1.00
Weighted average shares outstanding:
Basic ............................ 15,934,411 18,772,974 20,251,703
Diluted ......................... 15,939,883 18,854,041 20,767,821
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
PRIORITY HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(000'S OMITTED, EXCEPT SHARE DATA)
DECEMBER 31,
1998 1999
-----------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents ............................................... $ 2 $ 24,814
Marketable securities ................................................... -- 56,795
Receivables, less allowance for doubtful accounts of
$778 and $1,764, respectively ................................ 56,825 88,793
Receivable from BWI ..................................................... 16,517 --
Finished goods inventory ................................................ 24,387 30,920
Deferred income taxes ................................................... 1,145 1,685
Other current assets .................................................... 284 1,860
--------- ---------
99,160 204,867
Fixed assets, net ............................................................ 1,820 2,562
Deferred income taxes ........................................................ -- 38
Other assets ................................................................. -- 469
Intangibles, net ............................................................. 6,539 9,768
--------- ---------
Total assets .................................................. $ 107,519 $ 217,704
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable ........................................................ $ 33,857 $ 53,897
Other current liabilities ............................................... 3,428 5,200
--------- ---------
37,285 59,097
Deferred income taxes ........................................................ 193 --
--------- ---------
Total liabilities ....................................................... 37,478 59,097
--------- ---------
Commitments and contingencies (notes 11 and 13)
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 and 5,241,422 issued and outstanding,
respectively ............................................. 153 52
Class B, $0.01 par value, 40,000,000 shares authorized, (and split
adjusted) 3,452,214 and 16,642,434 issued and outstanding,
respectively ............................................. 35 167
Additional paid in capital ......................................... 52,859 151,036
Retained earnings .................................................. 16,994 37,688
--------- ---------
70,041 188,943
Less: Common stock in treasury (at cost), no shares in 1998
and 1,304,858 shares in 1999 ...................... -- (30,336)
--------- ---------
Total shareholders' equity .................................... 70,041 158,607
--------- ---------
Total liabilities and shareholders' equity .................... $ 107,519 $ 217,704
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
<TABLE>
<CAPTION>
PRIORITY HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
YEARS ENDED DECEMBER 31,
1997 1998 1999
----------------------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income ................................................. $ 6,151 $ 10,143 $ 20,694
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Depreciation and amortization ......................... 1,161 1,234 1,290
Provision for doubtful accounts ....................... 283 221 1,655
Loss on disposal of fixed assets ...................... 126 -- 280
Compensation expense on stock and option grants ....... 365 15 30
Deferred income taxes ................................. (437) (184) (771)
Change in assets and liabilities, net of acquisitions:
Accounts receivable ................................... (13,832) (13,403) (33,499)
Finished goods inventory .............................. (8,554) 695 (6,004)
Trade accounts payable ................................ 5,992 10,677 19,944
Other current assets and liabilities .................. 877 1,018 196
-------- -------- --------
Net cash (used in) provided by operating
activities ......................................... (7,868) 10,416 3,815
-------- -------- --------
Cash flow from investing activities:
Purchase of marketable securities .......................... -- -- (56,795)
Purchase of fixed assets ................................... (727) (825) (1,609)
Proceeds from sale of fixed assets ......................... -- -- 47
Increase in other assets ................................... -- -- (469)
Acquisition of businesses .................................. (250) -- (4,536)
-------- -------- --------
Net cash used in investing activities ................. (977) (825) (63,362)
-------- -------- --------
Cash flow from financing activities:
Net change in amounts due to /from BWI ..................... (14,580) (11,227) 16,517
Repayment of subordinated note payable to BWI .............. -- 6,000) --
Payments on long-term obligations .......................... (288) (272) --
Proceeds from stock option exercises and related tax
benefit .................................................. -- -- 2,105
Payments for purchase of treasury stock .................... -- -- (30,336)
Proceeds from secondary stock offering, net ................ -- -- 96,073
Proceeds from initial public offering, net ................. 29,967 -- --
-------- -------- --------
Net cash provided by (used in) financing
activities ......................................... 15,099 (17,499) 84,359
-------- -------- --------
Net increase (decrease) in cash ................................. 6,254 (7,908) 24,812
Cash and cash equivalents at beginning of period ................ 1,656 7,910 2
-------- -------- --------
Cash and cash equivalents at end of period ...................... $ 7,910 $ 2 $ 24,814
======== ======== ========
Supplemental cash flow information:
Interest paid .............................................. $ 1,040 $ 361 $ --
Income taxes paid .......................................... $ 4,495 $ 6,875 $ 14,085
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
PRIORITY HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(000'S OMITTED, EXCEPT SHARE DATA)
CLASS A COMMON STOCK CLASS B COMMON STOCK CLASS B COMMON STOCK
-------------------------- ----------------------- -----------------------
SHARES SHARES TREASURY
OUTSTANDING AMOUNT OUTSTANDING AMOUNT SHARES AMOUNT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 ............... 15,321,429 $ 153 -- $ -- -- $ --
Net earnings .............................
Dividend to BWI ..........................
Issuance of Class B common stock:
Initial public offering ........... 3,450,000 35
Board of Directors' compensation .. 1,383
Stock option grant .......................
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1997 ............... 15,321,429 153 3,451,383 35 -- --
Net earnings .............................
Issuance of Class B common stock:
Board of Directors' compensation . 831
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1998 ............... 15,321,429 153 3,452,214 35 -- --
Net earnings .............................
Issuance of Class B common stock:
Secondary public offering ........ 2,990,000 30
Stock option exercises and related
tax benefit ........... 130,560 1
Board of Directors' compensation . 1,212
Repurchase of common stock ....... (1,304,858) (30,336)
Conversions from Class A ......... (10,080,007) (101) 10,068,448 101
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1999 ............... 5,241,422 $ 52 16,642,434 $ 167 (1,304,858) $ (30,336)
=========== =========== =========== =========== =========== ===========
ADDITIONAL
PAID IN RETAINED SHAREHOLDERS'
CAPITAL EARNINGS EQUITY
----------- ----------- -------------
<S> <C> <C> <C>
Balances at December 31, 1996 ............... $ 22,547 $ 6,700 $ 29,400
Net earnings ............................. 6,151 6,151
Dividend to BWI .......................... (6,000) (6,000)
Issuance of Class B common stock:
Initial public offering ........... 29,932 29,967
Board of Directors' compensation .. 15 15
Stock option grant ....................... 350 350
----------- ----------- -----------
Balances at December 31, 1997 ............... 52,844 6,851 59,883
Net earnings ............................. 10,143 10,143
Issuance of Class B common stock:
Board of Directors' compensation . 15 15
----------- ----------- -----------
Balances at December 31, 1998 ............... 52,859 16,994 70,041
Net earnings ............................. 20,694 20,694
Issuance of Class B common stock:
Secondary public offering ........ 96,043 96,073
Stock option exercises and related
tax benefit ........... 2,104 2,105
Board of Directors' compensation . 30 30
Repurchase of common stock ....... (30,336)
Conversions from Class A ......... --
----------- ----------- -----------
Balances at December 31, 1999 ............... $ 151,036 $ 37,688 $ 158,607
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<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. ("BWI") on June 23, 1994, as an
Indiana corporation to focus on the distribution of products and provision of
services to the "alternate site" segment of the healthcare industry. The Company
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.
See discussions regarding recapitalization and distribution of the Class A
Common Stock owned by BWI in Note 10--Capital Stock.
During 1997 and 1998 the consolidated financial statements of the Company
included certain allocations of corporate overhead and other expenses incurred
by BWI on behalf of the Company. These expenses and the basis of allocations are
discussed in Note 2--Related Party Transactions. The Company's financial
statements during 1997 and 1998 are not necessarily indicative of the results
the Company would have reported had it existed as a stand-alone public entity,
or of the financial position, results of operations and cash flows of the
Company in the future.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION. Revenues are recognized when products are shipped to
unaffiliated customers with appropriate provisions recorded for estimated
discounts and allowances.
CASH AND CASH EQUIVALENTS. The Company considers all investments with an
original maturity of less than 3 months to be a cash equivalent.
MARKETABLE SECURITIES. In accordance with provisions of Statement of
Financial Accounting Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," the Company has classified all of its investments
in marketable securities as available-for-sale. These investments are stated at
their market value, with any unrealized holding gains or losses, net of tax,
included as a component of shareholders' equity until realized. The cost of debt
securities classified as available-for-sale is adjusted for amortization of
premiums and accretion of discounts to maturity. Interest income is included as
a component of current earnings.
RECEIVABLES. Receivables are presented net of the allowance for doubtful
accounts. Receivables include trade and patient account receivables and the
current portion of trade receivables that have been converted to notes
receivable.
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:
ESTIMATED
USEFUL LIFE
(YEARS)
-----------
Furnishings........................... 5
Leasehold improvements................ 5-12
Transportation and other equipment.... 3-5
26
<PAGE>
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, 1998 and December 31, 1999, management has determined
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. At December
31, 1998 and December 31, 1999, management has determined no impairments
existed. Goodwill is being amortized on the straight-line method, principally
over 20 to 40 years. Other intangibles are being amortized on the straight-line
method over 4 to 15 years.
EARNINGS PER SHARE. Historical earnings per share. Basic earnings per share
is computed by dividing net income by the weighted average of Class A and Class
B shares outstanding for the period. Diluted earnings per share computations
assume outstanding stock options with a dilutive effect on earnings were
exercised. These common stock equivalents are added to the weighted average
number of shares outstanding in the diluted calculation. A reconciliation of the
basic and diluted weighted average shares outstanding is as follows for the
years ended December 31:
<TABLE>
<CAPTION>
(In Thousands)
1997 1998 1999
------- ------- ------
<S> <C> <C> <C>
Weighted average number of Class A and Class B
Common shares outstanding used as the denominator
in the basic earnings per share calculation 15,934 18,773 20,252
Additional shares assuming exercise of dilutive
stock options 6 81 516
------- ------- ------
Weighted average number of Class A and Class B
Common and equivalent shares used as the denominator
in the diluted earnings per share calculation 15,940 18,854 20,768
====== ====== ======
</TABLE>
Unaudited pro forma earnings per share. Unaudited pro forma earnings per
share was $0.36 for the year ended December 31, 1997, and was calculated by
dividing pro forma net earnings of $6,248,000 by pro forma average shares
outstanding of 17,145,343. The pro forma adjustments to reported net earnings
reflect, on a net of tax basis (i) additional legal, audit, risk management and
administrative costs required to present the Company as if it had operated as a
stand-alone public company for all of 1997, (ii) the elimination of the interest
expense associated with the Company's payable to BWI, which was liquidated with
proceeds from the IPO and (iii) three months of additional interest expense on
the $6.0 million note payable on the dividend to BWI, as if it was outstanding
as of January 1, 1997. The pro forma average shares outstanding amount includes
an incremental number of Class B shares required to be issued to liquidate the
payable to BWI. This amount was calculated by dividing the average balance of
the payable to BWI from January 1, 1997 through the IPO date by the net proceeds
per share from the IPO.
INCOME TAXES. For the year ended December 31, 1999, the Company will
separately file consolidated federal and state income tax returns. Through
December 31, 1998, the Company participated in the consolidated federal and
state income tax returns filed by BWI. The Company was charged by BWI for
federal and state income tax expense as if the Company filed its own separate
federal and state income tax returns.
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.
27
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying values of cash and cash
equivalents, marketable securities, accounts receivable, receivable from BWI,
other current assets, accounts payable and other current liabilities approximate
their fair market values due to the short-term maturity of these instruments.
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 3,000,000 shares of Class B Common Stock. An additional 450,000
shares of Class B Common Stock were sold on November 25, 1997 pursuant to the
exercise of the underwriters' overallotment option. Prior to the IPO, the
Company was a wholly-owned subsidiary of BWI. After the IPO, BWI owned over 80%
of the Company's outstanding capital stock. On October 23, 1998, the Board of
Directors of BWI declared a distribution payable on December 31, 1998 to the
holders of BWI common stock of the 15,321,429 shares of Priority Class A Common
Stock owned by BWI on the basis of .448 shares of Priority Class A Common Stock
for each share of BWI common stock outstanding on December 15, 1998, which was
the record date for the Distribution. The fraction of a share of Priority Class
A Common Stock that was distributed for each share of BWI Common Stock was based
upon the 10,214,286 shares of Priority Class A Common Stock owned by BWI divided
by the 22,782,545 shares of BWI Common Stock outstanding on the record date. The
Company and BWI have entered into certain related party transactions which are
described below. Had the Company operated as a stand-alone, non-public entity
for all periods presented, management believes the costs and expenses incurred
by the Company would not have differed materially from those reported in the
financial statements. In addition, the Company participated in the BWI profit
sharing plan, as discussed in Note 9--Profit Sharing Plan, through December 31,
1998.
BWI provided management and consulting services to the Company which
included, but were not limited to, legal, human resources, payroll and tax. The
Company was charged $65,000 during each of the years ended December 31, 1997 and
1998 for such services. These amounts were based on an allocation of the actual
services rendered by BWI and were calculated in a manner considered reasonable
by management.
The Company was also provided certain coverage under the BWI insurance
plans. These expenses were charged to the Company based on a combination of a
pro rata allocation and the push-down of actual expenses incurred, depending on
the type of expenditure. These methods are considered reasonable by management.
This insurance expense was $151,000 and $163,000 for 1997 and 1998,
respectively.
At December 31, 1998, BWI owed the Company $16.5 million. This amount was
due on demand and represented loans of excess cash balances of the Company to
BWI on a short-term, interest-bearing basis. The amount was collected during
1999. In 1997 (until the October 24, 1997 date of the IPO), the Company borrowed
from BWI to finance its operations, those borrowings offset in part by cash
collections from operations that were transferred to BWI. Net interest expense
attributable to those borrowings from BWI was $605,000 (net of $66,000 of
interest income) in 1997. Interest income attributable to loans to BWI was $1.1
million and $662,000 for 1998 and 1999, respectively. These amounts were
calculated by applying BWI's average incremental borrowing rate, which was 6.4%,
6.3% and 5.4% for 1997, 1998 and 1999, respectively, to the average outstanding
balances. During 1997 the average outstanding borrowings from BWI were $10.3
million. During 1998 and 1999 the average outstanding loans to BWI were $16.9
million and $12.3 million, respectively.
On March 31, 1997, the Company declared and paid a dividend to BWI in the
form of a $6.0 million subordinated promissory note that was to become due on
March 31, 1999. The Company paid the note on September 30, 1998. The note
carried an interest rate of 7.25% per annum. For 1997 and 1998, interest expense
associated with this note totaled $324,000 and $326,000, respectively.
For 1997 and 1998, intercompany purchases of inventory from BWI (at the
price paid by BWI) totaled $2.0 million and $6.0 million, respectively. In 1999
purchases of inventory from BWI totaled $18.1 million and sales of inventory to
BWI totaled $6.8 million.
Certain employees of the Company were granted options to purchase BWI stock
under a BWI stock option plan. 155,750 and 15,000 such options were granted by
BWI to Company employees in 1996 and 1997 (prior to the
28
<PAGE>
IPO), respectively, with exercise prices equal to the market price of the BWI
stock at the date of grant. No compensation expense was recognized on any BWI
option grants pursuant to Accounting Principles Board Opinion 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, 1997 and 1998 would have decreased
$377,000 and $54,000 , respectively, on a pro forma basis. See Note 10--Capital
Stock for a calculation of pro forma earnings per share required by SFAS No.
123. The weighted average fair value of each 1996 and 1997 BWI option granted of
$6.04 and $7.21, respectively, was estimated using the Black-Scholes option
pricing model, and certain assumptions relevant to those BWI options and the
underlying BWI common stock. On December 31, 1998, the unvested BWI stock
options were converted to options to purchase shares of Class B Common Stock of
the Company. See Note 10--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 the pre-acquisition period in 1997 were not
material to the Company's consolidated sales and net earnings.
On April 12, 1999, the Company completed an acquisition of the majority of
the operating assets of Pharmacy Plus, Ltd., a specialty pharmacy in
Philadelphia, Pennsylvania, that primarily provides injectable
biopharmaceuticals. The acquisition was accounted for using the purchase method
of accounting and the results of operations are included in the consolidated
financial statements subsequent to the date of acquisition. The total purchase
price for the Pharmacy Plus, Ltd. assets was approximately $3.5 million, which
included approximately $450,000 for inventory and fixed assets and resulted in
approximately $3.0 million of goodwill. No indebtedness was assumed. The results
of operations of Pharmacy Plus, Ltd. would not have been material to the results
of the Company for the periods presented in these financial statements.
On September 2, 1999, the Company completed an acquisition of the majority
of the operating assets of Monitors Unlimited, Inc., a distributor in the oral
surgery market. The acquisition was accounted for using the purchase method of
accounting and the results of operations are included in the consolidated
financial statements subsequent to the date of acquisition. The total purchase
price for the Monitors Unlimited, Inc. assets was approximately $1.0 million,
which included approximately $245,000 for inventory and accounts receivable,
approximately $95,000 in assumed accounts payable debt, and resulted in
approximately $850,000 of goodwill. Additionally, contingent on related sales
volume during the third quarter of 2000, up to $200,000 of the Company's Class B
Common Stock may be payable to the sellers of Monitors Unlimited, Inc. The stock
is now being held in escrow. The results of operations of Monitors Unlimited,
Inc. would not have been material to the results of the Company for the periods
presented in these financial statements.
NOTE 4--MARKETABLE SECURITIES
Marketable securities are carried on the balance sheet at their market
value. They consist of the following:
DECEMBER 31,
1999
--------------
(IN THOUSANDS)
U.S. Government Agency Securities... $ 51,845
Commercial Paper........................ 4,950
--------
$ 56,795
========
The amortized cost of available-for-sale securities approximated their market
value at December 31, 1999. There were no marketable securities at December 31,
1998. There were no gross realized gains or losses on sales of
available-for-sale securities in 1999. All available-for-sale securities are due
in one year or less.
29
<PAGE>
NOTE 5--FIXED ASSETS
Fixed assets at December 31, 1998 and 1999 consist of the following:
(IN THOUSANDS)
1998 1999
------- -------
Furnishings............................ $ 857 $ 1,083
Leasehold improvements................. 450 176
Transportation and other equipment..... 1,972 2,352
------- -------
3,279 3,611
Less: accumulated depreciation......... (1,459) (1,049)
------- -------
$ 1,820 $ 2,562
======= =======
NOTE 6--INTANGIBLES
Intangibles at December 31, 1998 and 1999 consist of the following:
(IN THOUSANDS)
1998 1999
------- -------
Goodwill........................ $ 6,019 $ 9,911
Accumulated amortization........ (768) (1,040)
------- -------
Goodwill, net................... 5,251 8,871
------- -------
Other........................... 4,001 1,639
Accumulated amortization........ (2,713) (742)
------- -------
Other, net...................... 1,288 897
------- -------
Intangibles, net................ $ 6,539 $ 9,768
======== ========
NOTE 7--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 or 1999. 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
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 8--INCOME TAXES
The provision for income taxes includes state income taxes of $669,000,
$1.1 million and $1.5 million in 1997, 1998 and 1999, respectively.
30
<PAGE>
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,
-----------------------
1997 1998 1999
---- ---- ----
<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% 4.2% 3.2%
Other.................................................... 0.5% 0.5% .1%
----- ---- ---
Effective rate................................................ 39.8% 39.7% 38.3%
==== ==== ====
</TABLE>
Presented below are the significant elements of the net deferred tax balance
sheet accounts at December 31, 1998 and 1999:
1998 1999
------- ------
(IN THOUSANDS)
Deferred tax asset:
Receivables............................... $ 635 $ 944
Finished goods inventories................ 223 396
Deferred compensation and stock
option expense ......................... 287 378
Accrued expenses ......................... -- 345
------- ------
Total deferred tax assets............ 1,145 2,063
------- ------
Deferred tax liabilities:
Fixed assets............................... (86) (158)
Intangibles................................ (107) (182)
------- ------
Total deferred tax liabilities....... (193) (340)
------- ------
Total net deferred tax assets........................ 952 1,723
Less current deferred tax assets..................... $ (1,145) (1,685)
------- -------
Deferred tax assets (liabilities).................... $ (193) $ 38
======= ======
NOTE 9--PROFIT SHARING PLAN
The Company's eligible employees participated in the BWI qualified Profit
Sharing Plan ("BWI Plan") through December 31, 1998 at which time the Company
established its own qualified Profit Sharing Plan ("Profit Sharing Plan"). On
February 8, 1999, all employees of the Company and their account balances
transferred from the BWI Plan to the Company's Profit Sharing Plan. All
employees are generally eligible to participate in the Profit Sharing Plan as of
the first January 1, April 1, July 1 or October 1 after having completed at
least three months of service (as defined in the Profit Sharing Plan) and having
reached age 21 ("Participant"). Participants are generally eligible to receive
an annual contribution from the Company after having completed at least one year
of service (as defined in the Profit Sharing Plan) and having reached age 21.
The annual contribution of the Company to the BWI Plan was at the discretion of
the Board of Directors of BWI and for the Profit Sharing Plan is now at the
discretion of the Board of Directors of the Company and is generally 8% of the
Participant's compensation for the year. The employer contribution for a year is
allocated among the Participants employed on the last day of the year in
proportion to their relative compensation for the year. The contribution to the
BWI Plan with respect to the Company which is included as expense in the
statement of earnings for 1997 was $260,000. The contributions to the Profit
Sharing Plan which are included as expense in the statement of earnings for 1998
and 1999 were $394,000 and $350,000, respectively.
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.
31
<PAGE>
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 bank, as
trustee, and are invested by the trustee until distributed to Participants or
their beneficiaries. Participants are permitted to direct the trustee as to the
investment of their accounts by choosing among several investment funds that are
offered, including one fund under the BWI Plan consisting of BWI Common Stock.
Under the Company's Profit Sharing Plan, a Participant may elect to invest in
the Company's Class B Common Stock, but may not make additional investments in
BWI Common Stock. Participants may elect to invest in one fund or a combination
of the available funds according to their investment goals. If a Participant
does not make an investment election, his or her Profit Sharing Plan accounts
will be invested in a fund designated by the Company.
Except in certain cases of financial hardship, a Participant (or his or her
beneficiary) receives his or her interest in the Profit Sharing Plan only at
death, retirement or termination of employment.
NOTE 10--CAPITAL STOCK
On August 25, 1997, the Board of Directors and BWI, as the sole shareholder
of the Company, completed a recapitalization of the Company. Effective on that
date, the Company's capitalization consisted of: (i) 15,000,000 authorized
shares of Class A Common Stock, $0.01 par value, 15,321,429 (split adjusted)
shares of which were issued and outstanding and owned by BWI, (ii) 40,000,000
shares of Class B Common Stock, $0.01 par value (of which 3,450,000 shares were
subsequently issued in an initial public offering described in Note 2--Related
Party Transactions), and (iii) 5,000,000 shares of Preferred Stock, without par
value, none of which are issued and outstanding. This recapitalization has been
given retroactive effect in these consolidated financial statements. The two
classes of Common Stock entitle holders to the same rights and privileges,
except that holders of shares of Class A Common Stock are entitled to three
votes per share on all matters submitted to a vote of holders of Common Stock
and holders of Class B Common Stock are entitled to one vote per share on such
matters. The two classes of Common Stock vote together, as a single class on all
matters except as otherwise required by applicable law.
The Class A Common Stock will automatically be converted into shares of
Class B Common Stock on a share-for-share basis upon any transfer or purported
transfer to any person other than: (i) a dividend or other distribution of the
shares of Class A Common Stock to the shareholders of BWI; or (ii) family
members of the holder of Class A 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
3,000,000 shares of Class B Common Stock. An additional 450,000 shares of Class
B Common Stock were sold on November 25, 1997 pursuant to the exercise of the
underwriters' overallotment option. All shares were issued at an initial price
of $9.67 per share. Net proceeds to the Company, after deducting underwriting
discounts and commissions and other expenses of the offering, was $30.0 million.
On June 10, 1999, the Company consummated a secondary public offering of
2,600,000 shares of Class B Common Stock. An additional 390,000 shares of Class
B Common Stock were sold on July 1, 1999 pursuant to the exercise of the
underwriters' overallotment option. All shares were issued at a price of $34.00
per share. Net proceeds to the Company, after deducting underwriting discounts
and commissions and other expenses of the offering, was $96.1 million.
On August 24, 1999, the Board of Directors approved the purchase of up
to 2,000,000 shares of the Company's outstanding shares of Class B Common Stock.
This purchase was approved through August 23, 2000. As of December 31, 1999,
1,304,858 shares had been purchased at an average price of $23.25 and are
included in treasury stock. The Company purchased the treasury stock because
management felt the market undervalued the stock.
32
<PAGE>
On October 29, 1997 and October 22, 1998, 1,383 and 831 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 October 13, 1999, 1,212
shares of Class B Common Stock was granted to the four 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
$30,000 in 1999.
On December 31, 1998, BWI made a distribution to the holders of BWI Common
Stock of the 15,321,429 shares of Priority Class A Common Stock owned by BWI on
the basis of .448 shares of Priority Class A Common Stock for each share of BWI
Common Stock outstanding on December 15, 1998, which was the Record Date for the
Distribution. The fraction of a share of Priority Class A Common Stock that was
distributed for each share of BWI Common Stock was based upon the number of
shares of Priority Class A Common Stock owned by BWI divided by the number of
shares of BWI Common Stock outstanding on the Record Date.
On 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 the 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. The amounts presented herein give effect to the
stock split as if it had occurred at the beginning of all periods presented.
On August 25, 1997, the Board of Directors and BWI, as sole shareholder of
the Company, adopted the 1997 Stock Option and Incentive Plan (the "1997 Stock
Option Plan"). Under the 1997 Stock Option Plan, the Company may award stock
options and shares of restricted stock to officers, key employees and
consultants of the Company. The aggregate number of shares of Class B Common
Stock that may be awarded under the 1997 Stock Option Plan is 2,875,000, subject
to adjustment in certain events. No individual participant may receive awards
for more than 300,000 shares in any calendar year. Under the 1997 Stock Option
Plan, awards of restricted shares may be made, in which case the grantee would
be granted shares of Class B Common Stock, subject to any determined forfeiture
or transfer restrictions.
The Compensation Committee of the Board of Directors administers the 1997
Stock Option Plan and has the authority to select those officers and key
employees to whom awards will be made, to designate the number of shares to be
covered by each award, to establish vesting schedules, and to specify all other
terms of the awards. With respect to stock options that are intended to qualify
as "incentive stock options" under Section 422 of the Internal Revenue Code, the
option price must be at least 100% (or, in the case of a holder of more than 10%
of the total combined voting power of the Company's stock, 110%) of the fair
market value of a share of Class B Common Stock on the date of the grant of the
stock option. The Compensation Committee will establish the exercise price of
options that do not qualify as incentive stock options ("non-qualified stock
options"). No options may be exercised more than 10 years from the date of
grant, or for such shorter period as the Compensation Committee may determine at
the date of grant. Awards of options and shares of restricted stock as to which
restrictions have not lapsed are not transferable other than pursuant to the
laws of descent and distribution.
On August 25, 1997, the Board of Directors and BWI, as sole shareholder of
the Company, approved the adoption of the Outside Directors Stock Option Plan
(the "Directors Plan"). The Directors Plan reserves for issuance 37,500 shares
of the Company's Class B Common Stock, subject to adjustment in certain events.
Pursuant to the Directors Plan, each non-employee director will be automatically
granted an option to purchase 1,500 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 600,000 shares 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.
33
<PAGE>
The Compensation Committee of the Board of Directors administers the Broad Based
Plan and establishes vesting schedules. Each option expires 10 years following
the date of grant.
In accordance with the provision of SFAS No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123), the Company has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related Interpretations in accounting for its stock
option plans, and accordingly, generally does not recognize compensation expense
related to options granted to employees. If the Company had elected to recognize
compensation expense based on the fair value of the options at the grant date,
whether granted by the Company or by BWI as described in Note 2--Related Party
Transactions, as prescribed by SFAS No. 123, pro forma net income and earnings
would have been:
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
Net earnings - as reported .......... $ 6,151 $ 10,143 $ 20,694
Pro forma impact of
BWI option grants (Note 2) (377) (54) --
Pro forma impact of
Company option grants .... (224) (1,718) (4,049)
-------- -------- --------
Pro forma net earnings .............. $ 5,550 $ 8,371 $ 16,645
======== ======== ========
Pro forma earnings per share:
Basic ........................ $ 0.35 $ 0.45 $ 0.82
Diluted ...................... $ 0.35 $ 0.44 $ 0.80
The fair values of the Company's 1997, 1998 and 1999 option grants were
estimated on the date of grant using the Black-Scholes option pricing model,
with the following weighted average assumptions:
1997 1998 1999
-------- -------- --------
Risk free interest rate .............. 5.90% 5.02% 5.67%
Expected dividend yield .............. .00% .00% .00%
Expected life of options ............. 4.60 4.71 4.87
Volatility of stock price ............ 54.79% 55.94% 57.09%
Weighted average fair value of options $ 5.01 $ 6.43 $16.80
The Board of Directors granted a non-qualified stock option to a consultant
of the Company for 75,000 shares of Class B Common Stock effective at the
closing date of the IPO. This option granted to the consultant of the Company (a
non-employee under SFAS No. 123 and APB 25) resulted in $350,000 of compensation
expense that was recorded by the Company in October, 1997. The compensation
expense was determined based on the fair value of those options at the date of
grant as estimated by using the Black-Scholes option pricing model.
As discussed in Note 2--Related Party Transactions, prior to the IPO,
certain employees of the Company were granted options to purchase BWI stock
under a BWI stock option plan. On December 31, 1998, the unvested BWI stock
options held by these employees were converted to options to purchase 100,549
shares of Class B Common Stock of the Company. No compensation expense was
recorded on the conversion.
34
<PAGE>
Changes in stock options under all of the Company's plans are shown below:
NUMBER OF WEIGHTED AVERAGE
SHARES PRICE PER SHARE
--------- ----------------
Options outstanding at December 31, 1996........ -- --
Forfeited during 1997........................... (20,700) $ 9.67
Granted during 1997............................. 709,575 $ 9.68
Exercised during 1997........................... -- --
----------
Options outstanding at December 31, 1997
(0 shares exercisable).......................... 688,875 $ 9.68
Forfeited during 1998........................... (43,680) $ 10.61
Granted during 1998............................. 802,380 $ 12.43
Exercised during 1998........................... -- --
Converted from BWI during 1998.................. 100,549 $ 9.50
---------
Options outstanding at December 31, 1998
(0 shares exercisable).......................... 1,548,124 $ 11.07
Forfeited during 1999........................... (76,990) $ 19.52
Granted during 1999............................. 983,585 $ 30.89
Exercised during 1999........................... (130,560) $ 9.73
---------
Options outstanding at December 31, 1999
(320,493 shares exercisable).................... 2,324,159 $ 19.25
=========
Available for grant at December 31, 1999........ 1,057,781
=========
Additional information regarding the Company's options outstanding at
December 31, 1999 is shown below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OUTSTANDING REMAINING WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES AT DECEMBER 31, 1999 CONTRACTUAL LIFE EXERCISE PRICE
------------------------ -------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
$ 8.16 to $13.33 1,363,758 8.53 Years $11.11
$25.58 to $35.94 960,401 9.47 Years $30.83
</TABLE>
NOTE 11--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 $812,000 for 2000, $758,000
for 2001, $705,000 for 2002, $651,000 for 2003 and $642,000 for 2004.
The consolidated rent expense for 1997, 1998 and 1999 was $515,000,
$635,000 and $674,000, respectively, of which approximately $89,000 in 1997,
$26,000 in 1998 and $370,000 in 1999 pertained to leases with terms of one year
or less.
NOTE 12--MAJOR CUSTOMERS AND OTHER CONCENTRATIONS
The Company services customers in 50 states and Puerto Rico. For the years
ended December 31, 1997, 1998 and 1999, the Company had one customer, Everest
Healthcare Services Corporation, which accounted for 11%, 12%, and 10%,
respectively, of the Company's revenues. The Company sells goods and services to
its customers on various payment terms which entail accounts receivable
exposure. Although the Company monitors closely the creditworthiness of its
customers, there can be no assurance that the Company will not incur a write-off
or writedown of a significant account in the future.
Product provided by the Company's largest vendor accounted for
approximately 40% of total revenues in 1997, 32% in 1998 and 21% in 1999. In
addition, the sale of one product supplied by this vendor accounted for 35% of
35
<PAGE>
revenues in 1997, 27% in 1998 and 18% in 1999. 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 13--Legal Proceedings. The Company also has another vendor whose products
accounted for approximately 11% of total revenues in 1999.
NOTE 13--LEGAL PROCEEDINGS
IV-1, Inc. ("IV-1") and IV-One Services, Inc. ("IV-One Services") have been
named as defendants in a second amended counterclaim filed by Amgen, Inc.
("Amgen") on May 14, 1996, in the Circuit Court of the Eighteenth Judicial
District of Seminole County, Florida. Amgen has asserted that these entities
tortiously interfered with a license agreement (the "License Agreement") between
Amgen and Ortho Pharmaceutical Corporation ("Ortho"). Pursuant to this
agreement, Amgen licensed Ortho to sell EPO for use in the treatment of
non-dialysis patients, while Amgen reserved the exclusive right to sell EPO for
use in the treatment of dialysis patients. Amgen has asserted that, prior to the
purchase of IV-1 and IV-One Services by the Company, these entities induced
Ortho to sell EPO to them for resale in the dialysis market in contravention of
the License Agreement. Amgen has also alleged that IV-1 and IV-One Services were
involved in a civil conspiracy to circumvent the terms of the License Agreement
to allow the resale of EPO to the dialysis market. Furthermore, Amgen has
asserted unfair competition claims against IV-1, including that IV-1
manufactured and distributed unapproved prefilled syringes of EPO and another
product manufactured by Amgen in container systems unapproved by Amgen. Amgen
did not specify a time frame for the acts complained of in the civil conspiracy
and unfair competition allegations. In each count, Amgen has demanded an
unspecified amount of compensatory damages, including costs and interest.
The Company believes that the sellers of IV-1, IV-One Services and Charise
Charles are contractually obligated to provide legal defense and to indemnify
the Company for losses and liabilities with respect to this litigation, to the
extent that the alleged acts occurred prior to the purchase of such entities by
the Company. To date, the sellers have provided the legal defense for IV-1 and
IV-One Services in the litigation. Indemnification from the sellers of IV-1 and
IV-One Services is limited to no more than $1.5 million and indemnification from
the sellers of Charise Charles is limited to no more than $2.0 million. The
Company does not expect the Amgen litigation to be material to the Company's
results of operations, financial condition or cash flows; however, no assurance
can be given that this litigation will not have a material adverse effect on the
Company's business, financial condition and results of operations. As of
December 31, 1999, approximately $161,000 of charges have been incurred on
behalf of the sellers for claims for indemnification. 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 12--Major Customers and
Other Concentrations.
The Company is also subject to ordinary and routine litigation incidental
to its business, none of which is expected to be material to the Company's
results of operations, financial condition, or cash flows.
On November 14, 1995, an investigator for the Food and Drug Administration
(the "FDA"), accompanied by an inspector from the State of Florida Board of
Pharmacy, inspected the Company's pharmacy in 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 this pharmacy in either
of these inspections.
On March 16, 1992, the FDA issued a Compliance Policy Guide (CPG 460.200),
which explains the criteria the FDA uses to distinguish between pharmacy
operations that are properly regulated under state law and drug manufacturing
regulated by the FDA. The Company's response to the FDA in December 1995 cited
this CPG and explained the Company's contention that, according to the FDA's own
criteria, the facility is a pharmacy properly regulated under state and local
laws.
36
<PAGE>
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.
37
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC 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, 1998
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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
Orlando, Florida
February 22, 2000
38
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with the Company's
independent certified public accountants on accounting or financial disclosures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item concerning the Directors and
nominees for Director of the Company and concerning disclosure of delinquent
filers under Section 16(a) of the Exchange Act is incorporated herein by
reference from the Company's definitive Proxy Statement for its 2000 Annual
Meeting of Shareholders, which will be filed with the Commission pursuant to
Regulation 14A within 120 days after the end of the Company's last fiscal year.
Information concerning the executive officers of the Company is included under
the caption "Executive Officers of the Company" at the end of Part I of this
Annual Report. Such information is incorporated herein by reference, in
accordance with General Instruction G(3) to Form 10-K and Instruction 3 to Item
401(b) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item concerning remuneration of the
Company's officers and Directors and information concerning material
transactions involving such officers and Directors is incorporated herein by
reference from the Company's definitive Proxy Statement for its 2000 Annual
Meeting of Shareholders which will be filed with the Commission pursuant to
Regulation 14A within 120 days after the end of the Company's last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item concerning the stock ownership of
management and five percent beneficial owners is incorporated herein by
reference from the Company's definitive Proxy Statement for its 2000 Annual
Meeting of Shareholders which will be filed with the Commission pursuant to
Regulation 14A within 120 days after the end of the Company's last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item concerning certain relationships
and related transactions is incorporated herein by reference from the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders which
will be filed with the Commission pursuant to Regulation 14A within 120 days
after the end of the Company's last fiscal year.
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
The following consolidated financial statements of
the Company and its subsidiaries are set forth in
Part II, Item 8.
Consolidated Statements of Earnings for the years ended
December 31, 1997, December 31, 1998 and December 31, 1999
Consolidated Balance Sheets as of December 31, 1998 and
December 31, 1999
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, December 31, 1998 and
December 31, 1999
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1997, December 31, 1998
and December 31, 1999
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
2. Financial Statement Schedules:
Financial Statement Schedule II, Valuation and
Qualifying Accounts and Reserves is included. All
other schedules are omitted because they are not
applicable or the required information is shown in
the financial statements or notes thereto.
3. Exhibits:
A list of exhibits required to be filed as part of
this report is set forth in the Index to Exhibits,
which immediately precedes such exhibits, and is
incorporated herein by reference.
(b) Reports on Form 8-K
None
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRIORITY HEALTHCARE CORPORATION
BY: /s/ ROBERT L. MYERS
------------------------
Dated: March 13, 2000 Robert L. Myers
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM E. BINDLEY Chairman of the Board March 13, 2000
------------------------
William E. Bindley
/s/ ROBERT L. MYERS President, Chief Executive Officer and March 13, 2000
------------------------ Director (Principal Executive Officer)
Robert L. Myers
/s/ DONALD J. PERFETTO Chief Financial Officer and Director March 13, 2000
------------------------ (Principal Financial and Accounting
Donald J. Perfetto Officer)
/s/ STEVEN D. COSLER Executive Vice President and Chief March 13, 2000
------------------------- Operating Officer and Director
Steven D. Cosler
/s/ MICHAEL D. MCCORMICK Director March 13, 2000
-------------------------
Michael D. McCormick
/s/ RICHARD W. ROBERSON Director March 13, 2000
-------------------------
Richard W. Roberson
/s/ THOMAS J. SALENTINE Director March 13, 2000
-------------------------
Thomas J. Salentine
/s/ REBECCA M. SHANAHAN Director March 13, 2000
-------------------------
Rebecca M. Shanahan
</TABLE>
41
<PAGE>
PRIORITY HEALTHCARE CORPORATION
FINANCIAL STATEMENT SCHEDULE II -
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(000'S OMITTED)
<TABLE>
<CAPTION>
ACCOUNTS
BALANCES AT CHARGED TO CHARGED TO WRITTEN OFF BALANCES AT
BEGINNING COSTS AND OTHER NET OF END
OF YEAR EXPENSES ACCOUNTS RECOVERIES OF YEAR
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowances for doubtful accounts:
Year ended December 31, 1997............. $ 815 $ 283 $ -- $(696) $ 402
Year ended December 31, 1998............. 402 221 -- 155 778
Year ended December 31, 1999............. 778 1,655 -- (669) 1,764
</TABLE>
42
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and
Shareholders of Priority Healthcare Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 22, 2000, appearing in the Annual Report on Form 10-K also
included an audit of the financial statement schedule listed in Item 14(a)(2) of
this Form 10-K. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Orlando, Florida
February 22, 2000
43
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
- -------- ----------------------------------------------------------------------------------
<S> <C>
3-A (7) Restated Articles of Incorporation of the Registrant.
3-B By-Laws of the Registrant, as amended to date.
4 (8) Loan Agreement By and Between the Registrant (the "Borrower") and
Suntrust Bank, Central Florida, National Association (the "Bank") dated
November 24, 1998.
10-A (1) Administrative Services Agreement between the Registrant and BWI.
10-B (1) Tax Sharing Agreement between the Registrant and BWI.
10-C (1) (i)*1997 Stock Option and Incentive Plan of the Registrant.
(2) (ii)*First Amendment to the 1997 Stock Option and Incentive Plan
of the Registrant.
(9) (iii)*Second Amendment to the 1997 Stock Option and Incentive
Plan of the Registrant.
10-D (1) *Outside Directors Stock Option Plan of the Registrant.
10-E (1) *Termination Benefits Agreement between the Registrant and Robert
L. Myers dated July 1, 1996.
10-F (1) *(i) Employment Agreement between the Registrant and Melissa E.
McIntyre dated June 1, 1997; and (ii) Noncompete Agreement between the
Registrant and Melissa E. McIntyre dated June 1, 1997.
10-G (1) *(i) Employment Agreement between the Registrant and William M.
Woodard dated June 1, 1997; and (ii) Noncompete Agreement between the
Registrant and William M. Woodard dated June 1, 1997.
10-H * Form of Termination Benefits Agreement, dated January 1, 2000,
between the Registrant and each of Messrs. Bryant, Cosler and Perfetto.
10-I Form of Noncompete Agreement, dated January 1, 2000, between the
Registrant and each of Messrs. Bryant, Cosler and Perfetto.
10-L (1) Indemnification and Hold Harmless Agreement between the Registrant
and BWI.
10-M (1) *Consulting Agreement dated as of January 1, 1995, by and among the
Registrant, BWI and Martin A. Nassif.
10-O (3) Revolving Credit Promissory Note by BWI in favor of the Registrant.
10-P (4) *(i)Broad Based Stock Option Plan of the Registrant.
(8) *(ii)First Amendment to the Broad Based Stock Option Plan of the
Registrant.
10-Q (5) *Profit Sharing Plan of Priority Healthcare Corporation and
Subsidiaries.
*(i)First Amendment to the Profit Sharing Plan of Priority
Healthcare Corporation and Affiliates.
*(ii)Second Amendment to the Profit Sharing Plan of Priority
Healthcare Corporation and Affiliates.
10-R (8) *Priority Healthcare Corporation 401(k) Excess Plan.
44
<PAGE>
10-S (8) *(i) Employment Agreement between the Registrant and Guy F. Bryant
dated March 1, 1999; and
(8) (ii) Noncompete Agreement between the Registrant and Guy F. Bryant
dated March 1, 1999.
10-T (8) *(i) Employment Agreement between the Registrant and Steven D.
Cosler dated March 1, 1999; and
(8) (ii) Noncompete Agreement between the Registrant and Steven D.
Cosler dated March 1, 1999.
10-U (8) *(i) Employment Agreement between the Registrant and Donald J.
Perfetto dated March 1, 1999; and
(8) (ii) Noncompete Agreement between the Registrant and Donald J.
Perfetto dated March 1, 1999.
10-V (6) Distribution Agreement, dated as of October 23, 1998, between the
Registrant and Bindley Western Industries, Inc.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants
27 Financial Data Schedule.
</TABLE>
- ----------
* The indicated exhibit is a management contract, compensatory plan or
arrangement required to be filed by Item 601 of Regulation S-K.
(1) The copy of this exhibit filed as the same exhibit number to the
Company's Registration Statement on Form S-1 (Registration No.
333-34463) is incorporated herein by reference.
(2) The copy of this exhibit filed as the same exhibit number to the
Company's Quarterly Report on Form 10- Q for the quarter ended
September 30, 1998 is incorporated herein by reference.
(3) The copy of this exhibit filed as the same exhibit number to the
Company's Quarterly Report on Form 10- Q for the quarter ended June 30,
1998 is incorporated herein by reference.
(4) The copy of this exhibit filed as Exhibit 4.4 to the Company's
Registration Statement on Form S-8 (Registration No. 333-65927) is
incorporated herein by reference.
(5) The copy of this exhibit filed as Exhibit 4.4 to the Company's
Registration Statement on Form S-8 (Registration No. 333-69921) is
incorporated herein by reference.
(6) The copy of this exhibit filed as Exhibit 10 to the Company's Current
Report on Form 8-K, as filed with the Commission on January 4, 1999, is
incorporated herein by reference.
(7) The copy of this exhibit filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (Registration No. 333-82481) is
incorporated herein by reference.
(8) The copy of this exhibit filed as the same exhibit number to the
Company's Annual Report on Form 10-K for the year ended December 31,
1998 is incorporated herein by reference.
(9) The copy of this exhibit filed as Exhibit 4.3(iii) to the Company's
Registration Statement on Form S-8 (Registration No. 333-82481) is
incorporated herein by reference.
45
EXHIBIT 3-B
BY-LAWS
OF
PRIORITY HEALTHCARE CORPORATION
(As Amended February 23, 2000)
ARTICLE I
MEETINGS OF SHAREHOLDERS
SECTION 1.1. ANNUAL MEETINGS. Annual meetings of the shareholders of
the Corporation shall be held on the second Monday of May of each year
commencing in May, 1998, at such hour and at such place within or without the
State of Indiana as shall be designated by the Board of Directors. In the
absence of designation, the meeting shall be held at the principal office of the
Corporation at 11:00 a.m. (local time). The Board of Directors may, by
resolution, change the date or time of such annual meeting. If the day fixed for
any annual meeting of shareholders shall fall on a legal holiday, then such
annual meeting shall be held on the first following day that is not a legal
holiday.
SECTION 1.2. SPECIAL MEETINGS. Special meetings of the shareholders
of the Corporation may be called at any time by the Board of Directors or the
Chairman of the Board and shall be called by the Board of Directors if the
Secretary receives written, dated and signed demands for a special meeting,
describing in reasonable detail the purpose or purposes for which it is to be
held, from the holders of shares representing at least twenty-five percent (25%)
of all votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting; provided, however, that any such demand(s) delivered
to the Secretary at any time at which the Corporation has more than 50
shareholders must be properly delivered by the holders of shares representing at
least eighty percent (80%) of all the votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting. If the Secretary
receives one (1) or more proper written demands for a special meeting of
shareholders, the Board of Directors may set a record date for determining
shareholders entitled to make such demand. The Board of Directors or the
Chairman of the Board, as the case may be, calling a special meeting of
shareholders shall set the date, time and place of such meeting, which may be
held within or without the State of Indiana.
SECTION 1.3. NOTICES. A written notice, stating the date, time, and
place of any meeting of the shareholders, and, in the case of a special meeting,
the purpose or purposes for which such meeting is called, shall be delivered or
mailed by the Secretary of the Corporation, to each shareholder of record of the
Corporation entitled to notice of or to vote at such meeting no fewer than ten
(10) nor more than sixty (60) days before the date of the meeting. In the event
of a special meeting of shareholders required to be called as the result of a
demand therefor made by shareholders, such notice shall be given no later than
the sixtieth (60th) day after the Corporation's
<PAGE>
receipt of the demand requiring the meeting to be called. Notice of
shareholders' meetings, if mailed, shall be mailed, postage prepaid, to each
shareholder at his address shown in the Corporation's current record of
shareholders.
Notice of a meeting of shareholders shall be given to shareholders
not entitled to vote, but only if a purpose for the meeting is to vote on any
amendment to the Corporation's Articles of Incorporation, merger, or share
exchange to which the Corporation would be a party, sale of the Corporation's
assets, dissolution of the Corporation, or consideration of voting rights to be
accorded to shares acquired or to be acquired in a "control share acquisition"
(as such term is defined in the Indiana Business Corporation Law). Except as
required by the foregoing sentence or as otherwise required by the Indiana
Business Corporation Law or the Corporation's Articles of Incorporation, notice
of a meeting of shareholders is required to be given only to shareholders
entitled to vote at the meeting.
A shareholder or his proxy may at any time waive notice of a meeting
if the waiver is in writing and is delivered to the Corporation for inclusion in
the minutes or filing with the Corporation's records. A shareholder's attendance
at a meeting, whether in person or by proxy, (a) waives objection to lack of
notice or defective notice of the meeting, unless the shareholder or his proxy
at the beginning of the meeting objects to holding the meeting or transacting
business at the meeting, and (b) waives objection to consideration of a
particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder or his proxy objects to
considering the matter when it is presented. Each shareholder who has, in the
manner above provided, waived notice or objection to notice of a shareholders'
meeting shall be conclusively presumed to have been given due notice of such
meeting, including the purpose or purposes thereof.
If an annual or special shareholders' meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
or place if the new date, time, or place is announced at the meeting before
adjournment, unless a new record date is or must be established for the
adjourned meeting.
SECTION 1.4. BUSINESS OF SHAREHOLDER MEETINGS. At an annual meeting
of the shareholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have the legal right and authority to make the
proposal for consideration at the meeting and the shareholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than sixty (60)
days prior to the meeting; provided, however, that in the event that less than
seventy (70) days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders (which notice or public disclosure shall
-2-
<PAGE>
include the date of the annual meeting specified in these By-Laws, if such
By-Laws have been filed with the Securities and Exchange Commission and if the
annual meeting is held on such date), notice by the shareholder to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and record address of the shareholder
proposing such business, (c) the class and number of the Corporation's shares
which are beneficially owned by the shareholder, and (d) any material interest
of the shareholder in such business. Notwithstanding anything in these By-Laws
to the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 1.4. The Chairman of an
annual meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting and in accordance with
the provisions of this Section 1.4, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted. At any special meeting of the shareholders,
only such business shall be conducted as shall have been specified in the notice
of meeting (or any supplement thereto) or otherwise properly brought before the
meeting by or at the direction of the Board of Directors.
SECTION 1.5. NOTICE OF SHAREHOLDER NOMINEES. Only persons who are
nominated in accordance with the procedures set forth in this Section 1.5 shall
be eligible for election as Directors. Nominations of persons for election to
the Board of Directors may be made at a meeting of shareholders by or at the
direction of the Board of Directors, by any nominating committee or persons
appointed by the Board of Directors or by any shareholder of the Corporation
entitled to vote for the election of Directors at the meeting who complies with
the notice procedures set forth in this Section 1.5. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation not less than sixty (60) days
prior to the meeting; provided, however, that in the event that less than
seventy (70) days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders (which notice or public disclosure shall
include the date of the annual meeting specified in these By-Laws, if such
By-Laws have been filed with the Securities and Exchange Commission and if the
annual meeting is held on such date), notice by the shareholders to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such shareholder's notice shall set forth (a)
as to each person whom the shareholder proposes to nominate for election or
re-election as a Director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of the Corporation's shares which are
beneficially owned by such person and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
without limitation such person's written consent to
-3-
<PAGE>
being named in the proxy statement as a nominee and to serving as a Director if
elected); and (b) as to the shareholder giving the notice, (i) the name and
record address of such shareholder and (ii) the class and number of the
Corporation's shares which are beneficially owned by such shareholder. No person
shall be eligible for election as a Director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 1.5. The Chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
these By-Laws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded.
SECTION 1.6. VOTING. Except as otherwise provided by the Indiana
Business Corporation Law or the Corporation's Articles of Incorporation, each
share of any class, other than Class A Common Stock, of the common stock of the
Corporation that is outstanding at the record date established for any annual or
special meeting of shareholders and is outstanding at the time of and
represented in person or by proxy at the annual or special meeting, shall
entitle the record holder thereof, or his proxy, to one (1) vote, or in the case
of Class A Common Stock, three (3) votes, on each matter voted on at the
meeting.
SECTION 1.7. QUORUM. Unless the Corporation's Articles of
Incorporation or the Indiana Business Corporation Law provide otherwise, at all
meetings of shareholders, a majority of the votes entitled to be cast on a
matter, represented in person or by proxy, constitutes a quorum for action on
the matter. Action may be taken at a shareholders' meeting only on matters with
respect to which a quorum exists; provided, however, that any meeting of
shareholders, including annual and special meetings and any adjournments
thereof, may be adjourned to a later date although less than a quorum is
present. Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
SECTION 1.8. VOTE REQUIRED TO TAKE ACTION. If a quorum exists as to
a matter to be considered at a meeting of shareholders, action on such matter
(other than the election of Directors) is approved if the votes properly cast
favoring the action exceed the votes properly cast opposing the action, except
as the Corporation's Articles of Incorporation or the Indiana Business
Corporation Law require a greater number of affirmative votes. Directors shall
be elected by a plurality of the votes properly cast.
SECTION 1.9. RECORD DATE. Only such persons shall be entitled to
notice of or to vote, in person or by proxy, at any shareholders' meeting as
shall appear as shareholders upon the books of the Corporation as of such record
date as the Board of Directors shall determine, which date may not be earlier
than the date seventy (70) days immediately preceding the meeting. In the
absence of such determination, the record date shall be the fiftieth (50th) day
immediately preceding the date of such meeting. Unless otherwise provided by the
Board of Directors, shareholders shall be determined as of the close of business
on the record date.
SECTION 1.10. PROXIES. A shareholder may vote his shares either in
person or by proxy. A shareholder may appoint a proxy to vote or otherwise act
for the shareholder (including
-4-
<PAGE>
authorizing the proxy to receive, or to waive, notice of any shareholders'
meeting within the effective period of such proxy) by signing an appointment
form, either personally or by the shareholder's attorney-in-fact. An appointment
of a proxy is effective when received by the Secretary or other officer or agent
authorized to tabulate votes and is effective for eleven (11) months unless a
longer period is expressly provided in the appointment form. The proxy's
authority may be limited to a particular meeting or may be general and authorize
the proxy to represent the shareholder at any meeting of shareholders held
within the time provided in the appointment form. Subject to the Indiana
Business Corporation Law and to any express limitation on the proxy's authority
appearing on the face of the appointment form, the Corporation is entitled to
accept the proxy's vote or other action as that of the shareholder making the
appointment.
SECTION 1.11. REMOVAL OF DIRECTORS. Any or all of the members of the
Board of Directors may be removed, for good cause, only at a meeting of the
shareholders called expressly for that purpose, by a vote of the holders of
outstanding shares representing at least sixty-six and two-thirds percent
(66-2/3%) of the votes then entitled to be cast at an election of Directors.
Directors may not be removed in the absence of good cause.
SECTION 1.12. WRITTEN CONSENTS. Any action required or permitted to
be taken at a shareholders' meeting may be taken without a meeting if the action
is taken by all the shareholders entitled to vote on the action. The action must
be evidenced by one (1) or more written consents describing the action taken,
signed by all the shareholders entitled to vote on the action, and delivered to
the Corporation for inclusion in the minutes or filing with the corporate
records. Action taken under this Section 1.12 is effective when the last
shareholder signs the consent, unless the consent specifies a different prior or
subsequent effective date, in which case the action is effective on or as of the
specified date. Such consent shall have the same effect as a unanimous vote of
all shareholders and may be described as such in any document.
SECTION 1.13. PARTICIPATION BY CONFERENCE TELEPHONE. The Chairman of
the Board or the Board of Directors may permit any or all shareholders to
participate in an annual or special meeting of shareholders by, or through the
use of, any means of communication, such as conference telephone, by which all
shareholders participating may simultaneously hear each other during the
meeting. A shareholder participating in a meeting by such means shall be deemed
to be present in person at the meeting.
ARTICLE II
DIRECTORS
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SECTION 2.1. NUMBER AND TERMS. The business and affairs of the
Corporation shall be managed under the direction of a Board of Directors
consisting of eight (8) Directors. The Directors shall be divided into three (3)
groups, with each group consisting of one-third (1/3) of the total Directors, as
near as may be, with the term of office of the first group to expire at the
annual meeting of shareholders in 2000, the term of office of the second group
to expire at the annual meeting of shareholders in 2001, and the term of office
of the third group to expire at the annual meeting of shareholders in 2002; and
at each annual meeting of shareholders, the Directors chosen to succeed those
whose terms then expire shall be identified as being of the same group as the
Directors they succeed and shall be elected for a term expiring at the third
succeeding annual meeting of shareholders.
Despite the expiration of a Director's term, the Director shall
continue to serve until his successor is elected and qualified, or until the
earlier of his death, resignation, disqualification or removal, or until there
is a decrease in the number of Directors. Any vacancy occurring in the Board of
Directors, from whatever cause arising, shall be filled by selection of a
successor by a majority vote of the remaining members of the Board of Directors
(although less than a quorum); provided, however, that if such vacancy or
vacancies leave the Board of Directors with no members or if the remaining
members of the Board are unable to agree upon a successor or determine not to
select a successor, such vacancy may be filled by a vote of the shareholders at
a special meeting called for that purpose or at the next annual meeting of
shareholders. The term of a Director elected or selected to fill a vacancy shall
expire at the end of the term for which such Director's predecessor was elected,
or if the vacancy arises because of an increase in the size of the Board of
Directors, at the end of the term specified at the time of election or
selection.
The Directors and each of them shall have no authority to bind the
Corporation except when acting as a Board.
SECTION 2.2. QUORUM AND VOTE REQUIRED TO TAKE ACTION. A majority of
the whole Board of Directors shall be necessary to constitute a quorum for the
transaction of any business, except the filling of vacancies. If a quorum is
present when a vote is taken, the affirmative vote of a majority of the
Directors present shall be the act of the Board of Directors, unless the act of
a greater number is required by the Indiana Business Corporation Law, the
Corporation's Articles of Incorporation or these By-Laws.
SECTION 2.3. ANNUAL AND REGULAR MEETINGS. The Board of Directors
shall meet annually, without notice, immediately following the annual meeting of
the shareholders, for the purpose of transacting such business as properly may
come before the meeting. Other regular meetings of the Board of Directors, in
addition to said annual meeting, shall be held on such dates, at such times and
at such places as shall be fixed by resolution adopted by the Board of Directors
and specified in a notice of each such regular meeting, or otherwise
communicated to the Directors. The Board of Directors may at any time alter the
date for the next regular meeting of the Board of Directors.
SECTION 2.4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may
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be called by any member of the Board of Directors upon not less than twenty-four
(24) hours' notice given to each Director of the date, time, and place of the
meeting, which notice need not specify the purpose or purposes of the special
meeting. Such notice may be communicated in person (either in writing or
orally), by telephone, telegraph, teletype, or other form of wire or wireless
communication, or by mail, and shall be effective at the earlier of the time of
its receipt or, if mailed, five (5) days after its mailing. Notice of any
meeting of the Board may be waived in writing at any time if the waiver is
signed by the Director entitled to the notice and is filed with the minutes or
corporate records. A Director's attendance at or participation in a meeting
waives any required notice to the Director of the meeting, unless the Director
at the beginning of the meeting (or promptly upon the Director's arrival)
objects to holding the meeting or transacting business at the meeting and does
not thereafter vote for or assent to action taken at the meeting.
SECTION 2.5. WRITTEN CONSENTS. Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a meeting
if the action is taken by all members of the Board. The action must be evidenced
by one (1) or more written consents describing the action taken, signed by each
Director, and included in the minutes or filed with the corporate records
reflecting the action taken. Action taken under this Section 2.5 is effective
when the last Director signs the consent, unless the consent specifies a
different prior or subsequent effective date, in which case the action is
effective on or as of the specified date. A consent signed under this Section
2.5 shall have the same effect as a unanimous vote of all members of the Board
and may be described as such in any document.
SECTION 2.6. PARTICIPATION BY CONFERENCE TELEPHONE. The Board of
Directors may permit any or all Directors to participate in a regular or special
meeting by, or through the use of, any means of communication, such as
conference telephone, by which all Directors participating may simultaneously
hear each other during the meeting. A Director participating in a meeting by
such means shall be deemed to be present in person at the meeting.
SECTION 2.7. EXECUTIVE COMMITTEE. The Board of Directors may appoint
three (3) members to an Executive Committee. The Executive Committee shall,
subject to the restrictions of Section 2.9, be authorized to exercise the
authority of the full Board of Directors at any times other than during regular
or special meetings of the Board of Directors. All actions taken by the
Executive Committee shall be reported at the first regular meeting of the Board
of Directors following such actions. Members of the Executive Committee shall
serve at the pleasure of the Board of Directors.
SECTION 2.8. OTHER COMMITTEES. The Board of Directors may create one
(1) or more committees in addition to any Executive Committee and appoint
members of the Board of Directors to serve on them, by resolution of the Board
of Directors adopted by a majority of all the Directors in office when the
resolution is adopted. The committee may exercise the authority of the Board of
Directors to the extent specified in the resolution. Each committee may have one
(1) or more members, and all the members of such committee shall serve at the
pleasure of the Board of Directors.
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SECTION 2.9. LIMITATIONS ON COMMITTEES; NOTICE, QUORUM AND VOTING.
(a) Neither the Executive Committee nor any other committee
hereafter established may:
(1) authorize dividends or other distributions, except a committee may
authorize or approve a reacquisition of shares if done according to
a formula or method prescribed by the Board of Directors;
(2) approve or propose to shareholders action that is required
to be approved by shareholders;
(3) fill vacancies on the Board of Directors or on any of its
committees;
(4) except as permitted under Section 2.9(a)(7) below, amend the
Corporation's Articles of Incorporation under IC 23-1-38-2;
(5) adopt, amend, repeal, or waive provisions of these By-Laws;
(6) approve a plan of merger not requiring shareholder approval; or
(7) authorize or approve the issuance or sale or a contract for sale of
shares, or determine the designation and relative rights,
preferences, and limitations of a class or series of shares, except
the Board of Directors may authorize a committee (or an executive
officer of the Corporation designated by the Board of Directors) to
take the action described in this Section 2.9(a)(7) within limits
prescribed by the Board of Directors.
(b) Except to the extent inconsistent with the resolutions creating
a committee, Sections 2.1 through 2.6 of these By-Laws, which govern meetings,
action without meetings, notice and waiver of notice, quorum and voting
requirements and telephone participation in meetings of the Board of Directors,
apply to each committee and its members as well.
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ARTICLE III
OFFICERS
SECTION 3.1. DESIGNATION, SELECTION AND TERMS. The officers of the
Corporation shall consist of the Chairman of the Board, the President, the Chief
Financial Officer, the Treasurer and the Secretary. The Board of Directors may
also elect Vice Presidents, Assistant Secretaries and Assistant Treasurers, and
such other officers or assistant officers as it may from time to time determine
by resolution creating the office and defining the duties thereof. In addition,
the Chairman of the Board or the President may, by a certificate of appointment
creating the office and defining the duties thereof delivered to the Secretary
for inclusion with the corporate records, from time to time create and appoint
such assistant officers as they deem desirable. The officers of the Corporation
shall be elected by the Board of Directors (or appointed by the Chairman of the
Board or the President as provided above) and need not be selected from among
the members of the Board of Directors, except for the Chairman of the Board and
the President who shall be members of the Board of Directors. Any two (2) or
more offices may be held by the same person. All officers shall serve at the
pleasure of the Board of Directors and, with respect to officers appointed by
the Chairman of the Board or the President, also at the pleasure of such
officers. The election or appointment of an officer does not itself create
contract rights.
SECTION 3.2. REMOVAL. The Board of Directors may remove any officer
at any time with or without cause. An officer appointed by the Chairman of the
Board or the President may also be removed at any time, with or without cause,
by either of such officers. Vacancies in such offices, however occurring, may be
filled by the Board of Directors at any meeting of the Board of Directors (or by
appointment by the Chairman of the Board or the President, to the extent
provided in Section 3.1 of these By-Laws).
SECTION 3.3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall,
if present, preside at all meetings of the shareholders and of the Board of
Directors and shall have such powers and perform such duties as are assigned to
him by the Board of Directors.
SECTION 3.4. PRESIDENT. The President shall be the chief executive
and principal policymaking officer of the Corporation. Subject to the authority
of the Board of Directors, he shall formulate the major policies to be pursued
in the administration of the Corporation's affairs. He shall study and make
reports and recommendations to the Board of Directors with respect to major
problems and activities of the Corporation and shall see that the established
policies are placed into effect and carried out. In the absence of the Chairman
of the Board, the President shall preside at meetings of the shareholders and of
the Board of Directors.
SECTION 3.5. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall be the chief financial officer of the Corporation and shall perform all of
the duties customary to that office. He shall be responsible for all of the
Corporation's financial affairs, subject to the supervision and direction of the
President, and shall have and perform such further powers and duties as the
Board of Directors may, from time to time, prescribe and as the President may,
from time to time, delegate to him.
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SECTION 3.6. VICE PRESIDENTS. Each Vice President shall have such
powers and perform such duties as the Board of Directors may, from time to time,
prescribe and as the President may, from time to time, delegate to him.
SECTION 3.7. TREASURER. The Treasurer shall perform all of the
duties customary to that office, shall be the chief accounting officer of the
Corporation and shall be responsible for maintaining the Corporation's
accounting books and records and preparing its financial statements, subject to
the supervision and direction of the Chief Financial Officer and other superior
officers within the Corporation. He shall also be responsible for causing the
Corporation to furnish financial statements to its shareholders pursuant to IC
23-1-53-1.
SECTION 3.8. ASSISTANT TREASURER. In the absence or inability of the
Treasurer, the Assistant Treasurer, if any, shall perform only such duties as
are specifically assigned to him, in writing, by the Board of Directors, the
President, the Chief Financial Officer, or the Treasurer.
SECTION 3.9. SECRETARY. The Secretary shall be the custodian of the
books, papers, and records of the Corporation and of its corporate seal, if any,
and shall be responsible for seeing that the Corporation maintains the records
required by IC 23-1-52-1 (other than accounting records) and that the
Corporation files with the Indiana Secretary of State the biennial report
required by IC 23-1-53-3. The Secretary shall be responsible for preparing
minutes of the meetings of the shareholders and of the Board of Directors and
for authenticating records of the Corporation, and he shall perform all of the
other duties usual in the office of Secretary of a corporation.
SECTION 3.10. ASSISTANT SECRETARY. In the absence or inability of
the Secretary, the Assistant Secretary, if any, shall perform only such duties
as are provided herein or specifically assigned to him, in writing, by the Board
of Directors, the President, or the Secretary.
SECTION 3.11. SALARY. The Board of Directors may, at its discretion,
from time to time, fix the salary of any officer by resolution included in the
minute book of the Corporation.
ARTICLE IV
CHECKS
All checks, drafts, or other orders for payment of money shall be
signed in the name of the Corporation by such officers or persons as shall be
designated from time to time by resolution adopted by the Board of Directors and
included in the minute book of the Corporation; and in the absence of such
designation, such checks, drafts, or other orders for payment shall be signed by
the Chairman, the President, the Chief Financial Officer, the Vice
President-Finance or the Treasurer.
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ARTICLE V
LOANS
Such of the officers of the Corporation as shall be designated from
time to time by resolution adopted by the Board of Directors and included in the
minute book of the Corporation shall have the power, with such limitations
thereon as may be fixed by the Board of Directors, to borrow money in the
Corporation's behalf, to establish credit, to discount bills and papers, to
pledge collateral, and to execute such notes, bonds, debentures, or other
evidences of indebtedness, and such mortgages, trust indentures, and other
instruments in connection therewith, as may be authorized from time to time by
such Board of Directors.
ARTICLE VI
EXECUTION OF DOCUMENTS
The Chairman of the Board, the President or any other officer
authorized by the Board of Directors may, in the Corporation's name, sign all
deeds, leases, contracts, or similar documents unless otherwise directed by the
Board of Directors or otherwise provided herein or in the Corporation's Articles
of Incorporation, or as otherwise required by law.
ARTICLE VII
STOCK
SECTION 7.1. EXECUTION. Certificates for shares of the Corporation
shall be signed by the Chairman of the Board or the President and by the
Secretary and the seal of the Corporation (or a facsimile thereof), if any, may
be thereto affixed. Where any such certificate is also signed by a transfer
agent or a registrar, or both, the signatures of the officers of the Corporation
may be facsimiles. The Corporation may issue and deliver any such certificate
notwithstanding that any such officer who shall have signed, or whose facsimile
signature shall have been imprinted on, such certificate shall have ceased to be
such officer.
SECTION 7.2. CONTENTS. Each certificate issued after the adoption of
these By-Laws shall state on its face the name of the Corporation and that it is
organized under the laws of the State of Indiana, the name of the person to whom
it is issued, and the number and class of shares and the designation of the
series, if any, the certificate represents, and shall state conspicuously on its
front or back that the Corporation will furnish the shareholder, upon his
written request and without charge, a summary of the designations, relative
rights, preferences, and limitations applicable to each class and the variations
in rights, preferences, and limitations determined for each series (and the
authority of the Board of Directors to determine variations for future series).
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SECTION 7.3. TRANSFERS. Except as otherwise provided by law or by
resolution of the Board of Directors, transfers of shares of the Corporation
shall be made only on the books of the Corporation by the holder thereof, in
person or by duly authorized attorney, on payment of all taxes thereon and
surrender for cancellation of the certificate or certificates for such shares
(except as hereinafter provided in the case of loss, destruction, or mutilation
of certificates) properly endorsed by the holder thereof or accompanied by the
proper evidence of succession, assignment, or authority to transfer, and
delivered to the Secretary or an Assistant Secretary.
SECTION 7.4. STOCK TRANSFER RECORDS. There shall be entered upon the
stock records of the Corporation the number of each certificate issued, the name
and address of the registered holder of such certificate, the number, kind, and
class of shares represented by such certificate, the date of issue, whether the
shares are originally issued or transferred, the registered holder from whom
transferred, and such other information as is commonly required to be shown by
such records. The stock records of the Corporation shall be kept at its
principal office, unless the Corporation appoints a transfer agent or registrar,
in which case the Corporation shall keep at its principal office a complete and
accurate shareholders' list giving the names and addresses of all shareholders
and the number and class of shares held by each. If a transfer agent is
appointed by the Corporation, shareholders shall give written notice of any
changes in their addresses from time to time to the transfer agent.
SECTION 7.5. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may appoint one or more transfer agents and one or more registrars and may
require each stock certificate to bear the signature of either or both.
SECTION 7.6. LOSS, DESTRUCTION, OR MUTILATION OF CERTIFICATES. The
holder of any shares of the Corporation shall immediately notify the Corporation
of any loss, destruction, or mutilation of the certificate therefor, and the
Board of Directors may, in its discretion, cause to be issued to him a new
certificate or certificates, upon the surrender of the mutilated certificate,
or, in the case of loss or destruction, upon satisfactory proof of such loss or
destruction. The Board of Directors may, in its discretion, require the holder
of the lost or destroyed certificate or his legal representative to give the
Corporation a bond in such sum and in such form, and with such surety or
sureties as it may direct, to indemnify the Corporation, its transfer agents,
and registrars, if any, against any claim that may be made against them or any
of them with respect to the shares represented by the certificate or
certificates alleged to have been lost or destroyed, but the Board of Directors
may, in its discretion, refuse to issue a new certificate or certificates, save
upon the order of a court having jurisdiction in such matters.
SECTION 7.7. FORM OF CERTIFICATES. The form of the certificates for
shares of the Corporation shall conform to the requirements of Section 7.2 of
these By-Laws and be in such printed form as shall from time to time be approved
by resolution of the Board of Directors.
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ARTICLE VIII
SEAL
The corporate seal of the Corporation shall, if the Corporation
elects to have one, be in the form of a disc, with the name of the Corporation
and "INDIANA" on the periphery thereof and the word "SEAL" in the center.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. INDIANA BUSINESS CORPORATION LAW. The provisions of the
Indiana Business Corporation law, as amended, applicable to all matters relevant
to, but not specifically covered by, these By-Laws are hereby, by reference,
incorporated in and made a part of these By-Laws.
SECTION 9.2. FISCAL YEAR. The fiscal year of the Corporation shall
end on December 31 of each year.
SECTION 9.3. ELECTION TO BE GOVERNED BY INDIANA CODE SS. 23-1-43.
Effective upon the registration of any class of the Corporation's shares under
Section 12 of the Securities Exchange Act of 1934, as amended, the Corporation
shall be governed by the provisions of IC 23-1-43 regarding business
combinations.
SECTION 9.4. CONTROL SHARE ACQUISITION STATUTE. The provisions of IC
23-1-42 shall apply to the acquisition of shares of the Corporation.
SECTION 9.5. REDEMPTION OF SHARES ACQUIRED IN CONTROL SHARE
ACQUISITIONS. If and whenever the provisions of IC 23-1-42 apply to the
Corporation, any or all control shares acquired in a control share acquisition
shall be subject to redemption by the Corporation, if either:
(a) no acquiring person statement has been filed with the
Corporation with respect to such control share acquisition in accordance
with IC 23-1-42-6, or
(b) the control shares are not accorded full voting rights by the
Corporation's shareholders as provided in IC 23-1-42-9.
A redemption pursuant to Section 9.5(a) may be made at any time during the
period ending sixty (60) days after the last acquisition of control shares by
the acquiring person. A redemption pursuant to Section 9.5(b) may be made at any
time during the period ending two (2) years after the shareholder vote with
respect to the granting of voting rights to such control shares. Any redemption
pursuant to this Section 9.5 shall be made at the fair value of the control
shares and
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pursuant to such procedures for such redemption as may be set forth in these
By-Laws or adopted by resolution of the Board of Directors.
As used in this Section 9.5, the terms "control shares," "control
share acquisition," "acquiring person statement," and "acquiring person" shall
have the meanings ascribed to such terms in IC 23-1-42.
SECTION 9.6. AMENDMENTS. These By-Laws may be rescinded, changed, or
amended, and provisions hereof may be waived, at any meeting of the Board of
Directors by the affirmative vote of a majority of the entire number of
Directors at the time, except as otherwise required by the Corporation's
Articles of Incorporation or by the Indiana Business Corporation Law.
SECTION 9.7. DEFINITION OF ARTICLES OF INCORPORATION. The term
"Articles of Incorporation" as used in these By-Laws means the Articles of
Incorporation of the Corporation as from time to time are in effect.
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EXHIBIT 10-H
TERMINATION BENEFITS AGREEMENT
This Termination Benefits Agreement ("Agreement") is made and
entered into as of January 1, 2000, by and between Priority Healthcare
Corporation, an Indiana corporation (hereinafter referred to as the
"Corporation") and ____________________, a resident of the State of Florida
(hereinafter referred to as "Employee").
W I T N E S S E T H
WHEREAS, Employee is now serving as _______________________________
_______________________________ of the Corporation; and
WHEREAS, the Corporation believes that Employee has made valuable
contributions to the productivity and profitability of the Corporation; and
WHEREAS, the Corporation desires to encourage Employee to continue
to make such contributions and not to seek or accept employment elsewhere; and
WHEREAS, the Corporation, therefore, desires to assure Employee of
certain benefits in case of any termination or significant redefinition of the
terms of his employment with the Corporation subsequent to any Change in Control
of the Corporation;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained and the mutual benefits herein provided, the
Corporation and Employee hereby agree as follows:
1. The term of this Agreement shall be from the date hereof through
December 31, 2000; provided, however, that such term shall be automatically
extended for an additional year on December 31, 2000, and on December 31 of each
year thereafter unless either party hereto gives written notice to the other
party not to so extend prior to November 30 of the year for which notice is
given, in which case no further automatic extension shall occur and the term of
this Agreement shall end on December 31 three (3) years subsequent to the date
of the latest preceding automatic extension. Notwithstanding the foregoing, if a
Change in Control of the Corporation (as defined in Section 2 below) shall occur
prior to the expiration of the original term or any extensions of the term of
this Agreement, then the term of this Agreement shall automatically become a
term of three (3) years commencing on the date of any such Change in Control.
2. As used in this Agreement, "Change in Control" of the Corporation
means:
(A) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act as in
effect from time to time) of twenty-five percent (25%) or more of either
(i) the then outstanding shares of common stock of the Corporation or (ii)
the combined
<PAGE>
voting power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors; provided,
however, that the following acquisitions shall not constitute an
acquisition of control: (i) any acquisition directly from the Corporation
(excluding an acquisition by virtue of the exercise of a conversion
privilege), (ii) any acquisition by the Corporation, (iii) any acquisition
by any employee benefit plan (or related trust) sponsored or maintained by
the Corporation or any corporation controlled by the Corporation, (iv) any
acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation,
the conditions described in clauses (i), (ii) and (iii) of subsection (C)
of this Section 2 are satisfied, (v) any acquisition by William E. Bindley
or (vi) upon the death of William E. Bindley, any acquisition triggered by
his death by operation of law, by any testamentary bequest or by the terms
of any trust or other contractual arrangement established by him;
(B) Individuals who, as of the date hereof, constitute the Board of
Directors of the Corporation (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board of Directors of the
Corporation (the "Board"); provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination for
election by the Corporation's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of either an actual
or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(C) Approval by the shareholders of the Corporation of a
reorganization, merger or consolidation, in each case, unless, following
such reorganization, merger or consolidation, (i) more than sixty percent
(60%) of, respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation
and the combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of directors
is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding Corporation common stock and
outstanding Corporation voting securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such reorganization,
merger or
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consolidation, of the outstanding Corporation stock and outstanding
Corporation voting securities, as the case may be, (ii) no Person
(excluding the Corporation, any employee benefit plan or related trust of
the Corporation or such corporation resulting from such reorganization,
merger or consolidation and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly or
indirectly, twenty-five percent (25%) or more of the outstanding
Corporation common stock or outstanding voting securities, as the case may
be) beneficially owns, directly or indirectly, twenty-five percent (25%)
or more of, respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such reorganization,
merger or consolidation; or
(D) Approval by the shareholders of the Corporation of (i) a
complete liquidation or dissolution of the Corporation or (ii) the sale or
other disposition of all or substantially all of the assets of the
Corporation, other than to a corporation with respect to which following
such sale or other disposition (a) more than sixty percent (60%) of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding Corporation common stock and
outstanding Corporation voting securities immediately prior to such sale
or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
outstanding Corporation common stock and outstanding Corporation voting
securities, as the case may be, (b) no Person (excluding the Corporation
and any employee benefit plan or related trust of the Corporation or such
corporation and any Person beneficially owning, immediately prior to such
sale or other disposition, directly or indirectly, twenty-five percent
(25%) or more of the outstanding Corporation common stock or outstanding
Corporation voting securities, as the case may be) beneficially owns,
directly or indirectly, twenty-five percent (25%) or more of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors and (c) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board at the
time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Corporation.
3. The Corporation shall provide Employee with the benefits set
forth in Section 6 of this Agreement upon any termination of Employee's
employment by the Corporation following a Change in Control for any reason
except the following:
(A) Termination by reason of Employee's death.
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(B) Termination by reason of Employee's "disability." For purposes
hereof, "disability" shall be defined as Employee's inability by reason of
illness or other physical or mental disability to perform the duties
required by his employment for any consecutive One Hundred Eighty (180)
day period, provided that notice of any termination by the Corporation
because of Employee's "disability" shall have been given to Employee prior
to the resumption by him of the performance of such duties.
(C) Termination upon Employee reaching his normal retirement date,
which for purposes of this Agreement shall be deemed to be the end of the
month during which employee reaches sixty-five (65) years of age.
(D) Termination for "cause." As used in this Agreement, the term
"cause" means fraud, dishonesty, theft of corporate assets, or other gross
misconduct by Employee. Notwithstanding the foregoing, Employee shall not
be deemed to have been terminated for cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of
the Corporation's Board at a meeting called and held for the purpose
(after reasonable notice to him and an opportunity for him, together with
his counsel, to be heard before such Board), finding that, in the good
faith opinion of such Board, Employee was guilty of conduct constituting
"cause" and specifying the particulars thereof in detail.
4. The Corporation shall also provide Employee with the benefits set
forth in Section 6 of this Agreement upon any termination of Employee's
employment with the Corporation at Employee's option after a Change in Control
followed by the happening of any one of the following events:
(A) Without Employee's express written consent, the assignment of
Employee to any duties which, in Employee's reasonable judgment, are
materially inconsistent with his positions, duties, responsibilities or
status with the Corporation immediately prior to the Change in Control or
a substantial reduction of his duties or responsibilities which, in
Employee's reasonable opinion, does not represent a promotion from his
position, duties or responsibilities immediately prior to the Change in
Control.
(B) A reduction by the Corporation in Employee's salary from the
level of such salary immediately prior to the Change in Control or the
Corporation's failure to increase (within twelve (12) months of Employee's
last increase in base salary) Employee's base salary after a Change in
Control in an amount which at least equals, on a percentage basis, the
average percentage increase in base salary for all executive and senior
officers of the Corporation effected in the preceding twelve (12) months.
(C) The failure by the Corporation to continue in effect any
incentive, bonus or other compensation plan in which Employee
participates, including but
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<PAGE>
not limited to the Corporation's stock option plans, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan), with
which Employee has consented, has been made with respect to such plan in
connection with the Change in Control, or the failure by the Corporation
to continue Employee's participation therein, or any action by the
Corporation which would directly or indirectly materially reduce
Employee's participation therein.
(D) The failure by the Corporation to continue to provide Employee
with benefits substantially similar to those enjoyed by Employee or to
which Employee was entitled under any of the Corporation's principal
pension, profit sharing, life insurance, medical, dental, health and
accident, or disability plans in which Employee was participating at the
time of a Change in Control, the taking of any action by the Corporation
which would directly or indirectly materially reduce any of such benefits
or deprive Employee of any material fringe benefit enjoyed by Employee or
to which Employee was entitled at the time of the Change in Control, or
the failure by the Corporation to provide Employee with the number of paid
vacation and sick leave days to which Employee is entitled on the basis of
years of service or position with the Corporation in accordance with the
Corporation's normal vacation policy in effect on the date hereof.
(E) The Corporation's requiring Employee to be based anywhere other
than the metropolitan area where the Corporation office at which he was
based immediately prior to the Change in Control was located, except for
required travel on the Corporation's business in accordance with the
Corporation's past management practices.
(F) Any failure of the Corporation to obtain the assumption of the
obligation to perform this Agreement by any successor as contemplated in
Section 10 hereof.
(G) Any failure by the Corporation or its shareholders, as the case
may be, to reappoint or reelect Employee to a corporate office held by him
immediately prior to the Change in Control or his removal from any such
office including any seat held at such time on the Corporation's Board of
Directors.
(H) The effectiveness of a resignation, tendered at any time, either
before or after a Change in Control and regardless of whether formally
characterized as voluntary or otherwise, by Employee of any corporate
office held by him immediately prior to the Change in Control or of any
seat held at such time on the Corporation's Board of Directors, at the
request of the Corporation or at the request of the person obtaining
control of the Corporation in such Change in Control.
(I) Any purported termination of the Employee's employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of
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Section 5 hereof (and, if applicable, Section 3(D) hereof); and for
purposes of this Agreement, no such purported termination shall be
effective.
(J) Any request by the Corporation that Employee participate in an
unlawful act or take any action constituting a breach of Employee's
professional standard of conduct.
(K) Any breach by the Corporation of any of the provisions of this
Agreement or any failure by the Corporation to carry out any of its
obligations hereunder.
Notwithstanding anything in this Section 4 to the contrary, Employee's right to
terminate Employee's employment pursuant to this Section 4 shall not be affected
by Employee's incapacity due to physical or mental illness.
5. Any termination of Employee's employment with the Corporation as
contemplated by Section 3 hereof (except subsection 3(A)) or by Employee as
contemplated by Section 4 hereof shall be communicated by written "Notice of
Termination" to the other party hereto. Any "Notice of Termination" given by
Employee pursuant to Section 4 or given by the Corporation in connection with a
termination as to which the Corporation believes it is not obligated to provide
Employee with benefits set forth in Section 6 hereof shall indicate the specific
provisions of this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for such
termination.
6. Subject to the conditions and exceptions set forth in Section 3
and Section 4 hereof, the following benefits, less any amounts required to be
withheld therefrom under any applicable federal, state or local income tax,
other tax, or social security laws or similar statutes, shall be paid to
Employee upon any termination of his employment with the Corporation subsequent
to a Change in Control:
(A) Within thirty (30) days following such a termination, Employee
shall be paid, at his then-effective salary, for services performed
through the date of his termination. In addition, any earned but unpaid
amount of any bonus or incentive payment shall be paid to Employee within
thirty (30) days following the termination of his employment.
(B) Within thirty (30) days following such a termination, Employee
shall be paid a lump sum payment of an amount equal to two and nine-tenths
(2.9) times Employee's "Base Amount." For purposes hereof, Base Amount is
defined as Employee's average includable compensation paid by the
Corporation for the five (5) most recent taxable years ending before the
date on which the Change in Control occurs. The definition, interpretation
and calculation of the dollar amount of Base Amount shall be in a manner
consistent with and as required by the provisions of Section 280G of the
Internal Revenue Code of 1986, as amended ("Code"), and the regulations
and rulings of the Internal Revenue Service promulgated thereunder.
6
<PAGE>
(C)(i) In the event that any payment or benefit (within the meaning
of Section 280G(b)(2) of the Code) paid or payable to the Employee or for
his benefit pursuant to the terms of this Agreement or otherwise
(including any benefit from the exercise of stock options vested early
because of a change in control) in connection with, or arising out of, his
employment with the Corporation or a change in ownership or effective
control of the Corporation or of a substantial portion of its assets (a
"Payment" or "Payments"), would be subject to the excise tax imposed by
Section 4999 of the Code or any interest, penalties, additional tax or
similar items are incurred by the Employee with respect to such excise tax
(such excise tax, together with any such interest, penalties, additional
tax or similar items are hereinafter collectively referred to as the
"Excise Tax"), then the Employee will be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Employee of all taxes (including any interest, penalties, additional tax
or similar items imposed with respect thereto and the Excise Tax)
including any Excise Tax imposed upon the Gross-Up Payment, the Employee
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Payments.
(ii) An initial determination as to whether a Gross-Up Payment is
required pursuant to this Agreement and the amount of such Gross-Up
Payment shall be made at the Corporation's expense by an accounting firm
selected by the Corporation and reasonably acceptable to the Employee
which is designated as one of the five largest accounting firms in the
United States (the "Accounting Firm"). The Accounting Firm shall provide
its determination (the "Determination"), together with detailed supporting
calculations and documentation to the Corporation and the Employee within
ten days of the Termination Date if applicable, or such other time as
requested by the Corporation or by the Employee and if the Accounting Firm
determines that no Excise Tax is payable by the Employee with respect to a
Payment or Payments, it shall furnish the Employee with an opinion
reasonably acceptable to the Employee that no Excise Tax will be imposed
with respect to any such Payment or Payments. Within ten days of the
delivery of the Determination to the Employee, the Employee shall have the
right to dispute the Determination (the "Dispute"). The Gross-Up Payment,
if any, as determined pursuant to this subsection 6(c)(ii) shall be paid
by the Corporation to the Employee within five days of the receipt of the
Accounting Firm's Determination. The existence of the Dispute shall not in
any way affect the Employee's right to receive the Gross-Up Payment in
accordance with the Determination. If there is no Dispute, the
Determination shall be binding, final and conclusive upon the Corporation
and the Employee subject to the application of subsection 6(c)(iii) below.
(iii) As a result of the uncertainty in the application of Sections
4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a
portion thereof) will be paid which should not have been paid (an "Excess
Payment") or a Gross-Up Payment (or a portion thereof) which should have
been paid will not
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<PAGE>
have been paid (an "Underpayment"). An Underpayment shall be deemed to
have occurred (a) upon notice (formal or informal) to the Employee from
any governmental taxing authority that the Employee's tax liability
(whether in respect of the Employee's current taxable year or in respect
of any prior taxable year) may be increased by reason of the imposition of
the Excise Tax on a Payment or Payments with respect to which the
Corporation has failed to make a sufficient Gross-Up Payment, (b) upon a
determination by a court, (c) by reason of determination by the
Corporation (which shall include the position taken by the Corporation,
together with its consolidated group, on its federal income tax return) or
(d) upon the resolution of the Dispute to the Employee's satisfaction. If
an Underpayment occurs, the Employee shall promptly notify the Corporation
and the Corporation shall promptly, but in any event, at least five days
prior to the date on which the applicable government taxing authority has
requested payment, pay to the Employee an additional Gross-Up Payment
equal to the amount of the Underpayment plus any interest, penalties,
additional taxes or similar items imposed on the Underpayment. An Excess
Payment shall be deemed to have occurred upon a "Final Determination" (as
hereinafter defined) that the Excise Tax shall not be imposed upon a
Payment or Payments (or portion thereof) with respect to which the
Employee had previously received a Gross-Up Payment. A "Final
Determination" shall be deemed to have occurred when the Employee has
received from the applicable government taxing authority a refund of taxes
or other reduction in the Employee's tax liability by reason of the Excise
Payment and upon either (x) the date a determination is made by, or an
agreement is entered into with, the applicable governmental taxing
authority which finally and conclusively binds the Employee and such
taxing authority, or in the event that a claim is brought before a court
of competent jurisdiction, the date upon which a final determination has
been made by such court and either all appeals have been taken and finally
resolved or the time for all appeals has expired or (y) the statute of
limitations with respect to the Employee's applicable tax return has
expired. If an Excess Payment is determined to have been made, the amount
of the Excess Payment shall be treated as a loan by the Corporation to the
Employee and the Employee shall pay to the Corporation on demand (but not
less than ten days after the Final Determination of such Excess Payment
and written notice has been delivered to the Employee) the amount of the
Excess Payment plus interest at an annual rate equal to the Applicable
Federal Rate provided for in Section 1274(d) of the Code from the date the
Gross-Up Payment (to which the Excess Payment relates) was paid to the
Employee until the date of repayment to the Corporation.
(iv) Notwithstanding anything contained in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax
will be imposed on any Payment or Payments, the Corporation shall pay to
the applicable government taxing authorities as Excise Tax withholding,
the amount of the Excise Tax that the Corporation has actually withheld
from the Payment or Payments.
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<PAGE>
(D) Employee acknowledges and agrees that payment in accordance with
subsections 6(A), 6(B) and 6(C) shall be deemed to constitute a full
settlement and discharge of any and all obligations of the Corporation to
Employee arising out of his employment with the Corporation and the
termination thereof, except for any vested rights Employee may then have
under any insurance, pension, supplemental pension, thrift, employee stock
ownership, or stock option plans sponsored or made available by the
Corporation.
7. The Corporation is aware that upon the occurrence of a Change in
Control the Board of Directors or a shareholder of the Corporation may then
cause or attempt to cause the Corporation to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the
Corporation to institute, or may institute, litigation seeking to have this
Agreement declared unenforceable, or may take or attempt to take other action to
deny Employee the benefits intended under this Agreement. In these
circumstances, the purpose of this Agreement could be frustrated. It is the
intent of the Corporation that Employee not be required to incur the expenses
associated with the enforcement of his rights under this Agreement by litigation
or other legal action, nor be bound to negotiate any settlement of his rights
hereunder, because the cost and expense of such legal action or settlement would
substantially detract from the benefits intended to be extended to Employee
hereunder. Accordingly, if following a Change in Control it should appear to
Employee that the Corporation has failed to comply with any of its obligations
under this Agreement or in the event that the Corporation or any other person
takes any action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to recover
from Employee the benefits entitled to be provided to the Employee hereunder,
and that Employee has complied with all of his obligations under this Agreement,
the Corporation irrevocably authorizes Employee from time to time to retain
counsel of his choice, at the expense of the Corporation as provided in this
Section 7, to represent Employee in connection with the initiation or defense of
any litigation or other legal action, whether such action is by or against the
Corporation or any director, officer, shareholder, or other person affiliated
with the Corporation, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Corporation and such counsel, the
Corporation irrevocably consents to Employee entering into an attorney-client
relationship with such counsel, and in that connection the Corporation and
Employee agree that a confidential relationship shall exist between Employee and
such counsel. The reasonable fees and expenses of counsel selected from time to
time by Employee as hereinabove provided shall be paid or reimbursed to Employee
by the Corporation on a regular, periodic basis upon presentation by Employee of
a statement or statements prepared by such counsel in accordance with its
customary practices, up to a maximum aggregate amount of One Hundred Thousand
Dollars ($100,000). Any legal expenses incurred by the Corporation by reason of
any dispute between the parties as to enforceability of or the terms contained
in this Agreement as provided by this Section 7, notwithstanding the outcome of
any such dispute, shall be the sole responsibility of the Corporation, and the
Corporation shall not take any action to seek reimbursement from Employee for
such expenses. Notwithstanding any limitation contained in this Section 7 to the
contrary, Employee shall be entitled to payment or reimbursement of legal
expenses in excess of One Hundred Thousand Dollars ($100,000) if the expenses
were incurred as a result of a dispute under this Agreement in which Employee
obtains a final judgment in his favor from a court of
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<PAGE>
competent jurisdiction or his claim is settled by the Corporation prior to the
rendering of a judgment by such a court.
8. Employee is not required to mitigate the amount of benefit
payments to be made by the Corporation pursuant to this Agreement by seeking
other employment or otherwise, nor shall the amount of any benefit payments
provided for in this Agreement be reduced by any compensation earned by Employee
as a result of employment by another employer or which might have been earned by
Employee had Employee sought such employment, after the date of termination of
his employment with the Corporation or otherwise.
9. In order to induce the Corporation to enter into this Agreement,
Employee hereby agrees as follows:
(A) He will keep confidential and not improperly divulge for the
benefit of any other party any of the Corporation's confidential
information and business secrets including, but not limited to,
confidential information and business secrets relating to such matters as
the Corporation's finances, operations and customer lists. All of the
Corporation's confidential information and business secrets shall be the
sole and exclusive property of the Corporation.
(B) For a period of two years after Employee's employment with the
Corporation ceases, Employee shall not either on his own account or for
any other person, firm or company solicit or endeavor to cause any
employee of the Corporation to leave his employment or to induce or
attempt to induce any such employee to breach any employment agreement
with the Corporation.
In the event of a breach or threatened breach by Employee of the provisions of
this Section 9, the Corporation shall be entitled to an injunction restraining
Employee from committing or continuing such breach. Nothing herein contained
shall be construed as prohibiting the Corporation from pursuing any other
remedies available to it for such breach or threatened breach including the
recovery of damages from Employee. The covenants of this Section 9 shall run not
only in favor of the Corporation and its successors and assigns, but also in
favor of its subsidiaries and their respective successors and assigns and shall
survive the termination of this Agreement.
10. The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation, by agreement
in form and substance satisfactory to Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Employee to compensation from the Corporation in the same amount
and on the same terms as Employee would be entitled hereunder if he were to
terminate his employment pursuant to Section 4 hereof, except that for purposes
of implementing the foregoing, the date on which succession becomes effective
shall be deemed the date of termination of Employee's employment with the
Corporation. As used in this
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Agreement, "Corporation" shall mean corporation as hereinbefore defined and any
successor to the business or assets of it as aforesaid which executes and
delivers the agreement provided for in this Section 10 or which otherwise
becomes bound by all of the terms and provisions of this Agreement by operation
of law.
11. Should Employee die while any amounts are payable to him
hereunder, this Agreement shall inure to the benefit of and be enforceable by
Employee's executors, administrators, heirs, distributees, devisees and legatees
and all amounts payable hereunder shall be paid in accordance with the terms of
this Agreement to Employee's devisee, legatee or other designee or if there be
no such designee, to his estate.
12. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Employee:
__________________
__________________
__________________
If to the Corporation:
Priority Healthcare Corporation
250 Technology Park, Suite 124
Lake Mary, Florida 32746
Attention: Corporate Secretary
or to such other address as any party may have furnished to the other party in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. The validity, interpretation, and performance of this Agreement
shall be governed by the laws of the State of Florida. The parties agree that
all legal disputes regarding this Agreement will be resolved in Lake Mary,
Florida, and irrevocably consent to service of process in such City for such
purpose.
14. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by Employee and the Corporation. No waiver by any party hereto at any
time of any breach by any other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or any prior or subsequent time. No agreements or representation, oral
or otherwise, express or
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implied, with respect to the subject matter hereof have been made by any party
which are not set forth expressly in this Agreement.
15. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
16. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which together will constitute
one and the same Agreement.
17. This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign or transfer this
Agreement or any rights or obligations hereunder, except as provided in Section
10 and Section 11 above. Without limiting the foregoing, Employee's right to
receive payments hereunder shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise, other than a transfer by
his Will or by the laws of descent and distribution as set forth in Section 11
hereof, and in the event of any attempted assignment or transfer contrary to
this Section 17, the Corporation shall have no liability to pay any amount so
attempted to be assigned or transferred.
Any benefits payable under this Agreement shall be paid solely from
the general assets of the Corporation. Neither Employee nor Employee's
beneficiary shall have interest in any specific assets of the Corporation under
the terms of this Agreement. This Agreement shall not be considered to create an
escrow account, trust fund or other funding arrangement of any kind or a
fiduciary relationship between Employee and the Corporation.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
PRIORITY HEALTHCARE CORPORATION.
("Corporation")
By: ____________________________________
Member of the Compensation and Option
Committee and Member of the Board of
Directors
-----------------------------------
__________________ ("Employee")
13
EXHIBIT 10-I
NONCOMPETE AGREEMENT
THIS NONCOMPETE AGREEMENT (the "Agreement") is entered into as of
January 1, 2000, by and between Priority Healthcare Corporation, an Indiana
corporation, (the "Company") and __________________ (the "Employee").
AGREEMENT
1. Termination Agreement. The parties hereto acknowledge that a
Termination Benefits Agreement, (the "Termination Agreement"), dated as of the
date hereof, has been entered into.
2. RESTRICTIVE COVENANTS. In consideration of the mutual promises
contained herein and in the Termination Agreement, Employee agrees and promises
that for a period of one year after termination of employment with the Company,
employee will not, directly or indirectly, for Employee or any other person,
firm, corporation, entity or business:
(a) COMPETE WITH COMPANY. Own, manage, operate, control
or otherwise be in any manner affiliated or connected
with, or engage or participate in the ownership,
management, operation or control of (as principal,
agent, proprietor, partner, member, shareholder,
director, trustee, officer, administrator, employee,
consultant, independent contractor, or otherwise),
any business or entity including internet (disease
management, content-connectivity, business-business),
which as one of its business activities competes
directly or indirectly with the Company within any
county in which the Company does business; or attempt
to sell, offer or provide to any person or entity
which is a customer of the Company a product or
service substantially similar to products or services
offered by the Company.
(b) SOLICIT CUSTOMERS. Divert or take away or attempt to divert or
take away, call on or solicit or attempt to call on or solicit
any customers, potential customers, or prospects to which
goods were sold or services were rendered by Employee while he
was an employee of the Company.
(c) EMPLOYEES. Induce or influence or attempt to induce or
influence, any person who is engaged as an employee, agent,
independent contractor or otherwise by the Company to
terminate his or her employment or engagement.
3. SEVERABILITY. The parties hereto intend that the covenants
contained in paragraph 2 shall be construed as a series of separate covenants,
one for each county in which the Company has customers. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms to the
covenants contained in paragraph 2. If, in any judicial proceeding, a court
shall refuse to enforce any of the separate covenants deemed included in this
paragraph, then this unenforceable covenant shall be deemed eliminated from
these provisions for the purpose of those proceedings to the extent necessary to
permit the remaining separate covenants to be enforced.
<PAGE>
4. PROPRIETARY AND CONFIDENTIAL INFORMATION. The parties hereto
acknowledge and agree that proprietary and confidential information means
information or material which is not generally available to or used by others
outside the Company or the utility or value of which is not generally known or
recognized as standard practice, whether or not the underlying details are in
the public domain. Information and material which is considered proprietary and
confidential by the Company includes, but is not limited to, the following:
(a) Information and material which relates to the
Company's purchasing, accounting, merchandising or
marketing methods;
(b) Information and material related to business plans and methods
of operations or methods of doing business or relating to
marketing plans developed or to be developed by the Company;
(c) Customer lists, potential customers lists, prospect lists,
account lists, billing information, salesmen reports,
territory reports, pricing lists, quotation forms, advertising
or marketing materials and techniques and lead lists;
(d) Any of the information of the type described above which the
Company obtained from another source and which the Company
treats as proprietary or designates as confidential, whether
or not owned or developed by the Company.
5. USE OF INFORMATION. Employee acknowledges and agrees that he is
in a fiduciary relationship with the Company and as a consequence of this
fiduciary relationship and the trust and confidence reposed in the Employee by
the Company, Employee will receive proprietary and confidential information
and/or trade secrets of the Company, as previously defined in this Agreement. In
partial consideration for the mutual promises contained herein, the Employee
agrees not to directly or indirectly divulge, publish, communicate, use to the
detriment of the Company, use for the benefit of any person, firm, corporation,
or business or misuse in any way any such proprietary and confidential
information and/or trade secrets either during or subsequent to employment with
the Company, whether or not conceived, originated, discovered or developed in
whole or in part by Employee.
6. AVAILABILITY OF INJUNCTIVE RELIEF. The parties acknowledge that
compliance with the covenants in paragraphs 2, 4, and 5 is necessary to protect
the business, goodwill and proprietary interests of the Company. The parties
further agree that the remedy at law for breach of any of the provisions of such
covenants is inadequate and that the Company shall be entitled, in addition to
other such remedies as it may have, to injunctive relief for any breach or
threatened breach of paragraphs 2, 4, and 5 without proof of any actual damages
that may have been or may be caused to the Company by such breach or threatened
breach.
7. ASSIGNMENT. Neither this Agreement nor any right or obligation
created hereunder shall be assignable or delegated by Employee.
8. ENTIRE AGREEMENT. This Agreement and the Employment Agreement
dated the date hereof constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersede all prior and
contemporaneous agreements and understandings of the parties, and
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there are no warranties, representations or other agreements between the parties
in connection with the subject matter hereof except as specifically set forth
herein. No supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver or continuing waiver of any other provision hereof.
9. PARTIAL INVALIDITY. In the event one or more of the provisions
contained in this Agreement, or any portion of any such provisions, shall for
any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, or any portion of any such provision, but the Agreement shall
be construed as if such invalid, illegal or unenforceable provision, or portion
thereof, had never been contained herein.
10. GOVERNING LAW. This Agreement and all rights, obligations nd
liabilities arising hereunder shall be construed and enforced in accordance with
the laws of the State of Florida.
11. TITLES AND HEADINGS. Titles and headings to provisions of this
Agreement are for the purpose of reference only and shall in no way limit,
define or otherwise affect the interpretation or construction of such
provisions.
12. BINDING AGREEMENT. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding on the
successors and assigns of the Company.
13. NO THIRD PARTIES. The provisions of this Agreement shall not
inure to the Benefit of any third party who is not a signatory hereto except as
otherwise provided for in paragraph 12.
IN WITNESS WHEREOF, the parties have hereto executed this Agreement
as of the day and year first written above.
PRIORITY HEALTHCARE CORPORATION
By:_________________________________
The "Company"
_________________________________
"Employee"
3
EXHIBIT 10-Q(i)
FIRST AMENDMENT TO THE PROFIT SHARING PLAN OF PRIORITY
HEALTHCARE CORPORATION AND AFFILIATES
WHEREAS, Priority Healthcare corporation (The "Company") established a Profit
Sharing Plan, including a cash or deferred arrangement, known as the Profit
Sharing Plan of Priority Healthcare Corporation and Affiliates (the "Plan")
pursuant to the terms of the PRISM(R) Prototype Retirement Plan and Trust Basic
Plan Document #5 (the "Prototype Plan"), by executing the PRISM(R) Prototype
Retirement Plan and Trust 401(k) Profit Sharing Plan (Nonstandardized) Adoption
Agreement (the "Adoption Agreement") on January 1, 1999; and
WHEREAS, the Company has acquired another operating division operating under the
name Pharmacy Plus, Inc., effective July 1, 1999. The Company wishes to
recognize the past service of these employees for eligibility to begin
participation in the Plan and for vesting purposes, as well.
NOW THEREFORE,
BE IT RESOLVED, that effective July 1, 1999, the Company amends the provisions
of Items B.4.j.(v) and (vi) of the Adoption Agreement to provide as follows:
B. BASIC PLAN PROVISIONS:
...
4. DEFINITIONS:
...
j. YEAR OF SERVICE shall mean:
...
v X For ELIGIBILITY purposes, Years of Service with the following
Predecessor Employers shall count in fulfilling the eligibility
requirements for this Plan: Pharmacy Plus, Inc.
vi X For VESTING purposes, Years of Service with the following Predecessor
Employers shall count for purposes of determining the nonforfeitable
amount of a Participant's account: Pharmacy Plus, Inc.
AND BE IT FURTHER RESOLVED, that except as AMENDED herein, all other provisions
of the Profit Sharing Plan of Priority Healthcare Corporation and affiliates
shall remain effective as set forth in the Adoption Agreement.
SUCCESSOR PLAN SPONSOR: PRIORITY HEALTHCARE CORPORATION
BY: /s/ BARBARA J. LUTTRELL DATED: 6/14/99
----------------------- -------
Barbara J. Luttrell
TRUSTEE: KEYTRUST COMPANY OF INDIANA, NATIONAL ASSOCIATION
By: Dated:
------------------------ -------
EXHIBIT 10-Q(ii)
SECOND AMENDMENT TO THE
PROFIT SHARING PLAN OF PRIORITY HEALTHCARE
CORPORATION AND AFFILIATES
WHEREAS, Priority Healthcare Corporation (the "Company") established the Profit
Sharing Plan of Priority Healthcare Corporation and Affiliates (the "Plan)
originally effective on January 1, 1999 in the PRISM(R) Non-Standardized
Prototype Plan as provided by the Trustee; and
WHEREAS, the Company in the original Adoption Agreement provided that
Discretionary Profit Sharing Contributions would be made to Participants who had
completed a Year of Service but in the First Amendment lowering the service
requirement for 401(k) contributions it was mistakenly changed to 3 Months of
service; and
WHEREAS, the Company desires to change those requirements effective as of
January 1, 1999 to provide that Profit Sharing Contributions be allocated, paid
to the Plan and allocated to Participants who have completed a Year of Service
when an Employee becomes a Participant in the Plan for purposes of receiving a
Profit Sharing allocation; and
WHEREAS, the Company acquired a firm operating under the name of Supplies
Unlimited on September 10, 1999, and desires to give the former employees of
Supplies Unlimited credit for their service with Supplies Unlimited for purposes
of eligibility and vesting in future Employer Contributions, effective October
1, 1999.
NOW THEREFORE,
BE RESOLVED, that, effective January 1, 1999, the Company amends the Adoption
Agreement provisions of Item B.6.a. of the Adoption Agreement to provide as
follows:
B. BASIC PLAN PROVISION:
...
6. ELIGIBILITY:
An Employee covered by the Plan may become a Participant upon
completion of the following eligibility requirements:
<PAGE>
a. SERVICE:
i. There shall be no minimum service requirement for
an Employee to become a Participant.
ii. X The Employee must complete 1 Year of Service (not
more than 2 years) to be a Participant for
purposes of receiving allocations of Employer
Profit Sharing Contributions.
AND BE IF FURTHER RESOLVED, that effective October 1, 1999, the Company
amends the provisions of Item B.4.j.(v) and B.4.j.(vi) of the Adoption
Agreement to provide as follows:
B. BASIC PLAN PROVISIONS:
...
4. DEFINITIONS:
...
j. YEAR OF SERVICE SHALL MEAN:
...
v. X For ELIGIBILITY purposes, Years of Service with the following
Predecessor Employers shall count in fulfilling the eligibility
requirements for this Plan:
Bindley Western Industries, Inc., and subsidiaries, but only for
service as of the Effective Date, and only for employees employed
by Priority Healthcare Corporation (or its affiliates) as of the
Effective Date, Pharmacy Plus, Inc., and Supplies Unlimited.
vi X For VESTING purposes, Years of Service with the following
Predecessor Employers shall count for purposes of determining the
nonforfeitable amount of a Participants's account:
Bindley Western Industries, Inc., and subsidiaries, but only for
service as of the Effective Date, and only for employees employed
by Priority Healthcare Corporation (or its affiliates) as of the
Effective Date, Pharmacy Plus, Inc., and Supplies Unlimited.
<PAGE>
AND BE IT FURTHER RESOLVED, the except as AMENDED herein, all other provisions
of the Profit Sharing Plan of Priority Healthcare Corporation shall remain
effective as set forth in the Adoption Agreement.
PLAN SPONSOR: PRIORITY HEALTHCARE CORPORATION
BY: /s/ BARBARA J. LUTTRELL DATED 9/17/99
-----------------------
TRUSTEE: KEY TRUST COMPANY OF INDIANA, NATIONAL ASSOCIATION
BY: DATED:
------------------------ -------
EXHIBIT 21
PRIORITY HEALTHCARE CORPORATION
EXHIBIT 21 - LIST OF SUBSIDIARIES
Priority Healthcare Pharmacy, Inc. - Lake Mary, FL
Pharmacy Plus, Inc. - Lake Mary, FL and Philadelphia, PA
Priorityhealthcare.com, Inc. - Lake Mary, FL
All of the subsidiaries listed above are Florida corporations.
EXHIBIT 23
PRIORITY HEALTHCARE CORPORATION
EXHIBIT 23 - CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-69921, 333-61479, 333-65927 and 333-82481) of
Priority Healthcare Corporation of our report dated February 22, 2000 appearing
in this Form 10-K.
PricewaterhouseCoopers LLP
Orlando, Florida
March 13, 2000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 24,814
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<ALLOWANCES> 1,764
<INVENTORY> 30,920
<CURRENT-ASSETS> 204,867
<PP&E> 3,611
<DEPRECIATION> 1,049
<TOTAL-ASSETS> 217,704
<CURRENT-LIABILITIES> 59,097
<BONDS> 0
0
0
<COMMON> 219
<OTHER-SE> 158,388
<TOTAL-LIABILITY-AND-EQUITY> 217,704
<SALES> 427,887
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<CGS> 375,263
<TOTAL-COSTS> 394,349
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<INCOME-PRETAX> 33,538
<INCOME-TAX> 12,844
<INCOME-CONTINUING> 20,694
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,694
<EPS-BASIC> 1.02
<EPS-DILUTED> 1.00
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