UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31,
2001 COMMISSION FILE NO. 1-11993
MIM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 05-0489664
(State of incorporation) (IRS Employer Identification No.)
100 CLEARBROOK ROAD, ELMSFORD, NEW YORK 10523
(914) 460-1600
(Address and telephone number of Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.0001 PAR VALUE PER SHARE
(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 twelve 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. __
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of March 1, 2002, was approximately $377.0
million. (Reference is made to the fourth paragraph of Part II, Item 5 herein
for a statement of the assumptions upon which this calculation is based.)
On March 15, 2002, there were outstanding 22,832,583 shares of the
registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its 2002 Annual
Meeting of Stockholders to be filed with the Commission within 120 days after
the close of the registrant's fiscal year are incorporated by reference into
Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
OVERVIEW
MIM Corporation (the "Company" or "MIM") is a pharmaceutical healthcare
organization delivering innovative pharmacy benefit, specialty pharmaceutical
distribution and other pharmacy-related healthcare solutions to Plan Sponsors,
principally managed care organizations ("MCOs")and third party administrators.
The Company combines its clinical expertise, sophisticated data management and
therapeutic fulfillment capabilities to serve the particular needs of each of
its customers and respective benefit recipients covered by the customers'
pharmacy related health benefit.
The Company provides a broad array of pharmacy benefit and pharmacy
products and services to individuals ("Members") receiving health benefits
principally through health insurers (including MCOs) and other insurance
companies, and, to a lesser extent, third party administrators, labor unions,
self-funded employer groups, government agencies, and other funded health plan
sponsors (collectively, "Plan Sponsors"). The Company's programs include the
distribution of biotech and other high-cost prescription medications to the
chronically ill and genetically impaired, the provision of pharmacy benefit
management ("PBM") services to members of Plan Sponsors, and the distribution of
prescription maintenance medications to Plan Sponsors' Members by mail service
("Mail Service"). All of the Company's programs include the provision of
clinical pharmacy services designed to provide patients with high quality care
while controlling pharmacy and overall healthcare costs. Depending on the goals
and objectives of the Plan Sponsors with which the Company does business, the
Company provides some or all of the following clinical services as part of its
PBM and/or specialty pharmacy programs, all of which will be described below in
greater detail: pharmacy case management, therapy assessment, compliance
monitoring, health risk assessment, patient education, drug usage and
interaction evaluation, pharmacy claims processing, Mail Service and related
prescription distribution, benefit design consultation, drug utilization review,
formulary management and consultation, drug data analysis, drug interaction
management, patient compliance, program management and pharmaceutical rebate
administration.
Although a significant portion of the Company's revenues are now generated
through the management and distribution of Specialty Pharmaceuticals to the
genetically impaired and the chronically ill, the Company derives more than a
majority of its revenues from the provision of PBM services. The Company
believes that its future growth is directly linked to the success of its
specialty pharmacy growth strategy and believes that within 24 months, a
majority of the Company's revenues will be derived from the provision of
specialty pharmaceutical management and distribution operations.
SPECIALTY PHARMACY MANAGEMENT AND DISTRIBUTION
Through its BioScrip(TM) specialty injectable therapy programs, the
Company distributes high-cost pharmaceuticals and provides clinically focused
case and disease management programs to Plan Sponsors' members afflicted with
chronic illnesses or genetic impairments. The disease states or conditions for
which the Company has specialty injectable programs include HIV/AIDS, oncology,
hemophilia, multiple sclerosis, growth hormone deficiency, Gaucher's disease,
rheumatoid arthritis, infertility, respiratory syncytial virus (RSV), hepatitis
C, Crohn's disease and transplant.
The Company's specialty pharmaceutical programs are marketed principally
to Plan Sponsors in order to control the high cost trends associated with
medications for the chronically ill and genetically impaired. As part of a
bundled offering, the Company distributes prescription products to Plan
Sponsors' Member's and clinically manages each Member's condition from a
pharmacoeconomic perspective. In other words, the Company attempts to maximize
patient outcomes through strict adherence to the clinical guidelines or
protocols for a particular prescription therapy. In adhering to the guidelines,
the Company also attempts to minimize or control the costs associated with a
Member's condition.
The Company also distributes high-cost injectable and infusion
prescription medications and provides clinical management services to patients
through its Vitality Home Infusion Services, Inc., d/b/a Vitality Pharmaceutical
Services ("Vitality"), subsidiary, acquired in January 2002, located in Roslyn
Heights, New York. While BioScrip is marketed exclusively to Plan Sponsors,
Vitality markets its products and services to physician practice groups,
hospitals, and, in some cases, directly to patients.
Through its American Disease Management Associates L.L.C. ("ADIMA")
subsidiary located in Livingston, New Jersey, the Company distributes and
administers high cost specialty infusion therapies to patients requiring
principally immunosuppression blood products, such as IGG, parenteral nutrition
products, such as TPN, and antibiotic therapies such as rocephin or vancomycin.
Unlike the Company's other specialty programs, patients being serviced through
ADIMA have their therapies administered by IV certified nurses.
2
Unlike many of the Company's competitors, which focus on particular
pharmaceutical products within a limited number of chronic disease states, the
Company offers numerous products within a larger number of disease states, since
it is attempting to control a Plan Sponsor's overall pharmacy and medical
expenditures in the most clinically appropriate manner. In contrast, many of the
Company's competitors focus on increasing the market share of a particular
product and increasing profitability through its relationship with the
manufacturer of that particular product.
The following services are available through the Company's Specialty programs:
PHARMACY CASE MANAGEMENT ("PCM") - The Company provides Plan Sponsors'
Members with access to the BioScrip pharmacy case management team ("PCM Team"),
which is a specialized unit of skilled professionals including Pharmacists,
Registered Nurses, Certified Pharmacy Technicians, Case Managers and Customer
Service Representatives. The PCM Team is available via phone to both providers
and patients, 24 hours per day, seven days per week. Each PCM Team member is
cross trained in case management as well as individual disease states, in order
to provide Plan Sponsors and its Members with a variety of basic services,
including:
PRIOR AUTHORIZATIONS - The Company, in conjunction with the contracted
Plan Sponsor, develops effective criteria and protocols for the effective
management of specialty pharmaceutical care. Criteria are reviewed prior to the
onset of therapy to minimize incorrect prescribing, thereby reducing unnecessary
cost.
THERAPY ASSESSMENT - On-going monitoring of a Member's therapy is
performed at disease specific intervals to assure adherence to therapy, desired
response to therapy and any necessary interventions to enhance patient care.
PATIENT ENROLLMENT - The PCM Team is the main point of contact for both
physicians and patients during the enrollment process. PCM team members are
responsible for identifying immediate patient needs, triggering important
patient and physician mailings and following through on the enrollment process
and delivery of the initial prescription.
RISK ASSESSMENT - The PCM Team will engage all new patients in an initial
assessment to determine the patient's knowledge level, self-care ability and
non-compliance risk. Depending on the results of this assessment, patients are
classified and an appropriate monitoring program is selected and administered.
Patients are reassessed at appropriate times during their treatment as
determined by the PCM Team.
3
EDUCATION. Each PCM Team member is trained in disease state management and
treatment issues, and will be a valuable resource for both patients and
physicians in answering treatment questions pertaining to such topics as side
effects, self-administration and compliance issues.
COMPLIANCE MONITORING. The PCM Team will collectively track the patient's
progress and will initiate reminders, reinforcements and non-compliance alerts
to both physicians and the patient. They are the catalyst for understanding
compliance risks and taking action to coordinating the support necessary to
maximize the patient's treatment.
COORDINATED MEDICATION DELIVERY. BioScrip's pharmacy will provide express
delivery of medications to the patient's point of service including a
physician's office. Special handling techniques such as dry-ice packing are
utilized in compliance with manufacturer's specified requirements. In addition
to the injectable medication, BioScrip also provides Sharps containers, syringes
and ancillary materials needed for administration of the product. Express
delivery via overnight courier is provided without additional charge to the
patient or physician.
PHARMACY DATA SERVICES. The Company utilizes claims, medical and
laboratory data to analyze and evaluate pharmaceutical utilization and cost
trends to support our customers' understanding of such information through the
generation of reports for management and Plan Sponsor use, and presentation of
information vital to the Plan Sponsors' understanding of their particular
pharmaceutical utilization and cost trends. These services include drug
utilization review, quality assurance, claims and laboratory analysis. The
Company has developed proprietary systems to provide Plan Sponsors with
real-time access to pharmacy, financial, claims, prescriber and dispensing data.
DISEASE MANAGEMENT. The Company designs and administers programs to
maximize the benefits of pharmaceutical utilization as a tool in achieving
therapy goals for certain targeted diseases. Programs focus on preventing
high-risk events, such as asthma exacerbation or stroke, through appropriate use
of pharmaceuticals, while eliminating unnecessary or duplicate therapies. Key
components of these programs include health care provider training, integration
of care between health disciplines, monitoring of patient compliance,
measurement of care process and quality, and providing feedback for continuous
improvement in achieving therapy goals.
4
PBM SERVICES
The Company's PBM services offer small to mid-sized Plan Sponsors a broad
range of services designed to ensure the cost-effective delivery of clinically
appropriate pharmacy benefits. PBM services available to the Company's customers
include the following:
FORMULARY AND BENEFIT DESIGN. The Company offers to its clients customized,
flexible formulary and benefit plan designs to meet their specific program
requirements. Formulary design may assist in controlling program costs by
focusing, to the extent consistent with accepted medical and pharmacy practices
and applicable law, primarily on two areas: (i) generic substitution, which
involves the selection of generic drugs as a cost-effective alternative to their
bio-equivalent brand name drugs within a therapeutic category, and/or (ii)
therapeutic interchange, which involves the selection of a lower cost brand name
drug as an alternative to a higher priced brand name drug within a therapeutic
category. Increased usage of generic drugs by Company-managed programs also
enables the Company to obtain purchasing concessions and other financial
incentives on generic drugs, which may be shared with Plan Sponsors. After a
formulary has been established by a Plan Sponsor, rebates on brand name drugs
are also negotiated with drug manufacturers and are often shared with plan
sponsors.
Many Plan Sponsors do not restrict coverage to a specific list of
pharmaceuticals and are said to have "no" formulary or an "open" formulary that
generally covers all FDA-approved drugs except certain classes of excluded
pharmaceuticals (such as certain vitamins and cosmetics, experimental,
investigative or over-the-counter drugs). As a result of rising pharmacy program
costs, however, the Company believes that both public and private Plan Sponsors
have become increasingly receptive to controlling pharmacy costs by restricting
the availability of certain drugs within a given therapeutic class, other than
in cases of medical necessity or other pre-established prior authorization
guidelines, to the extent clinically appropriate. Once a Plan Sponsor decides to
utilize a "restricted" or "closed" formulary, the Company actively involves its
clinical staff with a Plan Sponsor's Pharmacy and Therapeutics Committees (which
typically consists of local Plan Sponsors, prescribers, pharmacists and other
health care professionals) to design clinically appropriate formularies in order
to control pharmacy costs. The composition of the formulary is the
responsibility of, and subject to the final approval of, the Plan Sponsor.
The primary method for assuring formulary compliance on behalf of a Plan
Sponsor is by controlling pharmacy reimbursement to ensure that non-formulary
drugs are not dispensed to a plan member, subject to certain limited exceptions.
Benefit design and formulary parameters are managed through a point-of-sale
("POS") claims processing system through which real-time electronic messages are
transmitted to pharmacists to ensure compliance with specified benefit design
and formulary parameters before services are rendered and prescriptions are
dispensed. Over utilization of medication is monitored and managed through
quantity limitations, based upon nationally recognized standards and guidelines
regarding maintenance versus non-maintenance therapy. Step protocols, which are
procedures requiring that preferred therapies be tried and shown ineffective
before less favored therapies are covered, are also established by the Company
in conjunction with the Plan Sponsors' Pharmacy and Therapeutics Committees to
control improper utilization of certain high-risk or high-cost medications.
CLINICAL SERVICES. Plan Sponsors' formularies typically identify a limited
number of drugs for preferred status within each therapeutic class to be the
covered drugs in order to treat most medical conditions appropriately. Provision
5
is also made, however, for coverage of non-formulary or non-preferred drugs
(other than certain excluded products) when documented to be clinically
appropriate for a particular patient. Since non-formulary drugs ordinarily are
automatically rejected for coverage by the real-time POS system, the Company
employs procedures to override restrictions on non-formulary medications for a
particular patient and period of treatment. Similarly, restrictions on the use
of certain high-risk or high-cost formulary drugs may be overridden through
prior authorization procedures. Non-formulary overrides and prior authorizations
are processed on the basis of documented, clinically supported medical
information and typically are granted or denied within 48 hours after request.
Requests for, and appeals of denials of coverage in those cases are handled by
the Company through its staff of trained pharmacists and board certified
pharmacotherapy specialists, subject to a Plan Sponsor's ultimate authority over
all such requests and appeals. Further, in the case of a medical emergency, as
determined by the dispensing network pharmacist, the Company authorizes, without
prior approval, short-term supplies of all medication unless specifically
excluded by a plan.
DRUG USAGE EVALUATION. Drug usage is evaluated on a concurrent, prospective
and retrospective basis utilizing the real-time POS system and proprietary
information systems for multiple drug interactions, drug-health condition
interactions, duplication of therapy, step therapy protocol enforcement,
minimum/maximum dose range edits, compliance with prescribed utilization levels
and early refill notification. The Company also maintains an on-going drug
utilization review program in which select medication therapies are reviewed and
data is collected, analyzed and reported for management applications.
PHARMACY DATA SERVICES. The Company utilizes claims data to analyze and
evaluate pharmaceutical utilization and cost trends to support our customers'
understanding of such information through the generation of reports for
management and Plan Sponsor use, and presentation of information vital to the
Plan Sponsors understanding of their particular pharmaceutical utilization and
cost trends. These services include drug utilization review, quality assurance,
claims analysis and rebate contract administration. The Company has developed
proprietary systems to provide Plan Sponsors with real-time access to pharmacy,
financial, claims, prescriber and dispensing data.
DISEASE MANAGEMENT. The Company designs and administers programs to
maximize the benefits of pharmaceutical utilization as a tool in achieving
therapy goals for certain targeted diseases, such as diabetes and asthma.
Programs focus on preventing high-risk events, such as asthma exacerbation or
stroke, through appropriate use of pharmaceuticals, while eliminating
unnecessary or duplicate therapies. Key components of these programs include
health care provider training, integration of care between health disciplines,
monitoring of patient compliance, measurement of care process and quality, and
providing feedback for continuous improvement in achieving therapy goals. As
described more fully above under "Specialty Pharmacy Management and
Distribution," many of these same tools are used by the Company in delivering
specialty pharmaceutical services and products to patients afflicted with the
chronic diseases managed by the Company.
BEHAVIORAL HEALTH PHARMACY SERVICES. In recent years, Plan Sponsors,
particularly MCOs, have recognized the specialized behavioral health needs of
certain of its Members. As a result, many MCOs have segregated those afflicted
with behavioral health issues into separately managed programs. The Company
provides pharmaceutical-related services that encourage the proper and
cost-effective utilization of behavioral health medication to enrollees within
the segregated population within separate behavioral health organizations, which
are traditionally (but not always) affiliated with that MCO. Through the
development of provider education programs, utilization protocols and
prescription dispensing evaluation tools, the Company is able to integrate
pharmaceutical behavioral or mental health therapies with other medical
therapies to enhance patient compliance and minimize unnecessary or sub optimal
prescribing practices. These services are integrated into the Plan Sponsor's
package of behavioral health care products for marketing to private insurers,
public managed care programs and other health providers.
PHARMACY DISPENSING FACILITY. The Company believes that program costs may
also be reduced through the distribution of pharmaceutical products directly to
Plan Sponsors' Members by the use of Mail Service programs through its pharmacy
dispensing facility. The Company provides these Mail Service dispensing services
from a new, fully automated fulfillment facility in Columbus, Ohio to Members
typically receiving maintenance medications. The facility utilizes some of the
industry's latest pharmacy technology currently available in the market place.
This affords the Company and its Plan Sponsors the ability to reduce cost
through the Company's Mail Service as compared to the more costly retail
distribution of prescription products.
CAPITATED BILLING ARRANGEMENTS
In addition to traditional fee-for-service billing arrangements, the
Company had historically offered capitated fee billing arrangements to its MCO
customers. A capitated fee arrangement permits a Plan Sponsor to incur a fixed
fee per member (a "capitated" program), which allows for cost shifting to the
Company where aggregate PBM costs exceed pre-established per member amounts and
a premium or greater financial benefit to the Company where costs are less than
pre-established per member amounts. For 2002, the Company has remaining one
material capitated arrangement with an MCO. The Company presently anticipates
that capitated arrangements will represent approximately 6.8% of the Company's
2002 revenues. For the year ended December 31, 2001, approximately 21.2% of the
Company's revenues were generated from capitated contracts compared to
approximately 28.0% in 2000 while non-capitated business (including mail order
services) represented approximately 78.8% and 72.0%, respectively.
PROVISION FOR LOSS CONTRACTS
Generally, loss contracts arise only on capitated contracts and primarily
result from higher than expected pharmacy utilization rates, higher than
expected inflation in drug costs and the inability of the Company to restrict an
MCOs' formulary to the extent anticipated by the Company at the time contracted
PBM services are implemented, thereby resulting in higher than expected drug
costs. At such time as management estimates that a contract will sustain losses
over its remaining contractual life, a reserve is established for these
estimated losses. There are currently no expected loss contracts and management
does not believe that there is an overall trend towards losses on its existing
capitated contracts.
6
SALES, MARKETING AND SERVICING
The Company offers Plan Sponsors comprehensive pharmaceutical services
that manage all aspects of a Plan Sponsor's pharmaceutical needs, including the
specialty pharmacy services described above. The Company believes that its
ability to offer a full line of services, including its specialty pharmacy
products and services, provides it a competitive edge over its competition. The
Company has also been successful in contracting to provide specialty
pharmaceutical services, typically on a non-exclusive or preferred basis to Plan
Sponsors, clinics, hospitals and physician groups not previously contracted with
the Company for non-specialty PBM services.
The Company markets its specialty pharmaceutical programs to MCO's without
regard to the number of members, third party administrators, physician practice
groups and hospitals. Unlike many of its competitors, the Company also markets
these programs to other typically smaller pharmacy benefit managers, which do
not have the same resources as the Company or which otherwise have determined
not to develop independent specialty pharmacy operations.
The Company markets its PBM services to small- to mid-sized public and
private health plans and MCOs, typically having 400,000 or less members,
self-funded groups, small employer groups, labor unions and third party
administrators representing some or all of the aforementioned groups. The
Company primarily relies on its own national sales force to solicit business
from Plan Sponsors, as well as third party administrators and commissioned
independent agents and brokers.
As with all of the Company's products and services, the Company offers Mail
Service programs in conjunction with PBM and specialty, pharmaceutical
distribution programs. When offered in conjunction with its other programs, Mail
Service may be subject to the target marketing focus of the PBM. When offered
as a program without PBM services, the Company's Mail Service programs are
offered to MCO's and other plans without regard to that Plan Sponsors size.
THE TENNCARE(R) PROGRAM.
Historically, a majority of the Company's revenues were derived from
providing PBM services in the State of Tennessee to MCOs participating in the
State of Tennessee's TennCare(R) program and behavioral health organizations
("BHOs") participating in the State of Tennessee's TennCare(R) Partners program.
From January 1994 through December 31, 1998, the Company provided its PBM
services as a subcontractor to RxCare of Tennessee, Inc. ("RxCare").
The Company and RxCare discontinued their relationship on December 31, 1998.
The negotiated termination of its relationship with RxCare, among other things,
allowed the Company to directly market its services to Tennessee customers
(including those under contract with RxCare at such time) prior to the
expiration of that relationship. The Company's marketing efforts resulted in the
Company executing agreements with all of the MCOs for the TennCare(R) lives
previously managed through RxCare, as well as substantially all third party
administrators ("TPAs") and employer groups previously managed through the
RxCare relationship.
The TennCare(R) program operates under a demonstration waiver from The
United States Center for Medicare and Medicaid Services ("CMS"). That waiver is
the basis of the Company's ongoing service to those MCOs in the TennCare(R)
program. The waiver expired on December 31, 2001 and was renewed without
material modification through December 31, 2002. In addition, the State of
Tennessee and the Federal governments have agreed to negotiate towards an
additional two-year extension of the waiver through December 31, 2004. While the
Company believes that pharmacy benefits will continue to be provided to Medicaid
and other eligible TennCare(R) enrollees through MCOs in one form or another
through at least December 31, 2004, there can be no assurances that such waiver
will be renewed after December 31, 2002, that pharmacy benefits will continue
under the TennCare(R) Program or that the MCO's currently being serviced by the
Company will continue their respective relationships with it under the existing
or a successor program or on the same or similar terms and conditions. If the
waiver is not renewed and the Company is not providing PBM services and/or
distributing specialty products to those lives under a successor program or
arrangement, then the failure to provide such services could have a material and
adverse affect on the financial position and results of operations of the
Company. Moreover, should the funding sources and/or conditions for the
TennCare(R) program change significantly, the TennCare(R) program's ability to
pay the MCOs, and in turn the MCOs ability to pay the Company, could materially
and adversely affect the Company's financial position and results of operations.
COMPETITION
The Company faces substantial competition within the pharmaceutical
healthcare services industry. This industry includes a number of large,
well-capitalized companies with nationwide operations, such as AdvancePCS,
7
Inc., Caremark Rx, Inc., Express Scripts, Inc., Merck-Medco Managed Care,
L.L.C., MedImpact Healthcare Systems, Inc. and WellPoint Pharmacy Management as
well as many smaller organizations typically operating on a local or regional
basis. The Company also competes with several national and regional specialty
pharmaceutical distribution companies that have substantial financial resources
and which also provide products and services to the chronically ill and
genetically impaired. These competitors include Accredo Health Inc., Chronimed,
Inc., Gentiva Health Services, Inc. and Priority Healthcare Corporation. Some of
the Company's competitors are under common control or ownership by brand name
drug manufacturers or retail pharmacy chains and may be better positioned with
respect to the cost-effective distribution of pharmaceuticals and/or the pricing
of PBM services. Some of the Company's primary competitors have a substantially
larger portion of the market share than the Company's existing market share.
Moreover, some of the Company's competitors may have secured long-term supply or
distribution arrangements for prescription pharmaceuticals necessary to treat
certain chronic disease states on price terms substantially more favorable than
the terms currently available to the Company. As a result of such advantageous
pricing, the Company may be less price competitive than some of these
competitors with respect to certain pharmaceutical products. However, as relates
to its specialty programs, the Company does not believe that it competes
strictly on the cost of particular products, rather it offers customers the
opportunity to lower overall pharmaceutical and medical cost while providing
high quality care.
GOVERNMENT REGULATION
GENERAL. As a participant in the healthcare industry, the Company's
operations and relationships are subject to federal and state laws and
regulations and enforcement by federal and state governmental agencies. Various
federal and state laws and regulations govern the purchase, distribution and
management of prescription drugs and related services and affect or may affect
the Company. The Company believes that it is in compliance with all legal
requirements material to its operations.
In the second quarter of 2000, the Company entered into a global settlement
agreement with the Office of Inspector General (the "OIG"), within the U.S.
Department of Health and Human Services ("HHS"), and the State of Tennessee
relating to certain civil and criminal charges brought against former officers
of the Company's predecessor. The Company did not admit any wrongdoing in the
global settlement agreement but agreed to enter into a corporate integrity
agreement in order to ensure ongoing compliance with the requirements of
Medicare, Medicaid and all other Federal health care programs. Under the terms
of this agreement, the Company is required to, among other things, implement a
corporate compliance program, conduct ongoing educational programs to inform
employees regarding compliance with relevant laws and regulations and institute
a formal reporting procedure to disclose possible violations to the OIG. In
addition to these requirements, the Company must submit annual reports with
respect to the status of its compliance activities. Although compliance with the
corporate integrity agreement is designed to reduce the risk of violations of
laws and regulations relevant to our business, the Company is required to report
any such potential violations to the OIG and the U.S. Department of Justice. The
Company is therefore subject to increased regulatory scrutiny and, if the
Company commits legal or regulatory violations, it may be subject to an
increased risk of sanctions or penalties, including exclusion from participation
in the Medicare or Medicaid programs. The Company anticipates maintaining
certain compliance related oversight procedures after the expiration of the
corporate integrity agreement in June 2005.
Among the various Federal and state laws and regulations which may govern or
impact the Company's current and planned operations are the following:
MAIL SERVICE PHARMACY REGULATION. Many of the states into which the Company
delivers pharmaceuticals have laws and regulations that require out-of-state
Mail Service pharmacies to register with, or be licensed by, the boards of
pharmacy or similar regulatory bodies in those states. These states generally
permit the dispensing pharmacy to follow the laws of the state within which the
dispensing pharmacy is located.
However, various states have enacted laws and adopted regulations directed
at restricting or prohibiting the operation of out-of-state pharmacies by, among
other things, requiring compliance with all laws of the states into which the
out-of-state pharmacy dispenses medications, whether or not those laws conflict
with the laws of the state in which the pharmacy is located. To the extent that
such laws or regulations are found to be applicable to the Company's operations,
the Company would be required to comply with them. In addition, to the extent
that any of the foregoing laws or regulations prohibit or restrict the operation
of Mail Service pharmacies and are found to be applicable to the Company, they
could have an adverse effect on the Company's prescription Mail Service
operations.
8
Other statutes and regulations may also affect the Company's Mail Service
operations. The Federal Trade Commission requires mail order sellers of goods
generally to engage in truthful advertising, to stock a reasonable supply of the
products to be sold, to fill mail orders within 30 days, and to provide clients
with refunds when appropriate.
LICENSURE LAWS. Many states have licensure or registration laws governing
certain types of ancillary healthcare organizations, including preferred
provider organizations, third party administrators, and companies that provide
utilization review services. The scope of these laws differs significantly from
state to state, and the application of such laws to the activities of pharmacy
benefit managers often is unclear. The Company has registered under such laws in
those states in which the Company has concluded that such registration is
required.
The Company dispenses prescription drugs pursuant to orders received through
its ScripPharmacy.com Web site, as well as other affiliated Web sites.
Accordingly, the Company may be subject to laws affecting on-line pharmacies.
Several states have proposed laws to regulate on-line pharmacies and require
on-line pharmacies to obtain state pharmacy licenses. Additionally, federal
regulation by the United States Food and Drug Administration (the "FDA"), or
another federal agency, of on-line pharmacies that dispense prescription drugs
has been proposed. To the extent that such state or federal regulation could
apply to the Company's operations, certain of the Company's operations could be
adversely affected by such licensure legislation.
OTHER LAWS AFFECTING PHARMACY OPERATIONS. The Company is subject to state
and federal statutes and regulations governing the operation of pharmacies,
repackaging of drug products, wholesale distribution, dispensing of controlled
substances, medical waste disposal, and clinical trials. Federal statutes and
regulations govern the labeling, packaging, advertising and adulteration of
prescription drugs and the dispensing of controlled substances. Federal
controlled substance laws require the Company to register its pharmacies and
repackaging facilities with the United States Drug Enforcement Administration
and to comply with security, recordkeeping, inventory control and labeling
standards in order to dispense controlled substances.
State controlled substance laws require registration and compliance with
state pharmacy licensure, registration or permit standards promulgated by the
state pharmacy licensing authority. Such standards often address the
qualification of an applicant's personnel, the adequacy of its prescription
fulfillment and inventory control practices and the adequacy of its facilities.
In general, pharmacy licenses are renewed annually. Pharmacists and pharmacy
technicians employed by each branch must also satisfy applicable state licensing
requirements.
FDA REGULATION. The FDA generally has authority to regulate drug promotional
information and materials that are disseminated by a drug manufacturer or by
other persons on behalf of a drug manufacturer. In January 1998, the FDA issued
Draft Guidance regarding its intent to regulate certain drug promotion and
switching activities of pharmaceutical manufacturers that control, directly or
indirectly, a PBM. The FDA has indicated that it does not intend to finalize the
Draft Guidance. However, there can be no assurance that the FDA will not assert
jurisdiction over certain aspects of the Company's PBM business, including the
internet sale of prescription drugs.
NETWORK ACCESS LEGISLATION. A majority of states now have some form of
legislation affecting the ability of the Company to limit access to a pharmacy
provider network or remove network providers. Such legislation may require the
Company or its client to admit any retail pharmacy willing to meet the plan's
price and other terms for network participation ("any willing provider"
legislation), or may prohibit the removal of a provider from a network except in
compliance with certain procedures ("due process" legislation) or may prohibit
days' supply limitations or co-payment differentials between mail and retail
pharmacy providers. Many states have exceptions to the applicability of these
statutes for managed care arrangements or other government benefit programs,
including Tennessee.
LEGISLATION IMPOSING PLAN DESIGN MANDATES. Some states have enacted
legislation that prohibits Plan Sponsors from implementing certain restriction
design features, and many states have introduced legislation to regulate various
aspects of managed care plans, including provisions relating to pharmacy
benefits. For example, some states provide that members of a plan may not be
required to use network providers, but that must instead be provided with
benefits even if they choose to use non-network providers ("freedom of choice"
legislation), or provide that a patient may sue his or her health plan if care
is denied. Some states have enacted, and other states have introduced,
legislation regarding plan design mandates, including legislation that prohibits
9
or restricts therapeutic substitution, requires coverage of all drugs approved
by the FDA, or prohibits denial of coverage for non-FDA approved uses. Some
states mandate coverage of certain benefits or conditions. Such legislation does
not generally apply to the Company, but it may apply to certain of the Company's
customers (generally, HMOs and health insurers). If such legislation were to
become widespread and broad in scope, it could have the effect of limiting the
economic benefits achievable through pharmacy benefit management. To the extent
that such legislation is applicable and is not preempted by the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (as to plans
governed by ERISA), certain operations of the Company could be adversely
affected.
Other states have enacted legislation purporting to prohibit health plans
from requiring or offering members financial incentives for use of mail order
pharmacies.
ANTI-KICKBACK LAWS. Subject to certain statutory and regulatory exceptions
(including exceptions relating to certain managed care, discount, group
purchasing and personal services arrangements), Federal law prohibits the
payment or receipt of remuneration to induce, arrange for or recommend the
purchase of health care items or services paid for in whole or in part by
Medicare or state health care programs (including Medicaid programs and Medicaid
waiver programs). Certain state laws may extend the prohibition to items or
services that are paid for by private insurance and self-pay patients.
Management carefully considers the importance of such "anti-kickback" laws when
structuring its operations, and believes the Company is in compliance therewith.
Violation of the Federal anti-kickback statute could subject the Company to
criminal and/or civil penalties, including exclusion from Medicare and Medicaid
(including TennCare(R)) programs or state-funded programs in the case of state
enforcement.
The federal anti-kickback law has been interpreted broadly by courts, the
OIG and administrative bodies. Because of the federal statutes broad scope,
federal regulations establish certain safe harbors from liability. Safe harbors
exist for certain properly reported discounts received from vendors, certain
investment interest, and certain properly disclosed payments made by vendors to
group purchasing organizations, as well as for other transactions or
relationships. In late 1999, the HHS adopted final rules revising the discount
safe harbor to protect certain rebates. Because this revision is fairly recent,
the guidance on how the safe harbor revision will be interpreted is not fully
developed. Nonetheless, a practice that does not fall within a safe harbor is
not necessarily unlawful, but may be subject to scrutiny and challenge. In the
absence of an applicable exception or safe harbor, a violation of the statute
may occur even if only one purpose of a payment arrangement is to induce patient
referrals or purchases. Among the practices that have been identified by the OIG
as potentially improper under the statute are certain "product conversion
programs" in which benefits are given by drug manufacturers to pharmacists or
physicians for changing a prescription (or recommending or requesting such a
change) from one drug to another. Anti-kickback laws have been cited as a
partial basis, along with state consumer protection laws discussed below, for
investigations and multi-state settlements relating to financial incentives
provided by drug manufacturers to retail pharmacies in connection with such
programs.
Certain governmental entities have commenced investigations of PBM companies
and other companies having dealings with the PBM industry and have identified
issues concerning selection of drug formularies, therapeutic substitution
programs and discounts or rebates from prescription drug manufacturers.
Additionally, at least one state has filed a lawsuit concerning similar issues
against a health plan. To date, the Company has not been the subject of any such
investigation or suit and has not received subpoenas or been requested to
produce documents for any such investigation or suit. However, there can be no
assurance that the Company will not receive subpoenas or be requested to produce
documents in pending investigations or litigation in the future.
The Company believes that it is in compliance with the legal requirements
imposed by the anti-remuneration laws and regulations, and the Company believes
that there are material and substantial differences between drug switching
programs that have been challenged under these laws and the therapeutic
interchange practices and formulary management programs offered by the Company
to its customers. However, there can be no assurance that the Company will not
be subject to scrutiny or challenge under such laws or regulations, or that any
such challenge would not have a material adverse effect upon the Company.
THE STARK LAWS. The federal law known as "Stark II" became effective in
1995, and was a significant expansion of an earlier federal physician
self-referral law commonly known as "Stark I". Stark II prohibits physicians
from referring Medicare or Medicaid patients for "designated health services" to
an entity with which the physician or an immediate family member of the
physician has a financial relationship. Possible penalties for violation of the
10
Stark laws include denial of payment, refund of amounts collected in violation
of the statute, civil monetary penalties and program exclusion. The Stark law
standards contain certain exceptions for physician financial arrangements, and
HCFA has released Stark II final regulations, which describe the parameters of
these exceptions in more detail. The Stark II regulations are scheduled to
become effective in January 2002, with the exception of one section relating to
physician referrals to home health care agencies, which was scheduled to become
effective in February 2001.
STATE SELF-REFERRAL LAWS. The Company is subject to state statutes and
regulations that prohibit payments for referral of patients and referrals by
physicians to healthcare providers with whom the physicians have a financial
relationship. Some state statutes and regulations apply to services reimbursed
by governmental as well as private payors. Violation of these laws may result in
prohibition of payment for services rendered, loss of pharmacy or health
provider licenses, fines, and criminal penalties. The laws and exceptions or
safe harbors may vary from the federal Stark laws and vary significantly from
state to state. The laws are often vague, and, in many cases, have not been
widely interpreted by courts or regulatory agencies; however, the Company
believes it is in compliance with such laws.
STATUTES PROHIBITING FALSE CLAIMS AND FRAUDULENT BILLING ACTIVITIES. A range
of federal civil and criminal laws target false claims and fraudulent billing
activities. One of the most significant is the Federal False Claims Act, which
prohibits the submission of a false claim or the making of a false record or
statement in order to secure a reimbursement from a government-sponsored
program. In recent years, the federal government has launched several
initiatives aimed at uncovering practices, which violate false claims or
fraudulent billing laws. Claims under these laws may be brought either by the
government or by private individuals on behalf of the government, through a
"whistleblower" or "qui tam" action.
REIMBURSEMENT. Approximately 47% of the Company's revenue is derived
directly from Medicare or Medicaid or other government-sponsored healthcare
programs subject to the federal anti-kickback laws and/or the Stark laws. Also,
the Company indirectly provides benefits to managed care entities that provide
services to beneficiaries of Medicare, Medicaid and other government-sponsored
healthcare programs. Should there be material changes to federal or state
reimbursement methodologies, regulations or policies, the Company's
reimbursements from government-sponsored healthcare programs could be adversely
affected. In addition, certain state Medicaid programs only allow for
reimbursement to pharmacies residing in the state or in a border state. While
the Company believes that it can service its current Medicaid patients through
existing pharmacies, there can be no assurance that additional states will not
enact in-state dispensing requirements for their Medicaid programs. To the
extent such requirements are enacted, certain therapeutic pharmaceutical
reimbursements could be adversely affected.
LEGISLATION AND OTHER MATTERS AFFECTING DRUG PRICES. Some states have
adopted legislation providing that a pharmacy participating in the state
Medicaid program must give the state the best price that the pharmacy makes
available to any third party plan ("most favored nation" legislation). Such
legislation may adversely affect the Company's ability to negotiate discounts in
the future from network pharmacies. At least one state has enacted "unitary
pricing" legislation, which mandates that all wholesale purchasers of drugs
within the state be given access to the same discounts and incentives. Such
legislation has not yet been enacted in the states where the Company's Mail
Service pharmacies are located. Such legislation, if enacted in other states,
could adversely affect the Company's ability to negotiate discounts on its
purchase of prescription drugs to be dispensed by its Mail Service pharmacies.
PRIVACY AND CONFIDENTIALITY LEGISLATION. Most of the Company's activities
involve the receipt or use by the Company of confidential medical, pharmacy or
other health-related information concerning individual Members, including the
transfer of the confidential information to the Member's health benefit plan. In
addition, the Company uses aggregated and blinded (anonymous) data for research
and analysis purposes. In December 2000, HHS issued final regulations regarding
the privacy of individually-identifiable health information pursuant to the
Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). This
final rule on privacy applies to a health care patient's medical information
that could be used to identify the individual identity of the patient. We refer
to this information as protected health information. The final rule mandates the
protection of protected health information in any format, including both
electronic and paper records, and imposes extensive requirements on the way in
which health care providers such as us, as well as Plan Sponsors and their
business associates, use and disclose protected health information. The final
rule gives patients significant rights to understand and control how their
protected health information is used and disclosed. Organizations subject to the
rule will have
11
until April 14, 2003 comply with its provisions and implement appropriate
policies and procedures to safeguard protected health information. HIPAA will
likely increase our burden and costs of regulatory compliance with respect to
our health improvement programs and other information-based products, alter our
reporting to certain Plan Sponsors and may reduce the amount of information we
may use if patients do not consent to such use. Sanctions for failing to comply
with standards issued pursuant to HIPAA include possible jail time, criminal
penalties of up to $250,000 and civil fines of up to $25,000. In addition, HHS
has proposed, but not yet finalized, regulations pursuant to HIPAA that govern
the security of individually-identifiable health information.
In addition to the proposed federal health information privacy regulations
described above, most states have enacted patient confidentiality laws, which
prohibit the disclosure of confidential medical information. It is unclear which
state laws may be preempted by the final HHS rule discussed above.
CONSUMER PROTECTION LAWS. Most states have consumer protection laws that
have been the basis for investigations and multi-state settlements relating to
financial incentives provided by drug manufacturers to pharmacies in connection
with drug switching programs. No assurance can be given that the Company will
not be subject to scrutiny or challenge under one or more of these laws.
DISEASE MANAGEMENT SERVICES REGULATION. All states regulate the practice of
medicine. To the Company's knowledge, no PBM has been found to be engaging in
the practice of medicine by reason of its disease management services. However,
there can be no assurance that a federal or state regulatory authority will not
assert that such services constitute the practice of medicine, thereby
subjecting such services to federal and state laws and regulations applicable to
the practice of medicine.
COMPREHENSIVE PBM REGULATION. Although no state has passed legislation
regulating PBM activities in a comprehensive manner, such legislation has been
introduced in the past in several states. Such legislation, if enacted in a
state in which the Company conducts a significant amount of business, could have
a material adverse impact on the Company's operations.
ANTITRUST LAWS. Numerous lawsuits have been filed throughout the United
States by retail pharmacies against drug manufacturers challenging certain brand
drug pricing practices under various state and Federal antitrust laws. A
settlement in one such suit would require defendant drug manufacturers to
provide the same types of discounts on pharmaceuticals to retail pharmacies and
buying groups as are provided to managed care entities to the extent that their
respective abilities to affect market share are comparable, a practice which, if
generally followed in the industry, could increase competition from pharmacy
chains and buying groups and reduce or eliminate the availability to the Company
of certain discounts, rebates and fees currently received in connection with its
drug purchasing and formulary administration programs. In addition, to the
extent that the Company or an associated business appears to have actual or
potential market power in a relevant market, business arrangements and practices
may be subject to heightened scrutiny from an anti-competitive perspective and
possible challenge by state or Federal regulators or private parties. For
example, RxCare, which was investigated and found by the Federal Trade
Commission to have potential market power in Tennessee, entered into a consent
decree in June 1996 agreeing not to enforce a policy which had required
participating network pharmacies to accept reimbursement rates from RxCare as
low as rates accepted by them from other pharmacy benefits payors. To date,
enforcement of antitrust laws have not had any material affect on the Company's
business.
While management believes that the Company is in substantial compliance with
all existing laws and regulations stated above, such laws and regulations are
subject to rapid change and often are uncertain in their application. As
controversies continue to arise in the health care industry (for example,
regarding the efforts of Plan Sponsors and pharmacy benefit managers to limit
formularies, alter drug choice and establish limited networks of participating
pharmacies), Federal and state regulation and enforcement priorities in this
area can be expected to increase, the impact of which on the Company cannot be
predicted. There can be no assurance that the Company will not be subject to
scrutiny or challenge under one or more of these laws or that any such challenge
would not be successful. Any such challenge, whether or not successful, could
have a material adverse effect upon the Company's business and results of
operations.
12
EMPLOYEES
At January 31, 2002, the Company employed a total of 360 people, including
36 licensed pharmacists. The Company's employees are not represented by any
union and, in the opinion of management, the Company's relations with its
employees are good.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in leased office space in
Elmsford, New York. The Company also leases commercial office space for its
above-described operations in South Kingstown, Rhode Island; Columbus, Ohio;
Livingston, New Jersey; Roslyn Heights, New York; and Nashville, Tennessee.
ITEM 3. LEGAL PROCEEDINGS
Until settled on April 2, 2001, the Company had been engaged in commercial
arbitration with Tennessee Health Partnership ("THP") over a number of
commercial disputes surrounding the parties' relationship. See Note 9 of Notes
to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, par value $0.0001 per share ("Common Stock"), is
traded on the National Market System of The Nasdaq Stock Market, Inc. under the
symbol "MIMS". The following table represents the range of high and low sales
prices for the Company's Common Stock for the last eight quarters. Such prices
reflect interdealer prices, without retail markup, markdown or commissions and
may not necessarily represent actual transactions.
High Low
---------------------
2000: First Quarter........... $ 8.63 $ 2.44
Second Quarter.......... $ 4.38 $ 1.69
Third Quarter........... $ 2.75 $ 1.44
Fourth Quarter.......... $ 2.13 $ 0.63
2001: First Quarter........... $ 2.56 $ 0.81
Second Quarter.......... $ 6.65 $ 2.16
Third Quarter........... $ 12.58 $ 5.93
Fourth Quarter.......... $ 18.33 $ 9.46
As of March 15, 2002, there were 100 stockholders of record in addition to
approximately 9,295 stockholders whose shares were held in nominee name.
The Company has never paid cash dividends on its Common Stock and does not
anticipate doing so in the foreseeable future.
For purposes of calculating the aggregate market value of the shares of
Common Stock held by non-affiliates, as shown on the cover page of this Annual
Report on Form 10-K (the "Report"), it has been assumed that all outstanding
shares of Common Stock were held by non-affiliates except for shares held by
directors and executive officers of the Company and any persons disclosed as
beneficial owners of greater than 10% of the Company's outstanding securities.
However, this should not be deemed to constitute an admission that any or all
such directors and executive officers of the Company are, in fact, affiliates of
the Company, or that there are not other persons who may be deemed to be
affiliates of the Company.
During the three months ended December 31, 2001, the Company did not sell
any securities without registration under the Securities Act of 1933, as amended
(the "Securities Act").
14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below should be read in
conjunction with, and is qualified in its entirety by reference to, Item 7 of
this Report and with the Company's Consolidated Financial Statements and the
Notes thereto appearing elsewhere in this Report.
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------------------------------
Statement of Operations Data 2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
Revenue (1) $ 456,646 $ 338,171 $ 350,693 $ 432,609 $ 217,432
Special charges and Tenncare reserve
adjustment (2,476)(8) - 6,029(2) 3,700(3) -
Net income (loss) (4,5,8) 14,202 (1,823) (3,785) 4,271 (13,497)
Net income (loss) per basic share 0.67 (0.09) (0.20) 0.28 (1.07)
Net income (loss) per diluted share (6) 0.64 (0.09) (0.20) 0.26 (1.07)
Weighted average shares outstanding
used in computing basic income (loss)
per share 21,273 19,930 18,660 15,115 12,620
Weighted average shares outstanding
used in computing diluted income (loss)
per share 22,289 19,930 18,660 16,324 12,620
AS OF DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------------------------------
BALANCE SHEET DATA 2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 12,487 $ 1,290 $ 15,306 $ 4,495 $ 9,593
Investment securities - - 5,033 11,694 22,636
Working (deficit) capital 9,307 (11,184) 8,995 19,823 9,333
Total assets 139,819 120,401 115,683 110,106 62,727
Capital lease obligations,
net of current portion 1,031 1,621 718 598 756
Long-term debt, net of current portion - - 2,279 6,185 (7) -
Stockholders' equity 60,296 39,505 35,187 39,054 16,810
- --------------------------
(1) Beginning in 2001, as required by EITF Issue No. 00-22, the Company adopted
a new method of recording rebates received from manufacturers as a
reduction of cost of revenue and rebates shared with Plan Sponsors as a
reduction of revenue. Prior to 2001 the Company recorded the difference
between rebates billed and the rebates shared with customers as a
reduction of cost of revenue. The years 1997, 1998, 1999 and 2000 have all
been reclassified to give effect to this new methodology for comparative
purposes.
(2) In 1999, the Company recorded $6,029 of special charges for estimated
losses on contract receivables relating to Tennessee Health Partnership,
Preferred Health Plans and Xantus Health Plans of Tennessee ("Xantus"), as
further described in Note 9 of Notes to Consolidated Financial Statements.
(3) In 1998, the Company recorded two special charges, one for $1,500 and the
other for $2,200, in connection with the negotiated termination of the
RxCare relationship and amounts paid in settlement of the Federal and State
of Tennessee investigation relating to the conduct of two former officers
of the Company prior to the Company's initial public offering,
respectively.
(4) Net income (loss) includes legal expenses advanced for the defense of two
former officers for the years 2000, 1999, 1998, and 1997 in the amounts of
$3,100, $1,400, $ 1,300, and $800, respectively.
(5) In the fourth quarter of 2000, the Company recorded a provision for loss of
$2,300 on its investment in Wang Healthcare Information Systems.
(6) The historical loss per common share for the years 2000, 1999 and 1997
excludes the effect of common stock equivalents, as their inclusion would
be antidilutive.
(7) This amount represents long-term debt assumed by the Company in connection
with its acquisition of Continental.
(8) In 2001, $2.5 million of adjustments were made to the Company's Tenncare(R)
Reserve account. The first adjustment for $1 million occurred in the first
quarter of 2001 relating to the Company's settlement on favorable terms of
its commercial dispute with Tennessee Health Partnership. The second
adjustment, of $1.5 million, occurred in the third quarter, related to the
receipt of monies previously treated as uncollectible from Xantus. See Note
9 of Notes to Consolidated Financial Statements.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read in conjuction with the Company's Consolidated
Financial Statements, including the Notes thereto, included elsewhere in this
Report. This Report contains statements not purely historical and which may be
considered forward looking statements within the meaning of Section 27A of the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), including statements regarding the Company's
expectations, hopes, beliefs, intentions or strategies regarding the future.
Forward looking statements may include statements relating to the Company's
business development activities, sales and marketing efforts, the status of
material contractual arrangements, including the negotiation or re-negotiation
of such arrangements, future capital expenditures, the effects of regulation and
competition on the Company's business, future operating performance of the
Company and the results, benefits and risks associated with integration of
acquired companies. Investors are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, that actual results may differ materially from those possible
results discussed in the forward looking statements as a result of various
factors. These factors include, among other things, risks associated with
risk-based or "capitated" contracts, increased government regulation related to
the health care and insurance industries in general and more specifically,
pharmacy benefit management and specialty pharmaceutical distribution
organizations, the existence of complex laws and regulations relating to the
Company's business, increased competition from the Company's competitors,
including competitors with greater financial, technical, marketing and other
resources. This Report contains information regarding important factors that
could cause such differences. The Company does not undertake any obligation to
supplement these forward-looking statements to reflect any future events and
circumstances.
OVERVIEW
The Company is a pharmaceutical healthcare organization delivering
innovative pharmacy benefit, special pharmaceutical distribution and other
pharmacy-related healthcare solutions. The Company combines its clinical
expertise, sophisticated data management and therapeutic fulfillment
capabilities to serve the particular needs of each of its customers and
respective benefit recipients covered by the customers' pharmacy related health
benefit.
The Company provides a broad array of pharmacy benefit and pharmacy products
and services to individuals ("Members") receiving health benefits principally
through health insurers (including managed care organizations ("MCOs") and other
insurance companies, and, to a lesser extent, third party administrators, labor
unions, self-funded employer groups, government agencies, and other funded plan
sponsors (collectively, "Plan Sponsors"). The Company's programs include the
distribution of biotech and other prescription medications to the chronically
ill and genetically impaired, the provision of pharmacy benefit management
("PBM") services to Members of Plan Sponsors, and the distribution of
prescription maintenance medications to Plan Sponsors' Members by Mail Service.
Depending on the goals and objectives of Plan Sponsors with which the Company
does business, the Company provides some or all of the following clinical
services as part of its PBM and specialty pharmacy programs: pharmacy case
management, therapy assessment, compliance monitoring, health risk assessment,
patient education and drug usage and interaction evaluation, pharmacy claims
processing, Mail Service and related prescription distribution, benefit design
consultation, drug utilization review, formulary management and consultation,
drug data analysis, drug interaction management, patient compliance, program
management and pharmaceutical rebate administration.
BUSINESS
In 2001, the Company primarily derived its revenues from agreements to
provide PBM services, which includes prescription Mail Service to the Members of
Plan Sponsors in the United States. The Company also provided specialty
pharmacy services to chronically ill or genetically impaired patients that
require injection and infusion therapies, as well as infusion therapies and home
healthcare services to patients recently discharged from hospitals. The Company
believes that its future growth is directly linked to the success of its
specialty pharmacy growth strategy and believes that within 24 months, a
majority of the Company's revenues will be derived from the provision of
specialty pharmaceutical management and distribution operations.
16
RECENT DEVELOPMENT
On March 14, 2002, the Justice Department charged our independent auditor,
Arthur Andersen LLP, with a single felony count of obstruction of justice for
destruction of documents related to its audit of Enron Corp. In response to this
indictment, the Securities and Exchange Commission publicly announced that it
has requested and received assurances from Andersen that it will continue to
audit financial statements in accordance with generally accepted accounting
standards and applicable professional and firm standards, including quality
control standards. The Commission also stated that it has been advised by
Andersen that if it becomes unable to provide these assurances, it would advise
the Commission immediately. The Commission further stated that as long as
Andersen continues to be in a position to provide these assurances, the
Commission would continue to accept financial statements audited by Andersen in
public filings. We obtained from Andersen certain representations concerning
audit quality controls, including representations regarding the continuity of
Andersen personnel working on our audit and the availability of national office
consultation. Investors can call a hotline set up by the Commission,
1-800-SEC-0330, or e-mail the Commission at help@sec.gov, with any questions.
SIGNIFICANT ACCOUNTING POLICIES
We rely on the use of estimates and make assumptions that impact our
financial condition and results. These estimates and assumptions are based on
historical results and trends as well as our forecasts as to how these might
change in the future. Our significant accounting policies that impact our
results are included in Note 2 of the Notes to Consolidated Financial
Statements.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
For the year ended December 31, 2001, the Company recorded revenues of
$456.6 million compared with 2000 revenues of $338.2 million, an increase of
$118.4 million. The increase in revenues was the result of continued growth in
all of the Company's businesses. Revenue from the Company's specialty
pharmaceutical services approximated $41.5 million for 2001, compared to $17.9
million in 2000. The principal reasons for the increase are the development and
growth of the Company's BioScrip injectable distribution services offerings and
the inclusion of ADIMA's revenues for all of 2001. In 2000, ADIMA's results were
included for five months (from August 4, 2000, the date of acquisition). For the
year ended December 31, 2001, approximately 21.2% of the Company's revenue was
generated from capitated contracts compared to approximately 28% in 2000. Based
upon its present contractual arrangements, the Company anticipates that less
than 7% of its revenues in 2002 will be derived from capitated contracts.
Cost of revenue for 2001 increased to $403.2 million from $303.0 million for
2000, an increase of $100.2 million commensurate with the increases in revenue
discussed above. Cost of revenue with respect to contracts with Plan Sponsors
participating in the TennCare(R) program decreased $1.6 million from 2000 to
2001. Cost of revenue from commercial business increased $64.1 million, which
includes an increase of $9.9 million from the inclusion of the full year of
ADIMA's operating results. For the year ended December 31, 2001, gross profit
increased $18.2 million to $53.4 million, from $35.2 million at December 31,
2000. Gross profit as a percentage of revenue increased to 11.7% in 2001 from
10.4% for the prior year. Gross margins were positively impacted in 2001 as a
result of the increase in the Company's specialty pharmaceutical distribution
services, which have higher associated gross profit margins than the Company's
PBM and Mail Service businesses, as well as lower pharmaceutical utilization in
the Company's capitated PBM contracts. Additionally, margins were positively
impacted by a full year of ADIMA's operating results.
In the first quarter of 2001, the Company adopted a new method of recording
pharmaceutical manufacturers' rebates that are shared with the Company's PBM
customers. As a result, the Company has recorded rebates shared with its
customers as a reduction of revenue, and rebates billed to manufacturers as a
reduction to cost of revenue. Prior to this, the Company recorded the net
difference between rebates billed and rebates shared with customers as a
reduction of cost of revenue. For comparative purposes, revenue and cost of
revenue for the years ended December 31, 2000 and 1999 have been reclassified to
reflect this change.
17
General and administrative expenses increased $4.6 million to $38.5 million
in 2001 from $33.9 million in 2000, an increase of 13.6%. This increase was
primarily the result of the inclusion of ADIMA's operating expenses for all of
2001 and increases related to the Company's general growth, including the hiring
of additional key management in support of the Company's specialty
pharmaceutical, PBM and Mail Service businesses net of legal expenditures
incurred in 2000 arising out of the Company's obligation to advance legal fees
to two former officers. As a percentage of revenue, general and administrative
expenses decreased to 8.4% in 2001 from 9.1% in 2000.
On May 4, 2000, the Company reached a negotiated settlement with Preferred
Health Plans ("PHP"), pursuant to which, among other things, the Company
retained rebates that would have otherwise been due and owing PHP. PHP paid the
Company an additional $0.9 million and each party released the other from any
and all liability with respect to past or future claims. This agreement did not
have a material effect on the Company's results of operations or financial
position.
In 1999, the Company recorded special charges of $3.3 million for estimated
future losses related to this dispute and another TennCare(R) provider. Early in
2001, the Company reached an agreement in principle with Tennessee Health
Partnership ("THP") pursuant to which the Company paid THP $1.3 million in
satisfaction of all claims between the parties. The terms of the settlement were
favorable to the Company and $1 million of excess reserves no longer required
were credited to income during the first quarter of 2001. In addition,
approximately $1.5 million resulting from the collection of receivables from
Xantus and the adjustment of related reserves provided for in prior years was
credited to income in the third quarter of 2001. See Note 9 of Notes to
Consolidated Financial Statements.
For the year ended December 31, 2001, the Company recorded amortization of
goodwill and other intangibles of $2.2 million compared to $1.5 million in 2000.
This increase is due to inclusion of a full year of goodwill amortization for
ADIMA.
For the year ended December 31, 2001, the Company recorded net interest
expense of $0.06 million compared to net interest income of $0.8 million for the
year ended December 31, 2000, a net decrease of $0.86 million, primarily due to
lower cash balances after the Company's then cash on hand in 2000 was used to
purchase ADIMA.
For the year ended December 31, 2001, the Company recorded a net profit of
$14.2 million, or $0.64 per diluted share, which included one-time special gains
totaling $2.5 million before taxes. This compares with a net loss of $1.8
million, or $0.09 per share, for the year ended December 31, 2000, which
included special one-time charges of $5.4 million relating to the legal defense
costs of two former officers and the write off of a non-operating investment.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
was $22.3 million for the year ended December 31, 2001, which include one time
special gains of $2.5 million, compared to EBITDA of $4.8 million for the year
ended December 31, 2000. EBITDA for the year ended December 31, 2000 was
approximately $8.0 million, excluding the Company's legal defense costs of two
former officers.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
For the year ended December 31, 2000, the Company recorded revenues of
$338.2 million compared with 1999 revenues of $350.7 million, a decrease of
$12.5 million. Contracts with Plan Sponsors participating in the TennCare(R)
program accounted for decreased revenues of $43.3 million, principally as a
result of the State of Tennessee assuming financial responsibility for the
TennCare(R) dual eligible Members and the decrease in the number of TennCare(R)
contracts managed by the Company, partially offset by an increase in revenue of
$1.4 million related to a settlement of fees associated with 1998 services.
Revenue increases as a result of the acquisition of ADIMA and an increase in
commercial PBM and Mail Service revenues from both new and existing accounts
increased revenue by $34.3 million. For the years ended December 31, 2000,
approximately 28% of the Company's revenue was generated from capitated
contracts compared to approximately 32% in 1999.
Cost of revenue for 2000 decreased to $303.0 million from $320.4 million for
1999, a decrease of $17.4 million, commensurate with the decrease in revenue
discussed above. Cost of revenue with respect to contracts with Plan Sponsors
participating in the TennCare(R) program decreased $49.7 million from 1999 to
2000. Cost of revenue from commercial business increased $37.2 million, which
includes an increase of $4.9 million from the purchase of ADIMA. For the year
ended December 31, 2000, gross profit increased $4.9 million to $35.2 million,
from $30.3 million at December 31, 1999. Gross profit increases of $6.4 million
in TennCare(R) business resulted primarily from lower pharmaceutical utilization
on TennCare(R) capitated agreements, as well as $1.4 million related to a
settlement of fees associated with 1998 that was recorded in 2000. Gross profit
increases in TennCare(R) business were offset by decreases in gross profit of
$5.3 million in commercial and mail order business, and increases of $3.8
million contributed by the Company's acquisition of ADIMA.
18
General and administrative expenses increased $5.9 million to $33.9 million
in 2000 from $28.0 million in 1999, an increase of 21%. $1.7 million of this
increase is a result of increased legal expenditures primarily arising out of
the Company's obligations to advance legal fees to former officers. In addition,
the acquisition of ADIMA contributed $1.3 million of the increase and the
remainder was attributable to severance obligations to two executives, higher
levels of depreciation due to capital improvements in our fulfillment facility,
and increased costs associated with a larger sales force in 2000. As a
percentage of revenue, general and administrative expenses increased to 10.0% in
2000 from 8.0% in 1999.
In 1999, the Company incurred one-time special charges of $6.0 million for
Xantus PHP and THP, as discussed below. See Note 9 of Notes to Consolidated
Financial Statements.
On May 4, 2000, the Company reached a negotiated settlement with PHP, under
which, among other things, the Company retained rebates that would have
otherwise been due and owing PHP. PHP paid the Company an additional $0.9
million and the respective parties released each other from any and all
liability with respect to past or future claims. This agreement did not have a
material effect on the Company's results of operations or financial positions.
For the year ended December 31, 2000, the Company recorded amortization of
goodwill and other intangibles of $1.5 million compared to $1.1 million in 1999.
This increase is primarily due to the goodwill amortization for ADIMA.
For the year ended December 31, 2000, the Company recorded interest income
of $0.8 million compared to $1.0 million for the year ended December 31, 1999, a
decrease of $0.2 million, primarily due to lower cash balances after the
purchase of ADIMA.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
was $4.8 million for the year ended December 31, 2000, compared to negative $1.4
million EBITDA for the year ended December 31, 1999. EBITDA for the year ended
December 31, 2000 was approximately $8.0 million, excluding the Company's
advances of legal defense costs of two former officers.
For the year ended December 31, 2000, the Company recorded a net loss of
$1.8 million or $0.09 per share. This includes a one time, non-operating
provision for $2.3 million relating to the Company's loss on its investment in
Wang Healthcare Information Systems ("WHIS"). This compares with a net loss of
$3.8 million, or $0.20 per share, for the year ended December 31, 1999. In 1997,
the Company purchased 1,150,000 shares of the Series B Convertible Preferred
Stock of WHIS, par value $0.01 per share, for an aggregate purchase price equal
to $2.3 million. Due to changes in the financial situation at WHIS and its
ability to access capital, the Company recorded a provision for loss on this
investment in December 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company utilizes both funds generated from operations and available
credit under its credit facility for acquisitions, capital expenditures and its
general working capital needs. For the year ended December 31, 2001, net cash
provided to the Company from operating activities totaled $11.0 million
primarily due to increased business.
Cash used in investing activities was $3.7 million primarily due to the
acquisition costs of $1.5 million for Community Prescription Service, Inc.
("CPS") in May 2001, and the earnouts for other acquisitions which together used
cash of $2.2 million. The Company also purchased $2.6 million of equipment in
support of the Company's Mail Service and fulfillment facility located in
Columbus, Ohio.
Net cash provided by financing activities in the year ended December 31,
2001 was $3.9 million. Stock options exercised for $7.3 million were partially
offset by the Company's purchase of treasury stock of $2.6 million.
19
At December 31, 2001, the Company had working capital of $9.3 million
compared to a working capital deficit of $11.2 million at December 31, 2000.
This is primarily due to increased cash on hand of $11.2 million, and an
increase of $9.7 million in receivables due to increased business. Increased
cash on hand was partially offset by an increase in claims payable of $8.7
million. Working capital was also impacted by a decrease in payables to Plan
Sponsors as a result of payment acceleration.
On November 1, 2000 the Company entered into a $45 million secured revolving
credit facility (the "Facility") with HFG Healthco-4 LLC, an affiliate of
Healthcare Finance Group, Inc. ("HFG"). The Facility is, and will continue to
be, used for working capital purposes and future acquisitions in support of the
Company's business plan. The Facility has a three-year term, provides for
borrowing of up to $45 million at the London InterBank Offered Rate (LIBOR) plus
2.1% and is secured by receivables of the Company's principal operating
subsidiaries. The facility contains various covenants that, among other things,
require the Company to maintain certain financial ratios as defined in the
agreement governing the Facility. As of March 15, 2002, there was outstanding
$9.2 million under the Facility as a result of the Company's acquisition of
Vitality in January 2002.
As the Company continues to grow, it anticipates that its working capital
needs will also continue to increase. The Company believes that it has
sufficient cash on hand and available credit to fund the Company's anticipated
working capital and other operational cash needs for at least the next 12
months.
The Company also may pursue joint venture arrangements, business
acquisitions and other transactions designed to expand its specialty pharmacy,
Mail Service and PBM businesses, which the Company would expect to fund from
cash on hand, the Facility, other future indebtedness or, if appropriate, the
private and/or public sale or exchange of equity securities of the Company.
From time to time, the Company may be a party to legal proceedings or
involved in related investigations, inquiries or discussions, in each case,
arising in the ordinary course of the Company's business. Although no assurance
can be given, management does not presently believe that any current matters
would have a material adverse effect on the liquidity, financial position or
results of operations of the Company.
At December 31, 2001, the Company had unused Federal net operating loss
carryforwards of $40.3 million, which will begin expiring in 2009. In the
opinion of management, as the Company has not had a history of consistent
profitability, it is uncertain whether the Company will realize the benefit from
its deferred tax assets and has provided a valuation allowance.
As of December 31, 2001, certain of the company's Federal net operating loss
carryforwards are subject to limitation and may be utilized in a future year
upon release of the limitation. If Federal net operating loss carryforwards are
not utilized in the year they are available they may be utilized in a future
year to the extent they have not expired.
OTHER MATTERS
In 1998, the Company recorded a $2.2 million special charge against earnings
in as a result of an agreement in principle with respect to a civil settlement
of a Federal and State of Tennessee investigation in connection with conduct
involving, among others, two former officers of the Company occurring prior to
the Company's August 1996 initial public offering. The definitive agreement
covering that settlement was executed on June 15, 2000, and required payment of
$775,000 in 2000, payment of $900,000 in 2001, and payment of $525,000 in 2002.
At December 31, 2001, $525,000 is outstanding and included in accrued expenses.
The TennCare(R) program operates under a demonstration waiver from The
United States Center for Medicare and Medicaid Services ("CMS"). That waiver is
the basis of the Company's ongoing service to those MCOs in the TennCare(R)
program. The waiver expired on December 31, 2001 and was renewed without
material modification through December 31, 2002. In addition, the State of
Tennessee and the Federal governments have agreed to negotiate towards an
additional two-year extension of the waiver through December 31, 2004. While the
Company believes that pharmacy benefits will continue to be provided to Medicaid
and other eligible TennCare(R) enrollees through MCOs in one form or another
through at least December 31, 2004, there can be no assurances that such waiver
will be renewed
20
after December 31, 2002, that pharmacy benefits will continue under the
TennCare(R) Program or that the MCO's currently being serviced by the Company
will continue their respective relationships with it under the existing or a
successor program or on the same or similar terms and conditions. If the waiver
is not renewed and the Company is not providing PBM and/or distributing
specialty products to those lives under a successor program or arrangement, then
the failure to provide such services could have a material and adverse affect on
the financial position and results of operations of the Company. Moreover,
should the funding sources and/or conditions for the TennCare(R) program change
significantly, the TennCare(R) program's ability to pay the MCOs, and in turn
the MCOs ability to pay the Company, could materially and adversely affect the
Company's financial position and results of operations.
Historically, as a result of providing capitated PBM services to certain
TennCare(R) MCOs, the Company's pharmaceutical claims costs had been subject to
significant increases from October through February, which the Company believes
is due to the need for increased medical attention to, and intervention with,
MCOs' Members during the colder months. The resulting increase in pharmaceutical
costs impacted the profitability of capitated contracts. Currently, the Company
has no capitated PBM arrangements with MCOs participating in the TennCare(R)
program. Fee for service arrangements mitigate the adverse effect on
profitability of higher pharmaceutical costs incurred under capitated contracts,
as higher utilization positively impacts profitability. The Company presently
anticipates that less than 7% of its revenues for 2002 will be derived from
capitated arrangements.
Generally, loss contracts arise only on capitated or other risk-based
contracts and primarily result from higher than expected pharmacy utilization
rates, higher than expected inflation in drug costs and the inability of the
Company to restrict its MCO clients' formularies to the extent anticipated by
the Company at the time contracted PBM services are implemented, thereby
resulting in higher than expected drug costs. At such time as management
estimates that a contract will sustain losses over its remaining contractual
life, a reserve is established for these estimated losses. There are currently
no loss contracts and management does not believe that there is an overall trend
towards losses on its existing capitated contracts.
In the first quarter of 2001, the Company commenced a stock repurchase
program under which it was authorized to repurchase up to $5 million of the
Company's Common Stock from time to time on the open market or in private
transactions. In February 2001, the Company repurchased 1,298,183 shares of
Common Stock at a price of $2.00 per share in private transactions. See "Certain
Relationships and Related Transactions" below. Since that date, the Company has
not repurchased any additional shares of its Common Stock.
On March 23, 2002, Mr. Richard Friedman, the Company's Chairman and Chief
Executive Officer, repaid in full a $1.7 million loan from the Company, together
with all accrued and unpaid interest thereon. This loan, together with accrued
and upaid interest, totaled approximately $2.1 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's debt. At December 31, 2001 the Company did not have
any long term debt. The Company does not invest in or otherwise use derivative
financial instruments.
At December 31, 2001, the carrying values of cash and cash equivalents,
accounts receivable, accounts payable, claims payable, payables to Plan Sponsors
and others, and debt approximate fair value due to their short-term nature.
Because management does not believe that its exposure to interest rate
market risk is material at this time, the Company has not developed or
implemented a strategy to manage this market risk through the use of derivative
financial instruments or otherwise. The Company will assess the significance of
interest rate market risk from time to time and will develop and implement
strategies to manage that risk as appropriate.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of MIM Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of MIM
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 2001
and 2000 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. These consolidated financial statements and the schedule referred to
below 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 in accordance with auditing standards generally
accepted in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MIM Corporation and
Subsidiaries as of December 31, 2001 and 2000 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements, and in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 16, 2002
22
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(In thousands, except for share amounts)
2001 2000
-------------------- ---------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,487 $ 1,290
Receivables, less allowance for doubtful accounts of $5,543 and $8,333
at December 31, 2001 and 2000, respectively 70,089 60,808
Inventory 3,726 2,612
Prepaid expenses and other current assets 1,439 1,680
-------------------- ---------------------
Total current assets 87,741 66,390
Property and equipment, net 9,287 10,813
Due from officer 2,132 2,012
Other assets, net 1,650 2,163
Intangible assets, net 39,009 39,023
-------------------- ---------------------
TOTAL ASSETS $ 139,819 $ 120,401
==================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of capital lease obligations $ 594 $ 592
Current portion of long-term debt - 165
Accounts payable 4,468 2,964
Claims payable 46,564 39,337
Payables to Plan Sponsors 21,063 29,040
Accrued expenses and other current liabilities 5,745 5,476
-------------------- ---------------------
Total current liabilities 78,434 77,574
Capital lease obligations, net of current portion 1,031 1,621
Other non-current liabilities 58 589
Minority interest - 1,112
-------------------- ---------------------
TOTAL LIABILITIES 79,523 80,896
-------------------- ---------------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value; 5,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, $.0001 par value; 40,000,000 shares authorized,
22,004,101 and 21,547,312 shares issued and outstanding
at December 31, 2001 and 2000, respectively 2 2
Additional paid-in capital 105,424 97,010
Accumulated deficit (42,196) (56,398)
Treasury stock, 1,398,183 and 100,000 shares at cost
at December 31, 2001 and 2000, respectively (2,934) (338)
Stockholder notes receivable - (771)
-------------------- ---------------------
Total stockholders' equity 60,296 39,505
-------------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 139,819 $ 120,401
==================== =====================
The accompanying notes are an integral part of these consolidated financial
statements.
23
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2001 2000 1999
---- ---- ----
Revenue $ 456,646 $ 338,171 $ 350,693
Cost of revenue 403,243 302,991 320,388
--------- --------- ---------
Gross profit 53,403 35,180 30,305
General and administrative expenses 38,489 30,811 26,656
Legal fees due to indemnification responsibility - 3,098 1,353
Amortization of goodwill and other intangibles 2,200 1,450 1,064
TennCare reserve adjustment (2,476) - 6,029
--------- --------- ---------
Income (loss) from operations 15,190 (179) (4,797)
Interest (expense) income, net (56) 766 1,012
Provision for loss on investment - 2,300 -
--------- --------- ---------
Income (loss) before provision for income taxes 15,134 (1,713) (3,785)
Provision for income taxes 932 110 -
--------- --------- ---------
Net income (loss) $ 14,202 $ (1,823) $ (3,785)
========= ========= =========
Basic income (loss) per common share $ 0.67 $ (0.09) $ (0.20)
========= ========= =========
Diluted income (loss) per common share $ 0.64 $ (0.09) $ (0.20)
========= ========= =========
Weighted average common shares used
in computing basic income (loss) per common share 21,273 19,930 18,660
========= ========= =========
Weighted average common shares used
in computing diluted income (loss) per common share 22,289 19,930 18,660
========= ========= =========
24
The accompanying notes are an integral part of these consolidated financial
statements.
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
ADDITIONAL STOCKHOLDER TOTAL
COMMON TREASURY PAID-IN ACCUMULATED NOTES STOCKHOLDERS
STOCK STOCK CAPITAL DEFICIT RECEIVABLE EQUITY
Balance December 31, 1998 $ 2 $ - $ 91,603 $(50,790) $ (1,761) $ 39,054
======== ======== ======== ======== ======== ========
Payments of stockholder loans - - - - 245 245
Exercise of stock options - - 5 - - 5
Non-employee stock option
compensation expense - - 6 - - 6
Purchase of treasury stock - (338) - - - (338)
Net loss - - - (3,785) - (3,785)
-------- -------- -------- -------- -------- --------
Balance December 31, 1999 $ 2 $ (338) $ 91,614 $(54,575) $ (1,516) $ 35,187
======== ======== ======== ======== ======== ========
Payments of stockholder loans - - - - 745 745
Exercise of stock options - - 333 - - 333
Shares issued in connection with
ADIMA acquisition - - 5,034 - - 5,034
Non-employee stock option
compensation expense - - 29 - - 29
Net loss - - - (1,823) - (1,823)
-------- -------- -------- -------- -------- --------
Balance December 31, 2000 $ 2 $ (338) $ 97,010 $(56,398) $ (771) $ 39,505
======== ======== ======== ======== ======== ========
Reclassification of stockholders
loans to other assets - - - - 771 771
Exercise of stock options - - 7,274 - - 7,274
Issuance of common stock to employees - - 28 - - 28
Dissolution of MIM Strategic - - 1,112 - - 1,112
Purchase of treasury stock - (2,596) - - - (2,596)
Net income - - - 14,202 - 14,202
-------- -------- -------- -------- -------- --------
Balance December 31, 2001 $ 2 $ (2,934) $105,424 $(42,196) - $ 60,296
======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
25
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SOURCE (USE) OF CASH
YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 14,202 $ (1,823) $ (3,785)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities net of acquisitions:
Depreciation and amortization 6,358 4,876 3,220
Loss on investment - 2,300 -
TennCare reserve adjustment (2,476) - -
Issuance of stock to non-employees - 29 6
Issuance of stock to employees 28 - -
Provision for losses on receivables and due from affiliates 1,383 571 6,537
Changes in assets and liabilities, net of acquisitions
Receivables, net (9,684) 8,989 (4,709)
Inventory (1,114) (1,013) 410
Prepaid expenses and other current assets 241 (297) (490)
Accounts payable 1,504 (2,236) (1,887)
Claims payable 8,723 (4,364) 6,847
Payables to Plan Sponsors and others (7,977) 4,869 7,681
Accrued expenses 269 (1,067) (934)
Non-current liabilities (531) 500 -
-------- -------- --------
Net cash provided by operating activities 10,926 11,334 12,896
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,632) (6,634) (2,180)
Purchases of investment securities - (4,000) (7,070)
Maturities of investment securities - 9,033 13,731
Costs of acquisitions, net of cash acquired (2,186) (19,638) (669)
Purchases of other investments - - (36)
Repayments of stockholder notes 504 745 245
Due from affiliates, net (120) (163) (1,815)
Decrease (increase) in other assets 780 (1,905) 361
-------- -------- --------
Net cash (used in) provided by investing activities (3,654) (22,562) 2,567
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (588) (514) (699)
Decrease in debt (165) (2,607) (3,620)
Proceeds from exercise of stock options 7,274 333 5
Purchase of treasury stock (2,596) - (338)
-------- -------- --------
Net cash provided by (used in) financing activities 3,925 (2,788) (4,652)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 11,197 (14,016) 10,811
CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD 1,290 15,306 4,495
-------- -------- --------
CASH AND CASH EQUIVALENTS--END OF PERIOD $ 12,487 $ 1,290 $ 15,306
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
26
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
SUPPLEMENTAL DISCLOSURES:
The Company paid $465, $657 and $277 of interest for each of the years ended
December 31, 2001, 2000, and 1999, respectively.
Capital lease obligations of $0, $1,495 and $807 were incurred to acquire
equipment for each of the years ended December 31, 2001, 2000, and 1999,
respectively.
In connection with the acquisition of American Disease Management Associates
L.L.C. ("ADIMA"), the Company issued 2,700 shares of its common stock, par value
$0.0001 per share, valued at $5,034 during the year ended December 31, 2000.
In 2001, there was a contribution of a minority interest to additional paid-in
capital upon dissolution of a subsidiary of $1,112.
In 2001, the Company reclassified stockholder notes receivable of $771 to other
assets. During 2001, the stockholder repaid $504 of the notes outstanding. As
of December 31, 2001, $267 of the stockholder notes are outstanding and included
in other assets.
The accompanying notes are an integral part of these consolidated
financial statements.
27
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
NOTE 1--NATURE OF BUSINESS
CORPORATE ORGANIZATION
MIM Corporation (the "Company" or "MIM") is a pharmaceutical healthcare
organization delivering innovative pharmacy benefit, special pharmaceutical
distribution and other pharmacy-related healthcare solutions to Plan Sponsors,
principally managed care organizations and third party administrators. The
Company combines its clinical expertise, sophisticated data management and
therapeutic fulfillment capabilities to serve the particular needs of each of
its customers and respective benefit recipients covered by the customers'
pharmacy related health benefit.
The Company provides a broad array of pharmacy benefit and pharmacy products
and services to individuals ("Members") receiving health benefits principally
through health insurers (including managed care organizations ("MCOs") and other
insurance companies, and, to a lesser extent, third party administrators, labor
unions, self-funded employer groups, government agencies, and other funded Plan
Sponsors ("Plan Sponsors"). The Company's programs include the distribution of
biotech and other high-cost prescription medications to the chronically ill and
genetically impaired, the provision of pharmacy benefit management ("PBM")
services to members of Plan Sponsors, and the distribution of prescription
maintenance medications to Plan Sponsors' Members through mail service ("Mail
Service"). All of the Company's programs include the provision of clinical
pharmacy services, designed to provide patients with high quality care while
controlling pharmacy and overall health care costs. Depending on the goals and
objectives of the Plan Sponsors with which the Company does business, the
Company provides some or all of the following clinical services as part of its
PBM and/or Specialty Pharmacy Programs, all of which will be described below in
greater detail: pharmacy case management, therapy assessment, compliance
monitoring, health risk assessment, patient education, drug usage and
interaction evaluation, pharmacy claims processing, Mail Service and related
prescription distribution, benefit design consultation, drug utilization review,
formulary management and consultation, drug data analysis, drug interaction
management, patient compliance, program management and pharmaceutical rebate
administration.
BUSINESS
In 2001, the Company primarily derived its revenues from agreements to
provide PBM services, which includes prescription Mail Service to the Members of
Plan Sponsors in the United States. The Company also provided specialty pharmacy
services to chronically ill or genetically impaired patients that require
injection and infusion therapies, as well as infusion therapies and home
healthcare services to patients recently discharged from hospitals.
A portion of the Company's revenues have been derived from providing PBM
services in the State of Tennessee to managed care organizations ("MCOs")
participating in the State of Tennessee's TennCare(R) program.
Through its BioScrip(TM) specialty injectable therapy programs, the Company
distributes high-cost pharmaceuticals and provides clinically focused case and
disease management programs to Plan Sponsors' members afflicted with chronic
illnesses or genetic impairments. The disease states or conditions for which the
Company has injectable specialty programs include HIV/AIDS, oncology,
hemophilia, multiple sclerosis, growth hormone deficiency, Gaucher's disease,
rheumatoid arthritis, infertility, respiratory syncytial virus (RSV), hepatitis
C, Crohn's disease and transplant.
The Company also distributes prescription medications and provides clinical
management services to patients through its Vitality Pharmaceutical Services
("Vitality") subsidiary located in Roslyn Heights, New York, acquired in January
2002. While BioScrip is marketed exclusively to Plan Sponsors, Vitality also
markets its products and services to physician practice groups, hospitals, and,
in some cases, directly to patients.
On August 4, 2000, the Company acquired all of the issued and outstanding
membership interest of ADIMA. The aggregate purchase price approximated $24,000,
and included $19,000 in cash and 2.7 million shares of MIM common stock valued
at that time at $5,000. ADIMA, located in Livingston, New Jersey, distributes
and administers high cost specialty infusion therapy to patients requiring
principally immunosuppression blood products, such as IGG, parenteral nutrition
products, such as TPN, and antibiotic therapies such as rocephin or vancomycin.
Unlike the Company's other specialty programs, patients being serviced through
ADIMA have their therapies administered by IV certified nurses. The consolidated
financial statements include the results of ADIMA from the date of acquisition.
On May 1, 2001, the Company acquired Community Prescription Service, Inc.
("CPS") for $1,500, plus acquisition costs. The acquisition was treated as a
purchase for financial reporting purposes. Based on a final appraisal, the
Company has recorded intangible assets in connection with that acquisition which
will be amortized over three to seven years. Operating results of CPS, which are
included in the accompanying statements of operations from the date of
acquisition, were not material to the results of operations for the twelve
months ended December 31, 2001.
28
The following unaudited consolidated pro forma financial information has been
prepared assuming ADIMA was acquired as of January 1, 1999, with pro forma
adjustments for amortization of goodwill and interest income. The pro forma
financial information is presented for informational purposes only and is not
indicative of the results that would have been realized had the acquisition been
made on January 1, 1999. The Company's statement of operations for the year
ended December 31, 2001 include ADIMA's results of operations for the entire
period. In addition, this pro forma financial information for the year ended
December 31, 1999 and 2000 is not intended to be a projection of future
operating results.
YEAR ENDED DECEMBER 31
----------------------
2000 1999
---- ----
Revenues ............................. $ 380,032 $388,611
Net loss ............................. $ (85) $ (1,933)
Basic loss per share ................. (0.00) (.09)
Diluted loss per share ............... (0.00) (.09)
The pro forma amounts above include $10,328 and $11,191 of revenues from
the operations of ADIMA for the period from January 1, 2000 and 1999
respectively through the acquisition date.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of MIM
Corporation and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
certain estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand deposits, overnight investments
and money market accounts.
RECEIVABLES
Receivables include amounts due from Plan Sponsors under the Company's PBM
contracts, amounts due from pharmaceutical manufacturers for rebates and service
fees resulting from the distribution of certain drugs through retail pharmacies
and amounts due from certain third party payors.
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method over the
estimated useful lives of assets. The estimated useful lives of the Company's
assets are as follows:
ASSET USEFUL LIFE
- ----- -----------
Computer and office equipment................. 3-5 years
Furniture and fixtures........................ 5-7 years
Leasehold improvements and leased assets are amortized using a
straight-line basis over the related lease term or estimated useful life of the
assets, whichever is less. The cost and related accumulated depreciation of
assets sold or retired are removed from the accounts with the gain or loss, if
applicable, recorded in the statement of operations. Maintenance and repairs are
expensed as incurred.
DEFERRED FINANCING COSTS
Deferred financing costs, which are included in other assets, represent
fees incurred in connection with obtaining debt financing and are amortized over
the life of the related debt.
29
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets represent the cost in excess of the
fair market value of the tangible net assets acquired in connection with
acquisitions. Amortization expense for the years ended December 31, 2001, 2000
and 1999, was $2,200, $1,450 and $1,064, respectively. Goodwill is amortized
over periods ranging from twenty to twenty-five years and other intangible
assets are amortized over four to six years.
Intangible assets comprised the following as of December 31:
2001 2000
---- ----
Goodwill $41,415 $40,607
Other intangibles 2,636 1,258
------- -------
Total 44,051 41,865
Less: Amortization of goodwill and other intangibles 5,042 2,842
------- -------
Net intangible assets $39,009 $39,023
======= =======
LONG-LIVED ASSETS
The Company periodically reviews its long-lived assets and certain related
intangibles for impairment whenever changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. The Company does not
believe such events or changes in circumstances have occurred.
CLAIMS PAYABLE
The Company is responsible for all covered prescriptions provided to plan
members during the contract period. At December 31, 2001 and 2000, certain
prescriptions were dispensed to members for whom the related claims had not yet
been presented to the Company for payment. Estimates of $124 and $693 at
December 31, 2001 and 2000, respectively, for these claims are included in
claims payable.
PAYABLES TO PLAN SPONSORS
Payables to Plan Sponsors represent the sharing of pharmaceutical
manufacturers' rebates with the Plan Sponsors, as well as profit sharing plans
with certain capitated contracts.
REVENUE RECOGNITION
CAPITATED AGREEMENTS. The Company's capitated contracts with Plan Sponsors
require the Company to provide covered pharmacy services to Plan Sponsor members
in return for a fixed fee per member per month paid by the Plan Sponsor.
Capitated contracts generally have a one-year term or, if longer, provide for
adjustment of the capitated rate each year. These contracts are subject to rate
adjustment or termination upon the occurrence of certain events.
Payments under capitated contracts are based upon the latest eligible
member data provided to the Company by the Plan Sponsor. On a monthly basis, the
Company recognizes revenue for those members eligible for the current month,
plus or minus capitation amounts for those members determined to be
retroactively eligible or ineligible for prior months under the contract. The
amount accrued for net retroactive eligibility capitation payments are based
upon management's estimates.
Generally, loss contracts arise only on capitated contracts and primarily
result from higher than expected pharmacy utilization rates, higher than
expected inflation in drug costs and the inability to restrict formularies,
30
resulting in higher than expected drug costs. At such time as management
estimates that a contract will sustain losses over its remaining contractual
life, a reserve is established for these estimated losses. There are currently
no expected loss contracts and management does not believe that there is an
overall trend towards losses on its existing capitated contracts.
All revenue is recorded net of the rebate share payable to Plan Sponsors.
FEE-FOR-SERVICE AGREEMENTS. Under fee-for-service PBM contracts, revenues
from orders dispensed by the Company's pharmacy networks are recognized when the
pharmacy services are reported to the Company by the dispensing pharmacist,
through the on line claims processing systems. The Company assumes financial
risk through having independent contractual arrangements with its Plan Sponsors
and retail network pharmacy providers.
PRESCRIPTION SERVICES. The Company's integrated pharmacy benefit services
include the delivery of pharmaceutical services and products. Such services and
products may be provided by the Company's pharmacy dispensing facility, by
ADIMA, or by one of its network pharmacies. Such products must be provided and
dispensed before the total pharmacy benefit service is billed under the fee for
services agreements described above.
COST OF REVENUE
Cost of revenue includes pharmacy claims, fees paid to pharmacists and other
direct costs associated with pharmacy management, claims processing operations
and mail order services, offset by volume rebates received from pharmaceutical
manufacturers. For the years ended December 31, 2001, 2000 and 1999, gross
rebates earned on rebate sharing arrangements on pharmacy benefit management
contracts were $38,572, $45,230 and $43,611, respectively.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 utilizes the liability method, and deferred taxes are determined
based on the estimated future tax effects of differences between the financial
statement and tax basis of assets and liabilities at currently enacted tax laws
and rates.
31
EARNINGS PER SHARE
Basic earnings (loss) per common share are based on the weighted average
number of shares outstanding and diluted earnings per share are based on the
weighted average number of shares outstanding, including common stock
equivalents. For the years ended December 31, 2000 and 1999, diluted loss per
share is the same as basic loss per share because the inclusion of common stock
equivalents would be anti-dilutive.
YEARS ENDED DECEMBER 31,
------------------------
2001 2000 1999
---- ---- ----
Numerator:
Net Income (loss) $ 14,202 $ (1,823) $ (3,785)
======== ======== ========
Denominator - Basic:
Weighted average number of common
shares outstanding 21,273,000 19,930,000 18,660,000
============ ============ ============
Basic income (loss) per common share $ 0.67 $ (0.09) $ (0.20)
============ ============ ============
Denominator - Diluted:
Weighted average number of common
shares outstanding 21,273,000 19,930,000 18,660,000
Common share equivalents of outstanding
stock options 1,016 0 0
------------ ------------- -------------
Total shares outstanding 22,289,000 19,930,000 18,660,000
============ ============ ============
Diluted income (loss) per common share $ 0.64 $ (0.09) $ (0.20)
============ ============ ============
INDUSTRY SEGMENTS
The Company operates in one industry segment.
DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist mainly of cash and cash
equivalents, accounts receivable, accounts payable and short-term debt. The
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable and short-term debt approximate fair value due to their short-term
nature.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for employee stock based compensation plans and
non-employee director stock incentive plans in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). Stock options granted
to non-employees are accounted for in accordance with SFAS No. 123, "Accounting
for Stock-Based Compensation" (See Note 11).
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2001, the Company adopted Emerging Issues Task Force Issue No.
00-22 ("EITF 00-22"), "Accounting for `Points' and Certain Other Time-Based or
Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to
Be Delivered in the Future". EITF 00-22, states, among other things, that
rebates received from pharmaceutical manufacturers should be recognized as a
reduction of cost of revenue and rebates shared with Plan Sponsors as a
reduction of revenue. Prior to adoption of EITF 00-22, the Company recorded the
difference between the rebates received and the rebates shared with customers as
a reduction of cost of revenue. The adoption of EITF 00-22 required the Company
to classify $27,401 and reclassify $31,623 and $26,727 of rebates shared as
reductions of revenue for years ended December 31, 2001, 2000, and 1999,
respectively.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets," which establishes accounting
and reporting standards governing business combinations, goodwill and intangible
assets. SFAS No. 141 requires all business combinations initiated after June 30,
2001, to be accounted for using the purchase method. SFAS No. 142 states that
goodwill is no longer subject to amortization over its estimated useful life.
Rather, goodwill will be subject to at least an annual assessment for impairment
by applying a fair-value based test. Under the new rules, an acquired intangible
asset should be separately recognized and amortized over its useful life unless
an indefinite life) if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, rented or exchanged regardless of the acquirer's intent
to do so. The Company is required to adopt these standards on January 1, 2002.
During the year ended December 31, 2001 the Company continued to amortize its
existing goodwill and intangible assets. The Company expects that a substantial
amount of its goodwill will no longer be amortized upon adoption.
32
In August 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations". SFAS No. 143 addresses financial
accounting and reporting obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143 is
effective for fiscal years beginning after June 14, 2002. The Company does not
expect that the adoption of SFAS No. 143, which is effective for the Company as
of January 1, 2003, will have any effect on its results of operations, financial
position or cash flows.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment of Disposal of Ling-Lived Assets", which is
effective for fiscal years beginning after December 15, 2001, and addresses
financial accounting and reporting for the impairment of disposal of ling-lived
assets. This statement supersedes SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of segment of a business. The company
plans to adopt the standard at the beginning of 2002, and does not expect that
the adoption of SFAS No. 144 will have any effect on its results of operations,
financial position or cash flows.
RECLASSIFICATIONS
Certain amounts in the 2000 and 1999 financial statements have been
reclassified to conform to current year presentation.
NOTE 3--INVESTMENT
On June 23, 1997, the Company acquired an 8% interest in Wang Healthcare
Information Systems, Inc. ("WHIS"), which markets PC-based clinical information
systems to physicians utilizing patented image-based technology. The Company
purchased 1,150,000 shares of the Series B Convertible Preferred Stock of WHIS,
for an aggregate purchase price equal to $2,300. Due to changes in the financial
situation at WHIS and its ability to access capital, the Company recorded a
provision for loss in the amount of $2,300 on this investment in 2000.
NOTE 4--RELATED PARTY TRANSACTIONS
The Company leases one of its facilities from Alchemie Properties, LLC
("Alchemie") pursuant to a ten-year agreement. Alchemie is controlled by Mr. E.
David Corvese, a stockholder and a former officer and director of the Company
(the "Founder"). Rent expense was approximately $56, $51 and $56 for the years
ended December 31, 2001, 2000, and 1999.
STOCKHOLDER NOTES RECEIVABLE
On March 23, 2002, Mr. Richard Friedman, the Company's Chairman and Chief
Executive Officer, repaid in full a $1,700 loan, together with all accrued and
unpaid interest thereon, totalling approximately $2,100. Interest income on the
note was $121, $161 and $101 for the years ended December 31, 2001, 2000 and
1999, respectively.
The Company had a $502 note receivable outstanding with the Founder as of
December 31, 2000. The note was repaid in 2001. Interest income on the note was
$41 for the year ended December 31, 2001, and $46 for the years ended December
31, 2000 and 1999, respectively.
The Company has a $267 and $269 note receivable from Alchemie outstanding as
of December 31, 2001 and 2000, respectively. The note bears interest at a rate
of 10% per annum with principal due and payable on December 1, 2004. Interest
income was $29, $27 and $29 for the years ended December 31, 2001, 2000 and
1999. This note was paid in full on January 31, 2002.
33
The Company had a $780 note receivable from the Founder outstanding as of
December 31, 1999. The note was fully repaid in 2000. Interest income on the
notes was $27 and $56 for the years ended December 31, 2000 and 1999,
respectively.
In 2001, the Company reclassified the then outstanding stockholder notes
receivable from the Founder of approximately $771 from a reduction of
stockholders' equity to other assets. Although the loans did not originate from
the issuance of, or were otherwise collateralized by, the Company's equity
securities, the Company initially classified the promissory notes in equity due
to the nature of the borrowers' relationship to the Company at the time of the
notes' origination. At that time, the Founder was the President and majority
stockholder of the Company. As such, the borrowers and the Company were entities
under common control at that time and the promissory notes were therefore
treated as equity. The Founder is no longer an officer, director or majority
stockholder of the Company and accordingly, the borrowers and the Company are no
longer considered to be entities under common control. As of December 31, 2001,
only the remaining note receivable from Alchemie is outstanding and included in
other assets.
INDEMNIFICATION
Under certain circumstances, the Company was obligated to indemnify and
advance defense costs to two former officers (one of which is a former director
and still principal stockholder of the Company) of a subsidiary of the Company
in connection with their involvement in the Federal and State of Tennessee
investigation of which they are the subject. During 2001, 2000 and 1999, the
Company advanced and expensed $0, $3,098 and $1,353, respectively, for the
former officers' legal costs in this matter.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following at December 31:
2001 2000
---- ----
Computer and office equipment, including equipment acquired under capital leases $ 18,000 $ 15,483
Furniture and fixtures 1,149 1,095
Leasehold improvements 1,117 1,056
-------- --------
20,266 17,634
Less: Accumulated depreciation (10,979) (6,821)
-------- --------
Property and equipment, net $ 9,287 $ 10,813
======== ========
NOTE 6--LONG TERM DEBT
On November 1, 2000 the Company entered into a $45,000 revolving credit
facility (the "Facility") with HFG Healthco-4 LLC, an affiliate of Healthcare
Finance Group, Inc. ("HFG"), to be used for working capital purposes and future
acquisitions. The Facility has a three-year term and is secured by the Company's
receivables. Interest is payable monthly and provides for borrowing up to
$45,000 at the London Inter-Bank Offered Rate (LIBOR) plus 2.1% (4.25% as of
December 2001). A 0.5% fee is incurred monthly when the line is not utilized. In
connection with the issuance of the Facility, the Company incurred financing
costs of $1,642, which are included in other assets and are being amortized over
the term of the agreement. The facility contains various covenants that, among
other things, require the Company to maintain certain financial ratios, as
defined in the agreement governing the Facility. As of December 31, 2001 and
2000, the Company had no amounts outstanding under the revolving credit
facility.
NOTE 7 - MINORITY INTEREST
On June 28, 2001, the Company dissolved MIM Strategic Marketing, LLC
("Strategic"), a joint venture of which the Company was the majority investor.
The Company does not have any repayment obligation to the minority interest
34
investor under Strategic's operating agreement or under the laws of the state of
its formation. As a result of this dissolution, the minority interest balance of
$1,112 has been reclassified to additional paid in capital.
NOTE 8 -TREASURY STOCK
In February 2001, the Company repurchased 1,298,183 shares of the
Company's common stock for $2,596, at a price of $2.00 per share.
NOTE 9--COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company has previously disputed several improper reductions of payments
by Tennessee Health Partnership ("THP"). In addition, there existed a dispute
over whether or not certain items should have been included under the Company's
respective capitated arrangements with THP and Preferred Health Plans ("PHP").
In 1999, the Company recorded a special charge of $3,300 for estimated future
losses related to these disputes.
In early 2001, the Company reached an agreement in principle with THP. The
Company paid THP $1,300 in satisfaction of all claims between the parties. The
terms of the settlement were favorable to the Company and $1 million of excess
reserves no longer required were credited to income during the first quarter of
2001.
On May 4, 2000, the Company reached a negotiated settlement with PHP, under
which, among other things, the Company retained rebates that would have
otherwise been due and owing PHP. PHP paid the Company an additional $900 and
the respective parties released each other from any and all liability with
respect to past or future claims. This agreement did not have a material effect
on the Company's results of operations or financial positions.
On March 31, 1999, the State of Tennessee, (the "State"), and Xantus
Healthplans of Tennessee, Inc. ("Xantus"), entered into a consent decree under
which Xantus was placed in receivership under the laws of the State of
Tennessee. On September 2, 1999, the Commissioner of the Tennessee Department of
Commerce and Insurance (the "Commissioner"), acting as receiver of Xantus, filed
a proposed plan of rehabilitation (the "Plan"), as opposed to a liquidation of
Xantus. A rehabilitation under receivership, similar to reorganization under
federal bankruptcy laws, was approved by the Chancery Court (the "Court") of the
State of Tennessee, and allows Xantus to remain operating as a TennCare(R) MCO,
providing full health care related services to its enrollees. Under the Plan,
the State, among other things, agreed to loan to Xantus approximately $30,000 to
be used solely to repay pre-petition claims of providers, which claims aggregate
approximately $80,000. Under the Plan, the Company received $4,200, including
$600 of unpaid rebates to Xantus, which the Company was allowed to retain under
the terms of the preliminary rehabilitation plan for Xantus. The Company
recorded a special charge in 1999 of $2,700 for the estimated loss to the
Company due to the Plan. A plan for the payment of the remaining amounts has not
been finalized and the recovery of any additional amounts is uncertain. In 2001,
the Company recorded a $1.5 million adjustment to the TennCare reserve resulting
from the collection of receivables from Xantus and the adjustment of related
reserves provided for in prior years.
In 1998, the Company recorded a $2,200 special charge against earnings in
connection with an agreement in principle with respect to a civil settlement of
the Federal and State of Tennessee investigation in connection with the conduct
of two former officers of the Company, prior to the Company's initial public
offering. The definitive agreement covering this settlement was executed on June
15, 2000, and required payment of $775 in 2000, $900 in 2001 and $525 to be paid
in 2002.
GOVERNMENT REGULATION
Various Federal and state laws and regulations affecting the healthcare
industry do or may impact the Company's current and planned operations,
including, without limitation, Federal and state laws prohibiting kickbacks in
government health programs (including TennCare(R)), Federal and state antitrust
and drug distribution laws, and a wide variety of consumer protection, insurance
and other state laws and regulations. While management believes that the Company
is in substantial compliance with all existing laws and regulations material to
the operation of its business, such laws and regulations are subject to rapid
change and often are uncertain in their application. As controversies continue
to arise in the healthcare industry (for example, regarding the efforts of plan
sponsors and pharmacy benefit managers to limit formularies, alter drug choice
and establish limited networks of participating pharmacies), Federal and state
regulation and enforcement priorities in this area can be expected to increase,
the impact of which on the Company cannot be predicted. There can be no
assurance that the Company will not be subject to scrutiny or challenge under
one or more of these laws or that any such challenge would not be successful.
Any such challenge, whether or not successful, could have a material adverse
effect upon the Company's financial position and results of operations.
Violation of the Federal anti-kickback statute, for example, may result in
substantial criminal penalties, as well as exclusion from the Medicare and
Medicaid (including TennCare) programs. Further, there can be no assurance that
the Company will be able to obtain or maintain any of the regulatory approvals
that may be required to operate its business, and the failure to do so could
have a material adverse effect on the Company's financial position and results
of operations.
35
The Company entered into a corporate integrity agreement with the Office of
Inspector General (the "OIG") within the Department of Health and Human Services
("HHS") in connection with the Global Settlement Agreement entered into with the
OIG and the State of Tennessee in June 2000. In order to assist the Company in
maintaining compliance with laws and regulations and the corporate integrity
agreement the Company implemented its corporate compliance program in August of
2000. This program includes educational training for all employees on compliance
with laws and regulations relevant to the Company's business and operations and
a formal program of reporting and resolution of possible violations of laws or
regulations, as well as increased oversight by the OIG. Should the oversight
procedures reveal credible evidence of any violation of federal law, the Company
is required to report such potential violations to the OIG and the Department of
Justice ("DOJ"). The Company is therefore subject to increased regulatory
scrutiny and, if the Company commits legal or regulatory violations, they may be
subject to an increased risk of sanctions or penalties, including exclusion from
participation in the Medicare or Medicaid programs. The Company anticipates
maintaining certain compliance related oversight procedures after the expiration
of the corporate integrity agreement in June 2005.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain key
employees that expire at various dates through February 2004. Total minimum
commitments under these agreements are approximately as follows:
2002 ................................ $1,002
2003 ................................ 921
2004 ................................ 49
------
Total ............................... $1,972
======
OPERATING LEASES
The Company leases its facilities and certain equipment under various
operating leases. The future minimum lease payments under these operating leases
at December 31 are as follows:
2002 ................................. $1,275
2003 ................................. 1,181
2004 ................................. 1,046
2005 ................................. 915
2006 ................................. 931
Thereafter ........................... 2,345
------
Total ................................ $7,693
======
Rent expense for non-related party leased facilities and equipment was
approximately $1,439, $1,292 and $995 for the years ended December 31, 2001,
2000 and 1999, respectively.
CAPITAL LEASES
The Company leases certain equipment under various capital leases. Future
minimum lease payments under the capital lease agreements at December 31, 2001
are as follows:
36
2002 ........................................................... $ 720
2003 ........................................................... 670
2004 ........................................................... 420
2005 ........................................................... 35
------
Total minimum lease payments ................................... 1,845
Less: Amount representing interest ............................ 220
------
Obligations under leases ....................................... 1,625
Less: Current portion of lease obligations .................... 594
------
$1,031
======
NOTE 10--INCOME TAXES
The effect of temporary differences that give rise to a significant portion
of federal deferred taxes is as follows as of December 31:
2001 2000
---- ----
Deferred tax assets (liabilities): ....................................... $ 2,181 $ 4,063
Reserves not currently deductible ...................................... (596) (273)
Goodwill and intangibles ............................................... 4,944 8,123
Federal net operating loss carryforwards generated from operations ..... 9,145 7,453
Federal net operating loss carryforwards generated from stock options .. 140 220
-------- --------
Property basis differences ............................................. 15,814 19,586
Subtotal .......................................................... (15,814) (19,586)
-------- --------
Less: valuation allowance
Net deferred taxes ................................................ $ - $ -
======== ========
The Company's reconciliation of the expected Federal provision (benefit)
rate to the effective income tax rate is as follows:
2001 2000 1999
---- ---- ----
Tax provision (benefit) at statutory rate .................................... $ 5,297 $ (582) $(1,286)
State tax provision (benefit) , net of Federal taxes ......................... 629 110 (250)
Change in the valuation allowance relating to
deferred tax assets/liabilities generated from operations................... (5,464) 357 1,088
Amortization of goodwill and other intangibles ............................... 359 361 431
Other ........................................................................ 111 (136) 17
------- ------- ------
Provision for income taxes .............................................. $ 932 $ 110 $ -
======= ======= ======
At December 31, 2001, the Company had unused Federal net operating loss
carryforwards of $40,253, which will begin expiring in 2009. In the opinion of
management, as the Company has not had history of consistent profitability, it
is uncertain whether the Company will realize the benefit from its deferred tax
assets and has provided a valuation allowance.
37
As of December 31, 2001, certain of the company's Federal net operating loss
carryforwards are subject to limitation and may be utilized in a future year
upon release of the limitation. If Federal net operating loss carryforwards are
not utilized in the year they are available they may be utilized in a future
year to the extent they have not expired. The following table lists the
Company's available Federal net operating loss carryforwards in future years:
Generated Generated
From From Stock
Operations Options Total
---------- ------- -----
2002 $14,127 $ 2,518 $16,645
2003 - 4,780 4,780
2004 - 2,700 2,700
2005 - 2,700 2,700
2006 - 2,700 2,700
Thereafter - 10,728 10,728
------- ------- -------
Total unused Federal net operating $14,127 $26,126 $40,253
loss carryforwards ======= ======= =======
NOTE 11--STOCKHOLDERS' EQUITY
STOCK OPTIONS
The 1996 Incentive Stock Plan (the "1996 Plan") provided for the granting
of incentive stock options ("ISOs") and non-qualified stock options ("NQSOs") to
employees, directors and consultants of the Company. Under the 1996 Plan there
were 5,200,450 shares authorized for issuance. In 2001, the stockholders
approved the Company's 2001 Incentive Stock Plan (the "2001 Plan," collectively
with the 1996 Plan, the "Plans"). Under the 2001 Plan an additional 950,000
shares were authorized for issuance. As of December 31, 2001, 19,193 shares and
74,000 shares remained available for grant under the 1996 Plan and the 2001
Plan, respectively.
Options granted under the Plans vest over a three-year period and, in
certain limited instances, fully vest upon a change in control of the Company.
In addition, such options generally are exercisable for 10 years after the date
of grant, subject in some cases, to earlier termination in certain
circumstances. The exercise price of ISOs granted under the Plans will not be
less than 100% of the fair market value on the date of grant (110% for ISOs
granted to more than a 10% stockholder). If NQSOs are granted at an exercise
price less than fair market value on the grant date, the amount by which fair
market value exceeds the exercise price will be charged to compensation expense
over the period the options vest.
As of December 31, 2001 and 2000, the exercisable portion of outstanding
options was 874,699 shares and 924,879 shares, respectively. Stock option
activity under the Plans through December 31, 2001 is as follows:
38
Average
Options Price
------- -----
Balance, December 31, 1998 .............................. 2,084,009 $ 4.1132
Granted ............................................ 969,000 $ 1.8207
Canceled ........................................... (292,202) $ 5.8581
Exercised .......................................... (738,450) $ 0.0067
--------- --------
Balance, December 31, 1999 .............................. 2,022,357 $ 4.2621
Granted ............................................ 615,000 $ 2.1960
Canceled ........................................... (360,027) $ 1.3852
Exercised .......................................... (105,167) $ 3.1657
--------- --------
Balance, December 31, 2000 .............................. 2,172,163 $ 4.2070
Granted ............................................ 1,107,000 $ 8.1885
Canceled ........................................... (215,999) $ 3.4262
Exercised .......................................... (510,831) $ 4.2416
--------- --------
Balance, December 31, 2001 .............................. 1,656,333 $ 5.7929
========= ========
On April 17, 1998, the Company granted a former officer an option to purchase
1,000,000 shares of Common Stock at $4.50 (then-current market price) in
connection with his employment agreement to become the Company's President,
Chief Operating Officer and Chief Financial Officer. This option was not granted
under the Plan. During 2001, all of the options granted to the former officer
were exercised.
The 1996 Directors Stock Incentive Plan, (the "Directors Plan") was adopted
to attract and retain qualified individuals to serve as non-employee directors
of the Company ("Outside Directors"), to provide incentives and rewards to such
directors and to associate more closely the interests of such directors with
those of the Company's stockholders. The Directors Plan provides for the
automatic granting of non-qualified stock options to Outside Directors joining
the Company. Each such Outside Director receives an option to purchase 20,000
shares of Common Stock upon his or her initial appointment or election to the
Board of Directors. The exercise price of such options is equal to the fair
market value of the Common Stock on the date of grant. Options granted under the
Directors Plan vest over three years. 300,000 shares are authorized under the
Directors Plan. During 2001, options to purchase 20,000 shares at an exercise
price of $13.00 were canceled. As of December 31, 2001, options to purchase
60,000 shares are outstanding at an average exercise price of $5.80. At December
31, 2001, 86,667 shares under the Directors Plan were exercisable.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The fair value of the Company's compensation cost for stock option plans for
employees and directors, had it been determined, in accordance with SFAS 123,
would have been as follows for the years ended December 31:
2001 2000 1999
---- ---- ----
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ----------- ---------
Net income (loss) .................. $ 14,202 $ 12,258 $ (1,823) $ (4,051) $ (3,785) $ (6,019)
Basic income (loss)
per common share ............... $ 0.67 $ 0.58 $ (0.09) $ (0.20) $ (0.20) $ (0.32)
Diluted income (loss)
per common share ............... $ 0.64 $ 0.55 $ (0.09) $ (0.20) $ (0.20) $ (0.32)
Because the fair value method prescribed by SFAS No. 123 has not been
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation expense may not be representative of the amount of compensation
expense to be recorded in future years. As pro forma compensation expense for
options granted is recorded over the vesting period, future pro forma
compensation expense may be greater as additional options are granted.
39
The fair value of each option grant was estimated on the grant date using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
2001 2000 1999
Volatility 104.4% 106.6% 95.5%
Risk-free interest rate 1.25% 6.25% 6.00%
Expected life of options 4 years 4 years 4 years
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
PERFORMANCE SHARES
Under the Plans, the Company's Board of Directors may grant stock to key
employees. The Board of Directors may make the issuance of common stock subject
to the satisfaction of one or more employment, performance, purchase or other
conditions. As of December 31, 2001, the Company has granted 230,000 restricted
stock grants (the "Performance Shares") that vest 8 years from the date of
grant, or earlier if the Company exceeds certain earnings per share levels in
2001 and 2002. During 2001, the Company did not meet the earnings per share
levels to accelerate vesting of the Performance Shares. The Company has recorded
cumulative compensation expense of $217 related to these Performance Shares
through December 31, 2001 based on the fair market value at the date of grant.
PERFORMANCE UNITS
Under the Plans, performance units may be granted by the Company's Board of
Directors to key employees. The terms and conditions of the performance units
including the performance goals, the performance period and the value for each
performance unit are established by the Company's Board of Directors. If the
performance goals are satisfied, the Company shall pay the key employee an
amount in cash equal to the value of each performance unit at the time of
payment. In no event shall a key employee receive an amount in excess of $1,000
in respect of performance units for any given year. During 2001 and 2000,
performance goals were not satisfied, thus there were no amounts paid to
employees related to performance. As of December 31, 2001, there are 241,500
performance units outstanding. If the Company exceeds $30,000, $37,500 or
$45,000,000 net after tax earnings levels during the year ending December 31,
2002, the Company would have to pay the performance unit value of $10.00, $25.00
or $40.00, respectively, multiplied by the number of units held by each
employee.
NOTE 12--CONCENTRATION OF CREDIT RISK
The following table outlines contracts with Plan Sponsors having revenues
and/or accounts receivable that individually exceeded 10% of the Company's total
revenues and/or accounts receivables during the applicable time period:
40
Plan Sponsor
--------------------------------------------------
A B C D E
--------------------------------------------------
Year ended December 31, 1999
% of total revenue .............................................. 13% * 14% 12% 12%
% of total accounts receivable at period end .................... * * 20% * 10%
Year ended December 31, 2000
% of total revenue .............................................. 22% 12% 12% * *
% of total accounts receivable at period end .................... * 14% 18% * *
Year ended December 31, 2001
% of total revenue .............................................. 14% 14% 11% * *
% of total accounts receivable at period end .................... * 23% 17% * *
- ----------------------------
* Less than 10%.
NOTE 13--PROFIT SHARING PLAN
The Company maintains a deferred compensation plan under Section 401(k) of
the Internal Revenue Code. Under the plan, employees may elect to defer up to
15% of their salary, subject to Internal Revenue Service limits. The Company may
make a discretionary matching contribution. The Company recorded matching
contributions of $86, $65 and $50 for the years ended December 31, 2001, 2000,
and 1999, respectively.
NOTE 14--SUBSEQUENT EVENT
In January 2002, MIM acquired Vitality Home Infusion Services, Inc., d/b/a
Vitality Pharmaceutical Services, a national specialty pharmaceutical provider,
based in Roslyn Heights, New York, for $45 million, which was paid, $35 million
in cash and $10 million in MIM common stock. The cash portion of the purchase
price was funded with proceeds from the primary lender under the existing credit
facility.
On March 23, 2002, Mr. Richard Friedman, the Company's Chairman and Chief
Executive Officer, repaid in full a $1,700 loan, together with all accrued and
unpaid interest thereon totalling approximately $2,100.
41
NOTE 15--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of quarterly financial information for fiscal 2001 and 2000 is as
follows:
---------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
---------------------------------------------------------------------
2001:
Revenues $ 106,036 $ 106,851 $ 119,886 $ 123,873
Net income $ 3,483 $ 3,210 $ 4,321 $ 3,189
Basic earnings per share $ 0.17 $ 0.16 $ 0.20 $ 0.15
Diluted earnings per share $ 0.17 $ 0.15 $ 0.19 $ 0.14
2000:
Revenues $ 80,517 $ 89,107 $ 76,919 $ 91,629
Net income (loss) $ 725 $ 1,082 $ 183 $ (3,813)
Basic earnings (loss) per share $ 0.04 $ 0.06 $ 0.01 $ (0.18)
Diluted earnings (loss) per share $ 0.04 $ 0.06 $ 0.01 $ (0.18)
The net loss for the fourth quarter of 2000 includes a provision for loss
of $2,300 related to the Company's investment in WHIS and $2,270 related to
legal defense costs for two former officers. Due to changes in the financial
situation at WHIS and its ability to access capital, the Company recorded the
provision for loss on this investment in December 2000.
MIM Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the years ended December 31, 2001, 2000 and 1999
(In thousands)
Balance at Charged to
Beginning of Charges to Costs and Other Balance at
Period Receivables Expenses Charges End of Period
--------------------------------------------------------------------
Year ended December 31, 1999
Accounts receivable .......................... $ 2,039 $ - $ 6,537 $ - $ 8,576
Accounts receivable, other ................... $ 403 $ - $ - $ - $ 403
====================================================================
Year ended December 31, 2000
Accounts receivable .......................... $ 8,576 $ (814) $ 571 $ - $ 8,333
Accounts receivable, other ................... $ 403 $ (403) $ - $ - $ -
====================================================================
Year ended December 31, 2001
Accounts receivable .......................... $ 8,333 $(3,193) $ 403(1) $ - $ 5,543
Accounts receivable, other ................... $ - $ - $ - $ - $ -
====================================================================
(1) Net in this amount is approximately $1,000 of reserves credited to the
Tenncare reserve adjustment for the year ended December 2001, on the statement
of operations, upon settlement with THP.
42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from the
information contained under the captions entitled "Election of Directors,"
"Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in our definitive proxy statement to be filed with the SEC in
connection with our 2002 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information contained under the captions entitled "Executive Compensation,"
"Summary Compensation Table," "Compensation Committee Interlocks and Insider
Participation," "Compensation of Directors," "Compensation Committee Report on
Executive Compensation," "Employment Agreements," "Option Grant Table," "Long
Term Incentive Plan - Awards in Last Fiscal Year," "Aggregated Options Exercised
in Last Fiscal Year and Fiscal Year-End Option Values" and "Stockholder Return
Performance Graph" in our definitive proxy statement to be filed with the SEC in
connection with our 2002 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
information contained under the caption entitled "Common Stock Ownership by
Certain Beneficial Owners and Management" in our definitive proxy statement to
be filed with the SEC in connection with our 2002 Annual Meeting of
Stockholders.
43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
information contained under the caption entitled "Certain Relationships and
Related Transactions" in our definitive proxy statement to be filed with the SEC
in connection with our 2002 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A.) Documents Filed as a Part of this Report
PAGE
1. Financial Statements:
Report of Independent Public Accountants...............................................................................22
Consolidated Balance Sheets as of December 31, 2001 and 2000...........................................................23
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999.............................24
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 2001, 2000 and 1999....................................................................................25
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999.............................26
Notes to Consolidated Financial Statements.............................................................................28
2. Financial Statement Schedules:
II. Valuation and Qualifying Accounts for the years ended December 31, 2001, 2000 and
1999.........................................................................................................42
All other schedules not listed above have been omitted since they are not
applicable or are not required, or because the required information is included
in the Consolidated Financial Statements or Notes thereto.
44
3. Exhibits:
Exhibit
Number Description Location
- ------------------------------------------------------------------------------------------------------------------------------------
2.1 Agreement and Plan of Merger by and Among MIM
Corporation, CMP Acquisition Corp., Continental
Managed Pharmacy Services, Inc. and Principal
Shareholders dated as of January 27, 1998......................................(4) (Exh. 2.1)
2.2 Purchase Agreement, dated as of August 3, 2000,
among American Disease Management Associates, LLC
its Members and Certain Related Parties, MIM Health
Plans, Inc., and MIM Corporation...............................................(11) (Exh. 2.1)
3.1 Amended and Restated Certificate of Incorporation
of MIM Corporation.............................................................(1) (Exh. 3.1)
3.2 Amended and Restated By-Laws of MIM Corporation................................(5) (Exh. 3(ii))
4.1 Specimen Common Stock Certificate..............................................(4) (Exh. 4.1)
10.1 Drug Benefit Program Services Agreement between Pro-Mark
Holdings, Inc. and RxCare of Tennessee, Inc., dated as of
March 1, 1994, as amended January 1, 1995......................................(1) (Exh. 10.1)
10.2 Amendment No. 3 to Drug Benefit Program Services
Agreement dated October 1, 1998................................................(7) (Exh.10.2)
10.3 Software Licensing and Support Agreement between
ComCoTec, Inc. and Pro-Mark Holdings, Inc. dated
November 21, 1994..............................................................(1) (Exh. 10.6)
10.4 Indemnity letter from MIM Holdings, LLC dated
August 5, 1996.................................................................(1) (Exh. 10.36)
10.5 Employment Agreement between MIM Corporation and
Richard H. Friedman dated as of December 1, 1998...............................(7) (Exh.10.14)
10.6 Amendment No. 1 to Employment Agreement dated as
of May 15, 1998 between MIM Corporation and Barry
A. Posner ....................................................................(6) (Exh. 10.50)
10.7 Employment Agreement between MIM Corporation and
Barry A. Posner dated as of March 1, 1999 .....................................(7) (Exh.10.17)
10.8 Registration Rights Agreement-I between MIM
Corporation and John H. Klein, Richard H.
Friedman, Leslie B. Daniels, E. David Corvese and
MIM Holdings, LLC dated July 29, 1996 .........................................(1) (Exh. 10.30)
10.9 Registration Rights Agreement-II between MIM
Corporation and John H. Klein, Richard H. Friedman
and Leslie B. Daniels dated July 29, 1996 .....................................(1) (Exh. 10.31)
45
10.10 Registration Rights Agreement-III between MIM
Corporation and John H. Klein and E. David Corvese
dated July 29, 1996 ...........................................................(1) (Exh. 10.32)
10.11 Registration Rights Agreement-IV between MIM
Corporation and John H. Klein, Richard H.
Friedman, Leslie B. Daniels, E. David Corvese and
MIM Holdings, LLC dated July 31, 1996 .........................................(1) (Exh. 10.34)
10.12 Registration Rights Agreement-V between MIM
Corporation and Richard H. Friedman and Leslie B.
Daniels dated July 31, 1996 ...................................................(1) (Exh. 10.35)
10.13 Amendment No. 1 dated August 12, 1996 to
Registration Rights Agreement-IV between MIM
Corporation and John H. Klein, Richard H.
Friedman, Leslie B. Daniels, E. David Corvese and
MIM Holdings, LLC dated July 31, 1996 .........................................(2) (Exh.10.29)
10.14 Amendment No. 2 dated June 16, 1998 to
Registration Rights Agreement-IV between MIM
Corporation and John H. Klein, Richard H.
Friedman, Leslie B. Daniels, E. David Corvese and
MIM Holdings, LLC dated July 31, 1996 .........................................(7) (Exh.10.31)
10.15 MIM Corporation 1996 Stock Incentive Plan, as
Amended December 9, 1996 ......................................................(2) (Exh. 10.32)
10.16 MIM Corporation 1996 Amended and Restated Stock
Incentive Plan, as amended December 2, 1998....................................(7) (Exh.10.33)
10.17 MIM Corporation 1996 Non-Employee Directors Stock
Incentive Plan*................................................................(1) (Exh. 10.29)
10.18 Lease between Alchemie Properties, LLC and
Pro-Mark Holdings, Inc., dated as of December 1,
1994...........................................................................(1) (Exh. 10.27)
10.19 Lease Agreement between Mutual Properties
Stonedale L.P. and MIM Corporation dated April 23,
1997...........................................................................(3) (Exh.10.41)
10.20 Agreement between Mutual Properties Stonedale L.P.
and MIM Corporation dated as of April 23, 1997................................. (3) (Exh.10.42)
10.21 Lease Amendment and Extension Agreement between
Mutual Properties Stonedale L.P. and MIM
Corporation dated December 10, 1997............................................(3) (Exh.10.43)
10.22 Lease Amendment and Extension Agreement-II between
Mutual Properties Stonedale L.P. and MIM
Corporation dated March 27, 1998...............................................(3) (Exh.10.44)
10.23 Lease Agreement between Mutual Properties
Stonedale L.P. and Pro-Mark Holdings, Inc., dated
December 23, 1997..............................................................(3) (Exh.10.45)
46
10.24 Amended and Restated 1996 Non-Employee Directors
Stock Incentive Plan (effective as of March 1, 1999)...........................(8) (Exh.10.60)
10.25 Amendment No. 1 to Employment Agreement,
dated as of October 11, 1999 between
MIM Corporation an Richard H. Friedman ........................................(9) (Exh.10.60)
10.26 Form of Performance Shares Agreement ..........................................(9) (Exh.10.61)
10.27 Form of Performance Units Agreement............................................(9) (Exh.10.62)
10.28 Form of Non-Qualified Stock Option Agreement*..................................(9) (Exh.10.63)
10.29 Corporate Integrity Agreement between the Office of
the Inspector General of the Department of Health and
Human Services and MIM Corporation, dated as of
June 15, 2000..................................................................(10) (Exh. 10.2)
10.30 Loan and Security Agreement, dated November 1, 2000,
between MIM Funding LLC and HFG Healthco-4 LLC.................................(12) (Exh. 10.1)
10.31 Receivables Purchase and Transfer Agreement, dated as of
November 1, 2000, among MIM Health Plans, Inc.,
Continental Pharmacy, Inc., American Disease Management
Associates LLC and MIM Funding LLC.............................................(12) (Exh. 10.2)
10.32 Lease Agreement, dated as of February 24, 2000, by and
between American Duke-Weeks Realty Limited Partnership
and Continental Managed Pharmacy Services, Inc.................................(13) (Exh. 10.68)
10.33 First Lease Amendment, dated as of February 24, 2000,
by and between Duke-Weeks Realty Limited Partnership
and Continental Managed Pharmacy Services, Inc.................................(13) (Exh. 10.69)
10.34 Lease Agreement, dated as of July 22, 1996, by and between
American Disease Management Associates, LLC ("ADIMA")
and Regent Park Associates.....................................................(13) (Exh. 10.70)
10.35 First Amendment of Agreement of Lease, dated as of June 15,
1999, by and between ADIMA and Five Regent Park Associates.....................(13) (Exh. 10.71)
10.36 Second Amendment of Agreement of Lease, dated as of February
11, 2000, by and between ADIMA and Five Regent Park
Associates.....................................................................(13) (Exh. 10.72)
47
10.37 Employment Letter, dated as of February 8, 1999, between
the Company and Recie Bomar ...................................................(13) (Exh. 10.73)
10.38 Asset Purchase Agreement, dated April 4, 2001 among
Continental Managed Pharmacy Services Inc., Community
Prescription Service, Inc., and its Stockholders..............................(14) (Exh. 10.74)
10.39 Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1, File No. 333-05327).....................................(15) (Exh. 3.1)
10.40 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Exhibit 3(ii) to the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1998)...........................................(15) (Exh. 3.2)
10.41 Amended and Restated Rights Agreement dated as of May 20,
1999, between the Registrant and American Stock Transfer and
Trust Company (incorporated by reference to Exhibit 4.1 to
Post-Effective Amendment
No. 2 to the Registrant's Form 8-A/A dated May 20, 1999).......................(15) (Exh. 4.1)
10.42 Purchase Agreement among American Disease Management Associates,
L.L.C., its Members and Certain Related Partners, MIM Health Plans,
Inc. and the Registrant, dated as of August 3, 2000 (incorporated by
reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K
filed August 10, 2000).........................................................(15) (Exh. 4.2)
10.43 Registration Rights Agreement between the Registrant and
Livingston Group LLC dated as of August 3, 2000 (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K
filed August 10, 2000).........................................................(15) (Exh. 4.3)
10.44 Consent of Arthur Andersen LLP.................................................(15) (Exh. 23.2)
10.45 Employment letter, dated as of June 21, 2001, between MIM
Corporation and Donald Foscato ...............................................(16) (Exh. 10.75)
10.46 Employment letter, dated as of June 18, 2001, between MIM
Health Plans, Inc. and Donald Dindak .........................................(16) (Exh. 10.76)
10.47 Employment letter, dated as of June 19, 2001, between MIM
Health Plans, Inc and Michael Sicilian .......................................(16) (Exh. 10.77)
10.48 Purchase Agreement, dated as of January 9, 2002, among Vitality
Home Infusion Services, Inc., Marc Wiener, Barbara Kammerer
and MIM Corporation............................................................(17) (Exh. 2.1)
10.49 Lease Agreement, dated as of January 31, 2002, between Bar-Marc
Realty, LLC, as landlord, and Vitality Home Infusion Services, Inc.,
as Tenant
10.50 Guaranty of Lease Agreement, dated January 31, 2002, made by
the Company in favor of Bar-Marc Realty, LLC
48
10.51 Employment Letter, dated October 15, 2001, between the Company
and Russel J. Corvese
10.52 Amendment, dated October 15, 2001, to Employment Letter, dated as of
February 8, 1999, between the Company and Recie Bomar
21 Subsidiaries of the Company
99.1 Letter to SEC pursuant to Temporary Note 3T
- --------------------------------------------------
(1) Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-05327), as amended, which
became effective on August 14, 1996.
(2) Incorporated by reference to the indicated exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(3) Incorporated by reference to the indicated exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.
(4) Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-4 (File No. 333-60647), as amended, which
became effective on August 21, 1998.
(5) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998.
(6) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1998,
as amended.
(7) Incorporated by reference to the indicated exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
49
(8) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1999.
(9) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1999.
(10) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2000.
(11) Incorporated by reference to the indicated exhibit to the Company's Current
Report on Form 8-K filed on August 10, 2000.
(12) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
2000.
(13) Incorporated by reference to the indicated exhibit to the company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000.
(14) Incorporated by reference to the indicated exhibit to the company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001.
(15) Incorporated by reference to the indicated exhibit to the company's Form
S-3 filed on July 12, 2001.
(16) Incorporated by reference to the indicated exhibit to the company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001.
(17) Incorporated by reference to the indicated exhibit to the company's Form
8-K filed on February 5, 2002.
(B) Reports on Form 8-K
NONE
50
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, on March 30, 2001.
MIM CORPORATION
/s/ Donald A. Foscato
-------------------------------
Donald A. Foscato
Chief Financial 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.
Signature Title(s) Date
- --------------------------------------------------------------------------------------------------------------
Chairman and Chief Executive Officer March 29, 2002
/s/ Richard H. Friedman (principal executive officer)
- ---------------------------------
Richard H. Friedman
Chief Financial Officer and Treasurer March 29, 2002
/s/ Donald A. Foscato (principal financial officer)
- ---------------------------------
Donald A. Foscato
/s/ Louis DiFazio, PhD Director March 29, 2002
- ---------------------------------
Louis DiFazio, PhD
/s/ Louis A. Luzzi, Ph.D. Director March 29, 2002
- ---------------------------------
Louis A. Luzzi, Ph.D.
/s/ Richard A. Cirillo Director March 29, 2002
- ---------------------------------
Richard A. Cirillo
/s/ Michael Kooper Director March 29, 2002
- ---------------------------------
Michael Kooper
/s/ Ronald Shelp Director March 29, 2002
- ---------------------------------
Ronald Shelp
/s/ Harold Ford Director March 29, 2002
- ---------------------------------
Harold Ford
51
EXHIBIT INDEX
(Exhibits being filed with this Annual Report on Form 10-K)
10.49 Lease Agreement, dated as of January 31, 2002, between Bar-Marc
Realty, LLC, as landlord, and Vitality Home Infusion Services, Inc.,
as Tenant
10.50 Guaranty of Lease Agreement, dated January 31, 2002, made by
the Company in favor of Bar-Marc Realty, LLC
10.51 Employment Letter, dated October 15, 2001, between the Company
and Russel J. Corvese
10.52 Amendment, dated October 15, 2001, to Employment Letter, dated as of
February 8, 1999, between the Company and Recie Bomar
21 Subsidiaries of the Company
99.1 Letter to SEC pursuant to Temporary Note 3T
52
Exhibit 10.49
EXECUTION COPY
BAR-MARC REALTY, LLC,
Landlord,
and
VITALITY HOME INFUSION SERVICES, INC.,
Tenant.
NET
LEASE
Dated as of January 31, 2002
Property
- --------
10 Powerhouse Road
Roslyn Heights, New York
TABLE OF CONTENTS
Page
Article 1. Demised Premises and Term.......................................1
Article 2. Rent............................................................1
Article 3. Triple Net Lease................................................3
Article 4. Construction....................................................4
Article 5. Title to Improvements...........................................4
Article 6. Taxes...........................................................5
Article 7. Repairs.........................................................7
Article 8. Utilities.......................................................8
Article 9. Compliance with Law.............................................8
Article 10. Alterations....................................................10
Article 11. Use of Demised Premises........................................11
Article 12. Protection Against Claims by Public............................12
Article 13. Independence of Demised Premises...............................12
Article 14. Mechanics' Liens...............................................12
Article 15. Liability Insurance............................................13
Article 16. Indemnity......................................................14
Article 17. Hazard Insurance...............................................15
Article 18. Fire and Other Casualty........................................16
Article 19. Condemnation...................................................17
Article 20. Restoration after Fire or Condemnation.........................21
Article 21. Assignment; Subletting.........................................25
Article 22. Injunction.....................................................29
Article 23. Default; Termination; Conditions
of Limitation; Damages...........................29
Article 24. Subordination..................................................33
Article 25. Waiver of Rights of Redemption.................................34
Article 26. Landlord's Right to Cure Tenant's Defaults.....................34
Article 27. Landlord's Expenses............................................35
Article 28. Waiver of Trial by Jury........................................35
Article 29. Liability; No Merger...........................................35
Article 30. Definitions....................................................36
Article 31. Quiet Enjoyment................................................36
Article 32. Arbitration....................................................37
Article 33. Vaults and Street Areas........................................37
Article 34. Condition of Premises..........................................38
Article 35. Landlord's Right of Entry......................................38
Article 36. Consents and Approvals.........................................38
Article 37. Notices........................................................38
Article 38. Estoppel Certificates..........................................39
Article 39. Rights Cumulative..............................................40
Article 40. Interest.......................................................40
Article 41. Non-Waiver.....................................................40
Article 42. Surrender......................................................40
Article 43. Guaranty.......................................................41
Article 44. No Partnership.................................................43
Article 45. Entire Agreement; No Oral Modifications........................43
Article 46. Successors.....................................................44
Article 47. Invalidity of Any Provision....................................44
(i)
Article 48. Brokers........................................................44
Article 49. Recording......................................................45
Article 50. Authority......................................................45
Article 51. Option to Renew................................................45
(ii)
SCHEDULE A - Description of Demised Premises
SCHEDULE B - Form of Guaranty
(iii)
AGREEMENT OF LEASE made as of January 31, 2002, between BAR-MARC
REALTY, LLC, a New York limited liability company, having an address at c/o Marc
Wiener, 2 Madison Place, Jericho, New York 11753 ("Landlord"), and VITALITY HOME
INFUSION SERVICES, INC., a New York corporation, having an address at 10
Powerhouse Road, Roslyn Heights, New York 11577 ("Tenant").
Landlord and Tenant hereby agree as follows:
Article 1. Demised Premises and Term. Landlord hereby demises and lets
unto Tenant, and Tenant hereby hires and leases from Landlord, the premises
described in Schedule A attached hereto and made a part hereof, and the building
and improvements consisting of three floors and basement space comprising
approximately 7,200 square feet (collectively, the "Building") located on such
land (such land and the Building being hereinafter collectively referred to as
the "Demised Premises");
TO HAVE AND TO HOLD the Demised Premises unto Tenant, its permitted
successors and assigns, upon and subject to all of the terms, covenants,
conditions, conditional limitations and agreements contained in this Lease for a
term of approximately seven (7) years commencing on the date of this Lease (the
"Commencement Date") and ending on the last day of the month in which occurs the
seventh (7th) anniversary of the Commencement Date (the "Expiration Date"), or
until the term is sooner terminated pursuant to any of the conditional
limitations or other provisions of this Lease, or, if applicable, until the end
of the term as extended pursuant to Article 51 of this Lease.
Article 2. Rent.
2.1 Tenant shall pay to Landlord fixed annual rent (sometimes referred
to as "rent" or "fixed annual rent")for the period from the Commencement Date
through and including the last day of the month in which occurs the seventh
(7th) anniversary of the Commencement Date, the sum of $126,000.00 per annum at
the rate of $10,500.00 per month payable on the first day of each month.
2.2 The fixed annual rent shall be adjusted in the manner set forth in
this Section 2.2.
(a) For the purposes of this Article 2, the following definitions
shall apply:
(i) The term "Consumer Price Index" shall mean the
Revised Consumer Price Index for "All Urban Consumers" published by the
Bureau of Labor Statistics of the U.S. Department of Labor, for New
York-Northern New Jersey-Long Island, NY-NJ-CT, All Items
(1982-84=100), or the successor to such Index should publication
thereof be discontinued.
(ii) The term "Prior Consumer Price Index" shall mean
with respect to any rent adjustment occurring as of the first
Adjustment Date (as defined below) the Consumer Price Index for the
month in which the Commencement Date occurs and with respect to any
rent adjustment occurring as of each Adjustment after the first
Adjustment Date, the Consumer Price Index for the month preceding the
Adjustment Date that is immediately preceding the Adjustment Date in
question.
(b) Effective as of the first anniversary of the Commencement
Date and as of each anniversary thereafter during the term of this Lease (each
such day being herein referred to as an "Adjustment Date"), there shall be made
a cost of living adjustment of the fixed annual rent then in effect. The
adjustment shall be based on the percentage difference between the Consumer
Price Index for the month preceding the Adjustment Date in question and the
Prior Consumer Price Index. In the event the Consumer Price Index for the month
immediately preceding any Adjustment Date reflects an increase over the Prior
Consumer Price Index, the fixed annual rent for the year preceding the
Adjustment Date shall be multiplied by the percentage difference between the
Consumer Price Index for the month immediately preceding the Adjustment Date in
question and the Prior Consumer Price Index and the resulting product shall be
added to the fixed annual rent for the year preceding the Adjustment Date
effective as of the Adjustment Date in question.
The following illustrates the intention of Landlord and Tenant
as to the computation of the cost of living adjustment in the fixed annual rent
payable under this Section 2.2:
Assuming that the Prior Consumer Price Index was 100.0 and
that the Consumer Price Index for the month immediately preceding the Adjustment
Date in question was 103.0 and that the fixed annual rent was $600,000, then
$600,000 would be multiplied by the percentage increase thus reflected, i.e. 3%
(103.0-100.0=3; 3/100=3%), and the fixed annual rent would be increased by
$18,000.00 per annum effective as of the Adjustment Date in question and equal
$618,000.
(c) In the event that the Consumer Price Index ceases to use
1982-84=100 as the basis of calculation, or if a substantial change is made in
the terms or number of items contained in the Consumer Price Index, then the
Consumer Price Index shall be adjusted to the figure that would have been
arrived at had the manner of computing the Consumer Price Index in effect at the
date of this Lease not been altered. In the event such Consumer Price Index (or
a successor or substitute index) is not available, a reliable governmental or
other non-partisan publication mutually acceptable to the parties hereto
providing the information theretofore used in determining the Consumer Price
Index shall be used.
-2-
(d) No adjustments or recomputations, retroactive or
otherwise, shall be made due to any revision which may later be made in the
first published figure of the Consumer Price Index for any month.
(e) Until Landlord gives notice to Tenant after each
Adjustment Date that the Consumer Price Index for the month preceding the
Adjustment Date and the increased fixed annual rent in question has been
determined, Tenant shall pay the fixed annual rent at the rate payable
immediately prior to the Adjustment Date and, within thirty (30) days after
Landlord's notice to Tenant as aforesaid, Landlord and Tenant shall adjust for
any underpayment by Tenant from the Adjustment Date to the date of Tenant's next
due monthly payment of fixed annual rent.
(f) In no event shall the fixed annual rent provided to be
paid under this Lease (i) be adjusted downward; or (ii) be less than the fixed
annual rent in the last year prior to the adjustment; and in no event shall the
fixed annual rent increases be more than six percent (6%) per annum over the
prior year's fixed annual rent, as adjusted pursuant to this Section.
2.3 Fixed annual rent shall be payable by Tenant as provided below in
this Article 2, without prior demand and without deduction, setoff or abatement
except as otherwise provided in this Lease, in equal monthly installments on or
before the first day of each calendar month. If this Lease commences on a date
other than the first day of a calendar month or if the expiration date occurs on
a day other than the last day of a calendar month, then the rent shall be
prorated on a daily basis for such month.
2.4 Tenant shall pay to Landlord the first monthly installment of fixed
annual rent payable to Landlord under the terms of this Article 2 upon the
execution and delivery of this Lease.
2.5 The rights and obligations of Landlord and Tenant under the
provisions of this Article 2 with respect to rent shall survive the expiration
or other termination of this Lease, provided, however, that nothing in this
subsection shall be deemed to expand the remedies available to Landlord pursuant
to Article 23 of this Lease upon a default by Tenant hereunder.
2.6 All sums (other than fixed annual rent), charges, costs and
expenses which shall be payable by Tenant under this Lease shall be deemed to be
"additional rent" hereunder and Landlord shall have all of the remedies upon a
default in payment of the additional rent as are available to Landlord for a
default in fixed annual rent.
-3-
Article 3. Triple Net Lease.
3.1 This is an absolutely triple net lease and Landlord shall not be
required to provide any services or to do any act or thing with respect to the
Demised Premises or the appurtenances thereto, and the fixed annual rent shall
be paid to Landlord without any claim on the part of Tenant for diminution,
reduction, setoff or abatement and nothing shall suspend, abate or reduce any
rent to be paid hereunder, except as otherwise specifically provided in this
Lease.
3.2 It is the intent of Landlord and Tenant that Tenant shall pay each
and every item of expense of every kind and nature whatsoever accruing during
the term of this Lease, for the payment of which Landlord is, shall or may be or
become liable by reason of its estate or interest in the Demised Premises and/or
the Building, or by reason of any rights or interest of Landlord in or under
this Lease, or by reason of or in any manner connected with or arising from the
ownership, leasing, operation, management, maintenance, repair, rebuilding,
remodeling, renovation, use or occupancy of the Demised Premises and/or the
Building, except for (a) payments due with respect to liens and encumbrances
placed on the Demised Premises by Landlord or any third party other than liens
or encumbrances arising from Tenant's failure to perform its obligations
hereunder, and (b) payments due with respect to the Demised Premises accruing
either prior to the Commencement Date of this Lease or after the expiration of
the term hereof, or as otherwise expressly set forth in this Lease.
Article 4. Construction. Landlord shall not be obligated to do any
construction or work of any kind in order to prepare the Demised Premises for
occupancy by Tenant.
Article 5. Title to Improvements.
5.1 All fixtures, improvements, alterations, installations, additions,
paneling, partitions, doors, railings and like installations installed in the
Demised Premises at any time, by Tenant or others on Tenant's behalf in
accordance with the terms of this Lease (collectively, the "Leasehold
Improvements") shall remain on the Demised Premises following the expiration of
this Lease. Notwithstanding the foregoing, nothing contained in this Section 5.1
shall be construed to give Landlord title to, or to prevent Tenant's removal of,
the furniture, furnishings, trade fixtures, equipment and other movable property
referred to in Section 5.2 below upon the expiration of the term of this Lease.
-4-
5.2 All furniture, furnishings and trade fixtures, including without
limitation, business machines and equipment, counters, screens, hoods, vents,
partitions, tables, chairs, desks, refrigerators, and any other movable property
placed on the Demised Premises by Tenant shall remain the property of Tenant and
Tenant may at its option remove all or any part thereof at any time prior to the
expiration or other termination of the term of this Lease. In case Tenant shall
decide not to remove any part of such property, Tenant shall notify Landlord in
writing not less than sixty (60) days prior to the expiration of the term of
this Lease, specifying the items of property that it has decided not to remove.
If, within thirty (30)days after the receipt by Landlord of such notice,
Landlord shall request Tenant to remove any of such property, Tenant shall at
its expense remove such property in accordance with such request. As to such
property that Landlord does not request Tenant to remove, such property shall
be, if left by Tenant, deemed abandoned by Tenant and thereupon such property
shall become the property of Landlord.
5.3 If any property that Tenant shall have the right to remove or be
requested by Landlord to remove as provided in Section 5.2 above (referred to in
this Section 5.3 as the "property") is not removed on or prior to the expiration
or within five (5) days following the earlier termination of the term of this
Lease, Landlord shall have the right to remove the property and to dispose of
the property without accountability to Tenant and at the sole cost and expense
of Tenant. In case of any damage to the Demised Premises or the Building
resulting from the removal of the property (whether such removal is performed by
Landlord or by Tenant), Tenant shall repair such damage within fifteen (15) days
after Tenant's receipt of written demand or, in default thereof, shall reimburse
Landlord for Landlord's actual cost in repairing such damage within thirty (30)
days after written demand by Landlord with interest, from the date paid by
Landlord to an including the date Tenant so repays Landlord, at the Interest
Rate (as hereinafter defined). Tenant's obligations under this Article 5 shall
survive the expiration or other termination of this Lease.
5.4 All Leasehold Improvements hereafter constructed on the Demised
Premises shall become the property of Landlord immediately upon their affixation
to the Demised Premises.
Article 6. Taxes.
6.1 Tenant will, at Tenant's own cost and expense, bear, pay and
discharge, on or before the later of thirty (30) days after Tenant's receipt of
the tax bill and the fifteenth (15th) day prior to the last day upon which they
may be paid without interest or penalty for the late payment thereof, all taxes,
-5-
assessments, sewer rents, water rents and charges, duties, impositions, license
and permit fees, charges for public utilities of any kind, payments and other
charges of every kind and nature whatsoever, ordinary and extraordinary,
foreseen or unforeseen, general or special (all of which are collectively
referred to as "Impositions"), which, pursuant to present or future law or
otherwise, cover a period during the term of this Lease with respect to, (i) the
Demised Premises or any part thereof, or the appurtenances thereto, or (ii) the
rents received by Landlord hereunder or received by Tenant from subtenants of
the Demised Premises or any part thereof, or any use or occupation of the
premises; it being the intention of the parties that the fixed annual rent and
additional rent shall be received and enjoyed by Landlord as a net sum free from
all of such Impositions, except income taxes assessed against Landlord,
franchise, estate, succession, inheritance or transfer taxes of Landlord and
special assessments related to the initial construction of the Demised Premises
or additional capital improvements to the Demised Premises made by Landlord
prior to the Commencement Date; provided, however, that if at any time during
the term of this Lease the then prevailing method of taxation or assessment
shall be changed so that the whole or any part of the Impositions theretofore
payable by Tenant as above provided, shall instead be levied, charged, assessed
or imposed wholly or partially on the rents received by Landlord from the
Demised Premises, or shall otherwise be imposed against Landlord in the form of
a franchise tax or otherwise, then, to the extent such new charges are in
substitution of any Impositions, Tenant shall pay all such levies, charges,
assessments, impositions, taxes and other substituted charges, on or before the
later of thirty (30) days after Tenant's receipt of the tax bill and the
fifteenth (15th) day prior to the last day upon which they may be paid without
interest or penalty for late payment; provided further, however, that if the
amount or rate of such substituted levy, charge, assessment or imposition, so
levied, charged, assessed or imposed against the rents or income received by
Landlord from the Demised Premises as a substitute in whole or in part for any
of the Impositions theretofore payable by Tenant as provided above, shall be
increased by reason of rents or income received by Landlord from property other
than the Demised Premises, then Tenant shall be obligated to pay only such
proportion of such levies, charges, assessments or impositions as shall be just
and fair in the circumstances then prevailing.
Within thirty (30) days after the date when any Imposition is payable
pursuant to any provisions of this Article 6, Tenant shall deliver to Landlord
official receipts of the appropriate taxing authority, copies of the tax bills
and Tenant's cancelled check or other reasonable evidence of payment thereof.
-6-
6.2 Tenant shall pay all interest and penalties imposed upon the late
payment of any Impositions which Tenant is obligated to pay hereunder.
Impositions shall be apportioned between Tenant and Landlord as of the
Commencement Date and as of the date of expiration or termination of the term of
this Lease. Any payments due Landlord or Tenant shall be made within thirty (30)
days after written demand, accompanied by a copy of the bill from the taxing
authority or other reasonable supporting documentation.
6.3 Landlord shall permit Tenant to take the benefit of the provisions
of any law or regulations permitting any tax or assessment imposed more than one
year prior to the date of expiration of the term of this Lease to be paid in
installments; provided, however, that the amount of all installments of any such
assessment which are to become due and payable after the expiration of the term
of this Lease and covering a period during the term of this Lease shall be paid
by Tenant on or before the expiration date of this Lease.
6.4 If Tenant shall fail to pay any Imposition, which Tenant is not
contesting in accordance with this Article 6, on or before the last day upon
which the same may be paid in accordance with the above provisions, then
Landlord may pay such Imposition with all interest and penalties lawfully
imposed upon the late payment thereof and the amounts so paid by Landlord shall
thereupon be and become immediately due and payable by Tenant to Landlord, with
interest from the date paid by Landlord to and including the date Tenant so
repays Landlord, at the Interest Rate.
6.5 An official certificate or statement issued or given by any
sovereign or municipal authority, or any agency thereof, or any public utility,
showing the existence of any Imposition, or interest or penalties thereon, the
payment of which is the obligation of Tenant as herein provided, shall be prima
facie evidence for all purposes of this Lease of the existence, amount and
validity of such Imposition.
6.6 Upon the termination of this Lease by reason of Tenant's default
hereunder, all right, title and interest of Tenant in all refunds or rebates of
Impositions, whether paid or to be paid, are hereby assigned to Landlord and
Landlord shall apply such refunds or rebates against the amounts due from Tenant
hereunder.
6.7 Tenant shall have the right to institute certiorari or other
similar proceedings challenging the real estate tax assessment for the Demised
Premises. Tenant shall provide Landlord with copies of all pleadings and other
documents and materials filed with the court or served by Tenant in connection
with such proceeding promptly after the same are filed or served by Tenant.
Landlord, at Tenant's sole cost and expense, shall cooperate reasonably with
Tenant in connection with such proceedings. Upon the expiration or termination
of this Lease, Tenant shall withdraw as the party to any such proceeding that
may be pending and Landlord shall be substituted for Tenant. Tenant agrees to
execute any documents that may be necessary to effect such substitution.
-7-
Article 7. Repairs.
7.1 Tenant shall, at all times during the term of this Lease, at
Tenant's sole cost and expense, keep the Demised Premises and all facilities and
equipment thereon, and all sidewalks and curbs adjoining the Demised Premises,
and all appurtenances to the Demised Premises, in first class operating
condition and repair and free of all vermin and insects, and in such condition
as may be required by law and by the terms of the insurance policies furnished
pursuant to Articles 15, 16 and 17 hereof, whether or not such repair shall be
interior or exterior, extraordinary or ordinary, and whether or not the same can
be said to be within the present contemplation of the parties hereto, except
that Landlord shall be responsible to make Structural Repairs (as hereinafter
defined) to the Demised Premises.
Tenant shall at all times during the term of this Lease, at Tenant's
own cost and expense, keep the sidewalks and curbs adjoining the Demised
Premises free from snow, ice and any other obstructions.
7.2 Except as otherwise provided in Articles 5 and 10 of this Lease,
Tenant shall not remove, demolish or alter any building or improvement
comprising the Demised Premises in the course of making repairs without the
prior written consent of Landlord, which Landlord may grant or withhold in its
sole discretion. When used in this Article, the term "repair" shall include
replacements or renewals when necessary, and any repairs made by Tenant shall be
at least equal in quality and class to the original work.
7.3 During the term of this Lease, Landlord shall, make all Structural
Repairs to the Demised Premises and Tenant shall be responsible for the Annual
Amortized Cost (as hereinafter defined) of any Structural Repairs during the
term of this Lease. For the purposes, hereof, Structural Repairs shall mean all
necessary repairs to the roof, footings and foundations and the structural steel
columns and girders forming a part of the Demised Premises or any other capital
repairs or replacements of the HVAC systems, plumbing, electrical or other
operating systems servicing the Demised Premises which should be properly
treated as a capital expenditure in accordance with generally applied real
-8-
estate accounting practice. In the event that any Structural Repairs are
performed by Landlord during the term of this Lease, Landlord shall deliver
annual statements to Tenant, reflecting the Annual Amortized Cost (as
hereinafter defined) of such Structural Repairs. Tenant shall pay to Landlord
the amount set forth on such statement on or before the date that is thirty (30)
days from the receipt of such statement throughout the remainder of the term of
this Lease. Landlord shall be responsible for the remainder of any Annual
Amortized Cost occurring after the expiration of this Lease. In the event that
the Tenant fails to timely pay such amount, such amounts shall bear interest
from the date paid by Landlord to and including the date Tenant so repays
Landlord, at the Interest Rate. Annual Amortized Cost shall mean the payment
amount determined as an annuity in arrears using the cost actually incurred by
Landlord for such Structural Repair, amortized on a straight-line basis over the
shorter of: (A) the useful life of the Structural Repair; or (B) ten (10) years,
with an interest rate equal to the prime rate of major commercial banks (as
published in the Wall Street Journal) as in effect on the date of such annual
statement. Notwithstanding Landlord's obligations with respect to Structural
Repairs as set forth herein, Tenant shall be responsible for routine maintenance
and repairs with respect to the roof, HVAC systems, plumbing, electrical or
other operating systems servicing the Demised Premises
Article 8. Utilities. During the term of this Lease, Tenant will make
arrangements with the appropriate suppliers to be billed directly for all water,
gas, oil, steam, electricity, light, heat, telephone, power, and other utilities
used by Tenant on or in the Demised Premises during the term of this Lease and
shall pay the same on or before the date such utility charges are due. At
Landlord's request, Tenant will, within ten (10) days, provide Landlord with
evidence of its payment of such utility charges.
Tenant will be responsible to maintain during the term of this Lease,
without cost to Landlord, any and all necessary permits, licenses, or other
authorizations required for the lawful and proper installation and maintenance
upon the Demised Premises of wires, pipes, conduits, tubes, and other equipment
and appliances for use in supplying any such service to and upon the Demised
Premises. Landlord, upon request of Tenant, and at the sole expense and
liability of Tenant, will join with Tenant in any application required for
obtaining or continuing any such services.
-9-
Article 9. Compliance with Law.
9.1 Tenant shall at all times during the term of this Lease, at
Tenant's sole cost and expense, perform and comply with all laws, rules, orders,
ordinances, regulations and requirements now or hereafter enacted or
promulgated, of every government and municipality having jurisdiction over the
Demised Premises and of any agency thereof, and all applicable requirements and
regulations of all fire underwriters boards and rating organizations
(collectively, "Requirements"), relating to the Demised Premises, or the
facilities or equipment therein, or the streets, sidewalks, curbs and gutters
adjoining the Demised Premises or the appurtenances to the Demised Premises,
which shall impose any violation, order or duty upon Landlord or Tenant except
that this Section shall not require or permit the Tenant to make any Structural
Repairs to the Demised Premises that may be required by the Requirements.
9.2 Tenant shall also, at all times during the term of this Lease, at
Tenant's sole cost and expense, perform and comply with all Requirements that
require alterations to the Demised Premises (other than Structural Repairs)
arising out of (i) Tenant's use of the Demised Premises, (ii) any breach by
Tenant of any term, covenant or condition of this Lease, or (iii) any cause or
condition arising out of or in connection with any alteration performed by
Tenant or on Tenant's behalf.
9.3 Tenant agrees, at Tenant's sole cost and expense, to comply at all
times with all Requirements governing the use, generation, storage, treatment
and/or disposal of any Hazardous Materials (as defined below), the presence of
which was placed, stored or generated on the Demised Premises by Tenant or
Tenant's employees, agents, contractors, invitees or licensees (collectively,
"Persons Within Tenant's Control") or the breach of this Lease by Tenant or
Persons Within Tenant's Control. The term "Hazardous Materials" shall mean any
biologically or chemically active or other toxic or hazardous wastes, pollutants
or substances, including, without limitation, asbestos, PCBs, petroleum products
and by-products, substances defined or listed as "hazardous substances" or
"toxic substances" or similarly identified in or pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, et seq.,
and as hazardous wastes under the Resource Conservation and Recovery Act, 42
U.S.C. 6010, et seq., any chemical substance or mixture regulated under the
Toxic Substance Control Act of 1976, as amended, 15 U.S.C. 2601, et seq., any
"toxic pollutant" under the Clean Water Act, 33 U.S.C. 466, et seq., as amended,
any hazardous air pollutant under the Clean Air Act, 42 U.S.C. 7401, et seq.,
hazardous materials identified in or pursuant to the Hazardous Materials
Transportation Act, 49 U.S.C. 1802, et seq., and any hazardous or toxic
substances or pollutant regulated under any other Requirements. Tenant shall
-10-
agree to execute, from time to time, at Landlord's request, affidavits,
representations and the like concerning Tenant's best knowledge and belief
regarding the presence of Hazardous Materials in, on, under or about the
Premises, the Building or the Land. Tenant shall indemnify and hold harmless
Landlord, Landlord's agents and employees from and against any loss, cost,
damage, liability or expense (including reasonable attorneys' fees and
disbursements) arising by reason of any clean up, removal, remediation,
detoxification action or any other activity required or recommended of any of
Landlord, Landlord's agents and employees by any government agency by reason of
the presence in or about the Building or the Premises of any Hazardous
Materials, placed, stored or generated on the Demised Premises by Tenant or
Persons Within Tenant's Control or the breach of this Lease by Tenant or Persons
Within Tenant's Control. The foregoing covenants and indemnity shall survive the
expiration or any termination of this Lease.
9.4 Tenant shall have the right, provided it does so with due diligence
and dispatch, to contest by appropriate legal proceedings, without cost or
expense to Landlord, the validity of any Requirements of the nature referred to
in this Article 9. Tenant may postpone compliance with such Requirements until
the final determination of such proceedings only so long as such postponement of
compliance will not subject Landlord to any criminal prosecution, and on
condition that, in the event of each such postponement of compliance by Tenant,
Tenant shall, on written demand of Landlord, deposit and thereafter maintain
with Landlord an amount of money and/or other security (including a policy of
indemnity insurance, if reasonably required by Landlord) reasonably satisfactory
to Landlord sufficient to pay for the costs of compliance with such Requirements
so postponed and to pay any lien, charge and other liability of any kind against
the reversion of the Demised Premises or any buildings and improvements thereon
which may arise by reason of postponement or failure of compliance with such
Requirements and also sufficient to indemnify and hold Landlord harmless from
and against any loss, cost, damage, liability, interest, reasonable attorneys'
fees and disbursements and other expenses arising by reason of such postponement
or failure of compliance, which amount of money and other security shall be held
by Landlord and shall be applied, to the extent thereof, to the payment of such
costs of compliance if and when such costs are incurred by Tenant or Landlord,
and to the payment of any such lien, charge, liability, loss, cost, damage,
interest, attorneys' fees and disbursements and other expenses if and when they
arise. To the extent that the amount of money and other security so deposited
with Landlord shall be insufficient to pay such costs of compliance in full and
fully to satisfy and discharge any such lien, charge, liability, loss, cost,
damage, interest, attorneys' fees and disbursements and expenses which shall
-11-
have arisen by reason of such postponement or failure of compliance, Landlord
may pay the same and the deficiency so paid by Landlord shall be due and payable
by Tenant to Landlord within fifteen (15) days after written demand by Landlord,
with interest from the date of demand by Landlord to and including the date
Tenant so repays Landlord, at the Interest Rate. Upon the final determination of
such proceedings and compliance by Tenant with any such Requirements so
contested (to the extent, if any, that compliance is required after the
termination of such proceedings), any moneys so deposited with Landlord and then
remaining on deposit with Landlord shall be returned to Tenant within fifteen
(15) days if Tenant shall not then be in default hereunder.
No provision of this Lease shall be construed so as to permit Tenant to
postpone compliance with any such law, rule, order, ordinance, regulation or
requirement if any sovereign, municipal or other governmental authority shall
threaten to carry out any work to so comply or to foreclose or sell any lien
affecting all or any part of the Demised Premises which shall have arisen by
reason of such postponement or failure of compliance.
Article 10. Alterations.
10.1 Tenant may make purely decorative changes to the Demised Premises
such as painting and carpeting without Landlord's prior consent, but upon prior
written notice to Landlord. Tenant may, at Tenant's sole cost and expense, from
time to time during the term of this Lease, make such alterations or additions
to the Demised Premises, excluding structural changes, as Tenant may reasonably
consider necessary for the conduct of its business therein, upon and subject to
the following conditions:
(a) such alterations or additions shall not adversely affect the
value of the Demised Premises;
(b) the strength of the Building, the outside appearance of the
Building or of any of its structural parts shall not be adversely affected;
(c) the proper functioning of any of the elevators or sprinkler,
mechanical, electrical, plumbing, heating, ventilating, sanitary or other
service systems of the Building shall not be adversely affected;
(d) in performing the alteration, Tenant shall observe and be
bound by all of the conditions and covenants contained in this Article 10; and
-12-
(e) before proceeding with any alteration which costs more
than Twenty Thousand ($20,000.00) Dollars, Tenant shall submit to Landlord, for
Landlord's approval, detailed architectural, mechanical and structural plans and
specifications for the work to be performed, prepared by a reputable architect
licensed and registered to practice in New York State. Except with respect to
work that does not satisfy the conditions set forth in subdivisions (a)-(d) of
this Section, Landlord shall not unreasonably withhold or delay its approval of
Tenant's plans and specifications.
10.2 Landlord may, as a condition to its consent, require Tenant to
make reasonable revisions in and to the plans and specifications. Promptly after
the completion of any alteration that affects the structure of the Building or
the elevators, sprinkler, mechanical, electrical, plumbing, ventilating,
sanitary or any other service system of the Building, Tenant shall deliver to
Landlord a complete set of as-built plans in connection with such alteration.
10.3 All work performed by Tenant in the Demised Premises shall be
performed only by contractors or mechanics approved by Landlord, which approval
shall not be unreasonably withheld or delayed. All such work shall be done at
Tenant's sole expense.
10.4 Prior to commencing any work pursuant to the provisions of this
Lease, Tenant shall, at its expense, obtain all necessary governmental permits
and certificates (and furnish copies thereof to Landlord) for the commencement
and prosecution of Tenant's work and, upon completion, for final approval
thereof, and shall cause Tenant's work to be performed in compliance with such
permits and certificates, as well as with all applicable laws and requirements
of public authorities and all applicable requirements of insurance bodies having
jurisdiction over the Demised Premises, in a good and workmanlike manner, using
materials and equipment of comparable quality to the original construction of
the Demised Premises. Tenant shall, at its expense, carry or cause to be
carried, the insurance coverage set forth in Articles 15, 16 and 17 of this
Lease.
Article 11. Use of Demised Premises. Tenant will use and occupy the
Demised Premises for a retail and wholesale specialty pharmacy business
including general office and storage uses in connection with the operation of
such business, and for no other purpose.
Tenant shall not (i) suffer or permit any Hazardous Substances to be
brought on the Demised Premises, except as permitted by, and in accordance with,
applicable law, or (ii) use or permit the use of the Demised Premises or any
part thereof in any way that would violate any of the covenants, agreements,
terms, provisions and conditions of this Lease or for any unlawful purposes or
in any unlawful manner or in violation of any certificate of occupancy for the
Building or the use set forth above.
-13-
Article 12. Protection Against Claims by Public. During the term of
this Lease if any portion of the Demised Premises shall be unenclosed by any
walled structure, fence or gate, such portion shall be subject to such
reasonable directions as Landlord may from time to time make or give to Tenant
in writing with respect to the use thereof so long as the same does not
interfere with Tenant's intended use and access to the Demised Premises, for the
purpose of Landlord's protection against possible claim or claims of the public
(although Tenant's vendors and customers shall have access to the Demised
Premises for the purpose of conducting business with Tenant), as such. Tenant
hereby acknowledges that Landlord does not hereby consent, expressly or by
implication, to the unrestricted use or possession of the whole or any portion
of the Demised Premises by the public, as such, and Tenant agrees that all such
reasonable directions so given in writing shall be deemed to be and become
incorporated in this Lease by reference and shall be fully and promptly
performed and enforced by Tenant at Tenant's own cost and expense. Tenant shall
not suffer or permit Landlord's title to any part of the Demised Premises to
become impaired in any manner whatsoever by Tenant's failure to comply fully and
promptly with such directions, subject to the limitations set forth herein.
Article 13. Independence of Demised Premises. Tenant shall not by act
or omission permit any building or other improvement on premises not demised
hereunder to rely on the Demised Premises or any part thereof or any interest
therein to fulfill any municipal or governmental requirement, and no building or
other improvement on the Demised Premises shall rely on any premises not demised
hereunder or any interest therein to fulfill any governmental or municipal
requirement. Tenant shall not by act or omission impair the integrity of the
Demised Premises as a single zoning lot separate and apart from all other
premises. Any act or omission by Tenant which would result in a violation of any
of the provisions of this Article shall be void.
Article 14. Mechanics' Liens. Landlord shall not be liable for any work
performed or to be performed on or in the Demised Premises for Tenant or any
subtenant, or for any materials furnished or to be furnished at the Demised
Premises or any building or improvement thereon for Tenant or any subtenant or
assignee, and that no mechanic's or other lien for such work or materials shall
attach to the reversionary or other interest of Landlord. If, in connection with
any work being performed by Tenant or any subtenant or assignee or in connection
with any materials being furnished to Tenant or any subtenant or assignee, any
-14-
mechanic's lien or other lien or charge shall be filed or made against the
Demised Premises or any building or improvement thereon or any part thereof, or
if any such lien or charge shall be filed or made against Landlord as owner,
then Tenant, at Tenant's sole cost and expense, within thirty (30) days after
written notice of such lien or charge shall have been given to Tenant, shall
cause such lien or charge to be cancelled and discharged of record by payment
thereof or filing a bond or otherwise, and shall also defend any action, suit or
proceeding which may be brought for the enforcement of such lien or charge, and
shall pay any damages, costs and expenses, including reasonable attorneys' fees
and disbursements, actually suffered or incurred therein by Landlord, and shall
satisfy and discharge any judgment entered therein within thirty (30) days from
the entering of such judgment by payment thereof or filing of a bond or
otherwise. In the event of the failure of Tenant to discharge within such thirty
(30) day period any lien, charge or judgment required to be discharged by
Tenant, Landlord may pay such items or discharge such liability by payment or
bond or both, and Tenant shall repay to Landlord, within fifteen (15) days after
written demand by Landlord, any and all amounts paid by Landlord therefor or by
reason of any liability on any such bond, and also pay any and all incidental
expenses, including reasonable attorneys' fees and disbursements, actually
incurred by Landlord in connection therewith with interest, from the date paid
by Landlord to and including the date Tenant so repays Landlord, at the Interest
Rate.
Article 15. Liability Insurance.
15.1 At all times during the term of this Lease, Tenant shall, at
Tenant's sole cost and expense, provide and keep in force for the benefit of
Tenant and Landlord comprehensive general liability policy (including a "broad
form" coverage endorsement), protecting Landlord and Tenant against any and all
liability occasioned by negligence, occurrence, accident, or disaster in or
about the Demised Premises or the buildings and improvements thereon or the
streets or sidewalks adjacent thereto, such policies to be written by a company
or companies licensed to do business in the State of New York, insuring against
such risks of injuries to persons, death and damage to property with a combined
single limit of no less than $5,000,000 for each occurrence. The insurance to be
available for any liability arising from or associated with the Demised Premises
and operations of Tenant shall not be reduced by liability associated with other
premises or operations of Tenant or any affiliate of Tenant.
15.2 Valid certificates of insurance evidencing the existence of all
such policies of insurance, together with receipts showing payment of the
premiums thereon, shall be delivered to Landlord prior to the Commencement Date
and at least fifteen (15) days prior to the expiration of any policy. Such
insurance coverage, as well as any insurance to be obtained by Tenant pursuant
to Articles 16 or 17 hereof, may be effected pursuant to blanket coverage
insurance policies which cover losses in addition to those required to be
insured against hereunder, provided that the amount of coverage for the losses
required to be insured against hereunder shall be separately stated, either in
such blanket coverage policies or in a separate certificate issued by the
insurer, and provided further that such insurance gives to Landlord no less
protection than that which would be afforded by separate policies.
-15-
15.3 If at any time or times Tenant shall neglect or fail so to provide
and keep in force the insurance policies required by this Lease, or shall fail
or refuse so to deliver to Landlord any of such insurance policies or
certificates, as required by this Lease, Landlord may obtain such insurance as
the agent of Tenant, by taking out a policy or policies with a company or
companies satisfactory to Landlord, and the amount of the premium or premiums
paid for such insurance by Landlord shall be repaid by Tenant to Landlord within
fifteen (15) days after written demand by Landlord, with interest, from the date
paid by Landlord to and including the date Tenant so repays Landlord, at the
Interest Rate; and with respect to any insurance Tenant is required to carry
hereunder, Landlord shall not be limited in the proof of any damages which
Landlord may claim against Tenant arising out of or resulting from Tenant's
failure to provide and keep in force insurance policies as required by this
Lease, to the amount of the insurance premium or premiums not paid or incurred
by Tenant which would have been payable upon such insurance, but shall also be
entitled to recover from Tenant as damages for such breach, the uninsured amount
of any loss, liability, damage, claims, costs and expenses of suit, judgments
and interest, suffered or incurred by Landlord.
15.4 Landlord shall obtain and maintain during the term of this Lease
comprehensive general liability insurance (including contractual
liability)covering Landlord's ownership of and activities at the Demised
Premises with a combined single limit of no less than $1,000,000.00 per
occurrence.
Article 16. Indemnity.
16.1 Tenant shall indemnify and hold harmless Landlord and Landlord's
employees and agents from and against any and all liability, loss, damages,
expenses (including reasonable attorneys' fees and disbursements actually
incurred and any reasonable attorneys' fees and disbursements actually incurred
in establishing liability and in collecting amounts payable hereunder), costs of
actions, proceedings, suits, interest, fines, penalties, claims and judgments
-16-
(to the extent that the same are not paid out of the proceeds of any insurance
policy furnished by Tenant to Landlord pursuant to Article 15 hereof) arising
out of or resulting from injury, or claim of injury, during the term of this
Lease to person or property of any and every nature, and from any matter or
thing arising out of or resulting from the occupation, possession, use,
management, improvement, construction, alteration, repair, maintenance or
control of the Demised Premises, the buildings and improvements now or hereafter
located thereon, the facilities and equipment thereon, the streets, sidewalks,
curbs and gutters adjoining the Demised Premises, the appurtenances to the
Demised Premises or the franchises and privileges connected therewith by Tenant
or any subtenant or assignee, except if caused by Landlord or Landlord's
agents', employees' contractors' or invitees' negligence or willful misconduct
or arising out of Tenant's failure to perform, fully and promptly, or Tenant's
postponement of compliance with, each and every term, covenant, condition and
agreement to be performed by Tenant under this Lease. Tenant, at Tenant's sole
cost and expense, shall defend by counsel reasonably approved by Landlord, any
and all suits that may be brought, and claims which may be made, against
Landlord, or in which Landlord may be impleaded with others, whether Landlord
shall be liable or not, upon any such liability, loss, damages, expenses, costs
of actions, suits, interest, fines, penalties, claims and judgments and shall
satisfy, pay and discharge any and all judgments that may be recovered against
Landlord in any actions or proceedings in which Landlord may be a party
defendant, or that may be filed against the Demised Premises, the buildings and
improvements thereon, or the appurtenances, or any interest therein. In the
event of the failure of Tenant to pay the sum or sums for which Tenant shall
become liable, then Landlord may pay such sum or sums, with all interest and
charges which may have accrued thereon, and the amount so paid by Landlord shall
be payable by Tenant to Landlord within fifteen (15) days after written demand
by Landlord, with interest, from the date paid by Landlord to and including the
date Tenant so repays Landlord, at the Interest Rate.
16.2 At all times during the term of this Lease, Tenant shall, at
Tenant's sole cost and expense, provide and keep in force a policy or policies
of insurance as provided in Article 15 hereof insuring Tenant against all
liability of Tenant under this Article 16, which policies shall be in such form
as shall reasonably be required by Landlord. Such policies shall be written by a
company or companies licensed to do business in the State of New York, with
limits of not less than $5,000,000.00 per occurrence. Valid certificates of
insurance evidencing the existence of all such policies of insurance, together
with receipts showing payment of the premiums thereon, shall be delivered to
Landlord prior to the Commencement Date and at least fifteen (15) days prior to
the expiration of any policy. If at any time or times Tenant shall neglect or
fail so to provide and keep in force such insurance policies, or shall fail or
refuse so to deliver to Landlord such insurance policies, as required by this
Lease, Landlord shall have all of the rights set forth in Section 15.3 hereof.
-17-
16.3 Landlord and Tenant acknowledge that the parties' agreements and
understandings relating to the indemnification of Tenant for environmental
matters existing prior to the Commencement Date are solely as set forth in that
certain Stock Purchase Agreement dated January 9, 2002, by and among Tenant,
Mark Wiener, Barbara Kammerer and MIM Corporation.
16.4 Landlord shall indemnify and hold harmless Tenant and Tenant's
employees and agents from and against any and all liability, loss, damages,
expenses (including reasonable attorneys' fees and disbursements actually
incurred and any reasonable attorneys' fees and disbursements actually incurred
in establishing liability and in collecting amounts payable hereunder), costs of
actions, proceedings, suits, interest, fines, penalties, claims and judgments
(to the extent that the same are not paid out of the proceeds of any insurance
policy furnished by either party pursuant to Article 15 hereof) arising out of
or resulting from injury, or claim of injury, during the term of this Lease to
person or property of any and every nature, and from any matter or thing arising
out of or resulting from Landlord's negligence, willful misconduct or entry onto
the Demised Premises to conduct Structural Repairs or to show the Demised
Premises to prospective purchasers, mortgagees and others pursuant to Article 35
hereof, except if caused by Tenant's negligence or willful misconduct or arising
out of Tenant's failure to perform, fully and with applicable notice and cure
periods, each and every term, covenant, condition and agreement to be performed
by Tenant under this Lease.
Article 17. Hazard Insurance.
17.1 At all times during the term of this Lease, Tenant shall, at
Tenant's sole cost and expense, keep the Demised Premises, as well as the
appurtenances thereto, insured against loss or damage due to all risks of
physical loss, including fire, lightening, tornado, windstorm, hail, smoke,
explosion, riot, damage from vehicles, aircraft, boilers and machinery, smoke
damage, (when and to the extent available) and such other insurable risks,
casualties and hazards as Landlord may from time to time reasonably specify and
which are insured by standard policies by owners of comparable buildings, in an
amount at least equal to the full replacement value thereof, without deduction
for depreciation, and containing a standard replacement cost endorsement with
agreed amount coverage and with deductibles not to exceed $25,000. In addition,
Tenant shall, at Tenant's sole cost and expense, keep the rental value of the
Demised Premises, as well as the appurtenances, insured against loss or damage
from such insurable risks, casualties and hazards as Landlord may from time to
time reasonably specify and which are insured against by owners of comparable
buildings, in an amount to be reasonably designated by Landlord from time to
time during the term of this Lease.
-18-
17.2 During the period of the performance of any alteration made by
Tenant, Tenant shall, at Tenant's sole cost and expense, maintain, in addition
to all other insurance coverage required under this Lease, (a) workers'
compensation insurance covering all persons employed in connection with such
alteration in such amounts as may be required by law, (b) a completed operations
endorsement to the liability insurance policies required under Article 15 of
this Lease, (c) builder's risk insurance, completed value form, in an amount and
including such endorsements as may be reasonably required by Landlord or
Landlord's mortgagee(s), and (d) such other insurance as Landlord may deem
reasonably necessary and insuring against risks which are insured against by
owners of comparable buildings.
17.3 All insurance to be furnished by Tenant under this Article 17
shall be written by a company or companies licensed to do business in the State
of New York, and by policies which shall name as an insured Landlord, Tenant and
any mortgagees, as their interests may appear, shall include a mortgagee clause
in standard form if there is a mortgagee or mortgagees. Such policies may be
blanket coverage insurance policies as provided in Article 15 hereof. Valid
certificates of insurance evidencing the existence of all such insurance
policies, together with receipts showing payment of the premiums thereon, shall
be delivered to Landlord prior to the Commencement Date and at least fifteen
(15) days prior to the expiration of any policy. All insurance proceeds received
by Landlord (other than rent insurance proceeds for which provision is made in
Article 18 hereof) shall be made available in accordance with Article 20 hereof,
for application to the cost of demolition, restoration, repair, replacement and
rebuilding of the damage which occasioned the payment of such proceeds. All
losses payable with respect to all insurance furnished by Tenant shall be
adjusted with the insurance company by mutual consent of Landlord and Tenant.
17.4 All insurance maintained by Tenant pursuant to this Lease shall be
issued by reputable insurance companies rated by Best's Insurance Guide or any
successor thereto as having a rating of at least "A 10."
17.5 With respect to risks as to which either party is insured for or
is required to provide insurance for hereunder, the party required to maintain
-19-
such insurance shall obtain a clause, in each such casualty insurance policy
expressly waiving any right of recovery, by reason of subrogation to such
parties' rights or otherwise, the respective insurer might otherwise have or
obtain against the other party. Each party hereby waives any right of recovery
against the other party for any and all damages for property losses and property
damages which are actually insured by either party, but only to the extent of
the proceeds of any applicable insurance policy (without adjustment for any
deductible amount set forth therein) actually received by such party for such
respective loss or damage. The waiver set forth in this subsection 17.5 shall
not apply with respect to liability insurance policies.
Article 18. Fire and Other Casualty.
18.1 If the Demised Premises (or any portion thereof) shall be damaged
or destroyed by fire or other casualty, then, irrespective of the cause and
whether or not such damage or destruction shall have been insured, Tenant shall
give prompt written notice thereof to Landlord, and shall, except as hereafter
provided in this Articles 18 and 20, proceed with reasonable diligence to carry
out any necessary demolition and to restore, repair, replace and rebuild at
Tenant's sole cost and expense to the extent the loss is or should have been
insured by Tenant pursuant to this Lease. Such demolition, restoration, repair,
replacement and rebuilding shall be performed by Tenant in accordance with and
subject to the provisions of Article 20 hereof.
If at any time Tenant shall be required pursuant to Article 20, but
shall fail to commence or prosecute such work of demolition, restoration,
repair, replacement or rebuilding with reasonable diligence and promptness, then
Landlord may give to Tenant written notice of such failure, and if such failure
continues for thirty (30) days after such notice, then Landlord, in addition to
all other rights that Landlord may have, may enter upon the Demised Premises,
provide labor and/or materials, cause the performance of any contract and/or do
such other acts and things as Landlord may deem advisable to prosecute such
work, in which event Landlord shall be entitled to reimbursement of its costs
and expenses out of any insurance proceeds and any other moneys held for
application to the cost of such work, in accordance with Article 20 hereof.
18.2 Rent shall not abate hereunder by reason of any damage to or
destruction of the Demised Premises, or to the appurtenances thereto, and Tenant
shall continue to perform and fulfill all of Tenant's obligations, covenants and
agreements hereunder notwithstanding any such damage or destruction. Any rent
insurance proceeds paid by the insurer and received by Landlord or its mortgagee
-20-
by reason of such damage or destruction shall be applied by Landlord to the
payment of the fixed annual rent payable under Article 2 hereof, Impositions
required to be paid by Tenant under Article 6 hereof and premiums for any
insurance required to be maintained by Tenant under this Lease, but this shall
not relieve Tenant of its obligations to pay punctually all such rents,
Impositions and insurance premiums in the event rent insurance proceeds paid by
the insurer and received by Landlord or its mortgagee are insufficient to pay
the same. If and when Tenant shall complete all demolition, restoration, repair,
replacement and rebuilding which Tenant is required to carry out under this
Article 18, and shall not be in default under this Lease, then any balance of
rent insurance proceeds then held by Landlord shall be paid over to Tenant free
of trust.
Article 19. Condemnation.
19.1 If at any time during the term of this Lease all or substantially
all of the Demised Premises and the buildings and improvements thereon shall be
taken in the exercise of the power of eminent domain by any sovereign,
municipality or other public or private authority, then this Lease shall
terminate on the date of vesting of title in such taking and any prepaid rent
shall be apportioned as of such date. Substantially all of the Demised Premises
shall be deemed to have been taken if the remaining portion of the Demised
Premises shall not be of sufficient size to permit the construction and
operation of a building thereon substantially similar to the current building
and parking lot for the uses set forth for the Demised Premises in this Lease.
If the parties hereto do not agree on whether all or substantially all of the
Demised Premises shall have been taken, within the meaning of this Lease, then
their dispute shall be settled by arbitration, and the question to be determined
by the arbitrators shall be: "Has all or substantially all of the Demised
Premises been taken within the meaning of this Lease?" The entire award or
awards for any such taking of all or substantially all of the Demised Premises
shall be paid to Landlord and Landlord shall apply such award or awards in the
following order of priority:
FIRST: There shall be retained by Landlord an amount equal to
the costs and expenses (including, but not limited to, reasonable
attorneys' fees and expenses) actually incurred by Landlord in
prosecuting the claim for the condemnation award.
SECOND: There shall be retained by Landlord an amount equal to
the greater of (a) the aggregate amount of all mortgages affecting
Landlord's interest in the Demised Premises, or (b) the fair market
value of the land and building comprising the Demised Premises
immediately prior to the taking, valued as encumbered by this Lease but
excluding the unamortized value of the cost to Tenant of all
improvements to the Demised Premises made and paid for by Tenant. Such
unamortized cost shall be determined in accordance with a straight line
method of amortization and the life expectancy of such improvements
used by Tenant for federal income tax purposes.
-21-
THIRD: There shall be paid to Tenant an amount equal to the
unamortized value of the cost to Tenant of all improvements to the
Demised Premises made and paid for by Tenant together with the value of
Tenant's installed trade fixtures and equipment and ordinary and
reasonable moving and relocation expenses. Such unamortized cost shall
be determined in accordance with a straight line method of amortization
and the life expectancy of such improvements used by Tenant for federal
income tax purposes.
FOURTH: The remainder, if any, of such award or awards shall
be retained by Landlord.
19.2 If less than all or substantially all of the Demised Premises and
the buildings and improvements thereon shall be taken in the exercise of the
power of eminent domain by any sovereign, municipality or other public or
private authority, then this Lease shall continue in force and effect and
subject to Article 20 hereof, Tenant shall proceed with reasonable diligence to
carry out any necessary repair and restoration so that the remaining portion of
the Demised Premises and appurtenances thereto shall constitute a complete
structural unit or units which can be operated on an economically feasible basis
under this Lease. All of such repair and restoration shall be carried out by
Tenant in accordance with Article 20 hereof, and if, pursuant to clause THIRD of
this Section 19.2, Landlord shall hold any condemnation award or awards which
are to be applied to the cost of such repair or restoration, then Tenant shall
be entitled to such award or awards to the extent and at the time or times
provided in Article 20 hereof. If Tenant shall fail to supply a reasonable
number of workers or sufficient materials of proper quality, or shall fail in
any other respect to prosecute such work of repair or restoration with
reasonable diligence and promptness for any reason other than Force Majeure (as
defined in Section 30.3), then Landlord may give Tenant written notice of such
failure, and if such failure continues for twenty (20) days after such notice,
then Landlord, in addition to all rights which Landlord may have, may enter upon
the Demised Premises and any building or improvement thereon, provide labor
and/or materials, cause the performance of any contract and/or do such other
acts and things as Landlord may deem advisable to prosecute such work, in which
event Landlord shall be entitled to reimbursement of its costs and expenses out
of any condemnation award or awards and any other moneys held by Landlord for
application to the cost of such work, in accordance with Article 20 hereof.
-22-
The entire award or awards for any partial taking shall be paid to
Landlord and Landlord shall apply and/or pay out such award or awards in the
following manner and in the following order of priority:
FIRST: There shall be retained by Landlord an amount equal to
the costs and expenses (including, but not limited to, reasonable
attorneys' fees and expenses)incurred by Landlord in prosecuting the
claim for the condemnation award.
SECOND: There shall be retained by Landlord that part of the
award or awards which represents compensation for the taking of land,
exclusive of improvements, plus that portion of the award or awards
which represents compensation for consequential damage to land,
exclusive of improvements, forming a part of the Demised Premises but
not taken.
THIRD: That portion of the award or awards which represents
compensation for consequential damage to improvements on land demised
hereunder but not taken, plus that portion of the award or awards which
is equal to the value, immediately prior to such taking, of Tenant's
leasehold interest in and to that portion of the Demised Premises, with
the buildings and improvements thereon and appurtenances thereto, which
shall have been taken, shall be held by Landlord and applied, in
accordance with Article 20 hereof, to the cost of repair and
restoration required to be carried out by Tenant pursuant to this
Section 19.2, and after completion by Tenant of such repair and
restoration in accordance with this Lease or in lieu of completion
thereof if the Lease is terminated under Article 20 below, the balance
of any amounts then held by Landlord under this clause THIRD, after
payment to Landlord of all outstanding amounts due from Tenant
hereunder, shall be paid out to Tenant.
FOURTH: The remainder, if any, of such award or awards shall
be paid to Landlord.
Fixed annual rent payable pursuant to Article 2 hereof shall, as of the
date of vesting of title in such taking, be decreased by an amount equal to that
proportion of such rent which the rentable square foot area of the portion of
the Demised Premises so taken shall bear to the rentable square foot area of the
entire Demised Premises immediately prior to such taking.
-23-
19.3 If the temporary use of the whole or any part of the Demised
Premises or the appurtenances thereto shall be taken at any time during the term
of this Lease in the exercise of the power of eminent domain by any sovereign,
municipality or other authority, the term of this Lease shall not be reduced or
affected in any way and Tenant shall continue to pay in full the rent and other
sums of money and charges required under this Lease and provided to be paid by
Tenant, and the entire award for such taking shall be paid to Landlord, to be
applied and disposed of as provided in this Section 19.3.
Provided Tenant is not then in default in the payment of any sum
payable by Tenant under this Lease, or in the performance of any other
obligation of Tenant under this Lease beyond the applicable grace period, then
Landlord shall pay to Tenant that portion of such award paid for use and
occupancy of the Demised Premises during any period prior to the expiration of
the term of this Lease and Landlord shall retain any portion of such award paid
for use and occupancy of the Demised Premises following termination of this
Lease. That portion of such award which represents physical damage to the
Demised Premises or any buildings or improvements thereon or appurtenances
thereto occasioned by such taking shall be held by Landlord in trust, and used
to reimburse Tenant for the cost of restoration and repair of the buildings,
improvements and appurtenances so damaged. Tenant shall perform all of such
restoration and repair in accordance with Article 20 hereof.
19.4 Interest upon any award paid for a taking of the type referred to
in this Article 19 shall be paid to Landlord, and shall be paid out to those
persons entitled to the award upon which such interest shall have been paid, in
proportion to the respective amounts received by, or applied for the account of
such persons.
19.5 Any award or part of an award paid as compensation for the taking
of personal property owned by Tenant or a subtenant or for moving expenses of
Tenant or a subtenant, shall be payable to Tenant, or such subtenant, as the
case may be.
19.6 In any instance when the respective portions of any award which
are to be paid out in accordance with this Article 19 shall not be fixed in the
taking proceedings which give rise to such award and if the parties hereto shall
not agree in writing on such respective portions within thirty (30) days after
the date of final determination of the amount of such award, or if the parties
hereto do not agree in writing on the amount of any decrease in rent under
Section 19.2 of this Article 19 within thirty (30) days after the date of
vesting of title in the taking authority, then their dispute shall be settled by
arbitration in accordance with Article 32 hereof. Any allocation of an award by
the arbitrators shall be in accordance with the priorities and categories herein
provided and the arbitrators shall have no power to alter said priorities or
categories.
-24-
Article 20. Restoration after Fire or Condemnation.
20.1 Whenever Tenant shall be required to carry out any work of
demolition, restoration, repair, replacement or rebuilding pursuant to Article
18 or Section 19.2 or Section 19.3, Tenant, prior to the commencement of such
work, shall comply with the following requirements to the extent of the
insurance proceeds or condemnation award which are paid to Tenant (or to a third
party upon the direction of Tenant) or, with respect to insurance proceeds,
which should have been available if Tenant had maintained the insurance
coverages required hereunder unless this Lease is terminated as set forth below
(except when such work is of a minor nature, as that term is defined below):
1. Tenant shall bear the expense of furnishing to Landlord
complete plans and specifications for such work, for Landlord's approval, which
approval shall not be unreasonably withheld or delayed. Such plans and
specifications shall bear the signed approval thereof by an architect licensed
to do business in the State of New York (hereafter in this Article 20 referred
to as "the Architect"), and shall be accompanied by the Architect's signed
estimate of the entire cost of completing the work encompassed by such plans and
specifications. Tenant shall not commence any demolition, restoration, repair,
replacement or rebuilding until Tenant shall have obtained Landlord's written
approval of such plans and specifications and such cost estimate.
2. Tenant shall bear the expense of and furnish to Landlord
certified or photostatic copies of all permits and approvals required by law in
connection with the commencement and conduct of such work, and upon completion
of such work, a permanent certificate of occupancy or equivalent governmental
approval showing that the Demised Premises may be lawfully occupied for the
purposes stated in Article 11 of this Lease.
3. If the amount of fire insurance proceeds or condemnation
award or awards held by Landlord to be applied to pay for the cost of such work
pursuant to this Article 20 shall be less than the Architect's estimate of the
cost of completion of such work, as approved by Landlord, then Tenant shall
furnish to Landlord, prior to the commencement of such work, a surety bond for,
or guaranty of completion of, any payment for such work provided for in such
plans and specifications, which bond or guaranty shall be in form satisfactory
to Landlord and shall be signed by a surety or sureties, or guarantor or
guarantors, as the case may be, who are acceptable to Landlord, and in an amount
not less than 110% of the excess of such estimated and approved cost of
completion of the work over the insurance proceeds or condemnation award or
awards held by Landlord. In lieu of furnishing such a bond, guaranty, security
or other assurances, Tenant may deposit with Landlord a sum of money equal to
100% of the excess of such estimated and approved cost of completion of the work
over the insurance proceeds or condemnation award or awards held by Landlord,
which money shall be applied by Landlord to the cost of such work pursuant to
this Article 20.
-25-
20.2 Tenant shall not commence any of such demolition, restoration,
repair, replacement or rebuilding work until Tenant shall have complied with
such requirements of this Article 20, and thereafter Tenant shall carry out such
work with reasonable diligence and in good faith in accordance with the plans
and specifications referred to in subdivision 1 above.
20.3 In any instance other than in the case of work of a minor nature,
as that term is defined below in this Article 20, if, pursuant to Article 17, or
Sections 19.2 or 19.3 or subdivision 3 of Section 20.1, Landlord shall hold
insurance proceeds, condemnation awards or other moneys which are to be applied
to the cost of carrying out demolition, restoration, repair, replacement or
rebuilding, and if such work shall be carried out by Tenant in accordance with
this Lease, then Landlord shall disburse such insurance proceeds, condemnation
award or awards and/or other moneys to Tenant from time to time during the
course of such work in accordance with this Article 20. Landlord shall not be
required to make disbursements more often than at thirty (30) day intervals.
Tenant shall make written request for each disbursement at least seven (7) days
in advance, and Landlord shall disburse the requested funds within seven (7)
days after its receipt of Tenant's request, provided that Tenant shall comply
with the following requirements in connection with each disbursement:
(a) Tenant shall deliver to Landlord, at the time of request
for a disbursement, a certificate of the Architect, dated not more than ten (10)
days prior to the application for withdrawal of funds, setting forth the
following:
(i) That the sum then requested to be withdrawn
either has been paid by Tenant and/or is justly due to contractors,
subcontractors, materialmen, engineers, architects or other persons
(whose names and addresses shall be stated) who have rendered or
furnished certain services or materials for the work and giving a brief
description of such services and materials and the principal
subdivisions or categories thereof and the respective amounts so paid
or due to each of such persons in respect thereof and stating the
progress of the work up to the date of such certificate;
-26-
(ii) That the sum then requested to be withdrawn,
plus all sums previously withdrawn, does not exceed the cost of the
work actually completed up to the date of such certificate;
(iii) That the remainder of the moneys held by
Landlord will be sufficient to pay in full for the completion of the
work;
(iv) That no part of the cost of the services and
materials described in the foregoing paragraph (i) of this clause has
been or is being made the basis of the withdrawal of any funds in any
previous or then pending application;
(v) That, except for the amounts, if any, specified
in the foregoing paragraph (i) to be due for services or materials,
there is no outstanding indebtedness known, after due inquiry, which is
then due and payable for work, labor, services or materials in
connection with the work which, if unpaid, might become the basis of a
vendor's, mechanic's, laborer's or materialman's statutory or other
similar lien upon the Demised Premises or any part thereof; and
(vi) That Tenant has delivered to Landlord waivers of
lien from all contractors and subcontractors who performed any portion
of the work.
(b) Tenant shall deliver to Landlord a survey of the Demised
Premises dated as of a date within ten (10) days prior to the making of the
advance (or revised to a date within ten (10) days prior to the advance) showing
no encroachments other than those, if any, acceptable to Landlord. Said surveys
need not be furnished if the work being carried out does not touch or extend
beyond the perimeter of the Demised Premises or the perimeter of any building
within the Demised Premises and is otherwise of such a nature so that such work
would not affect any facts shown on a survey of the Demised Premises.
(c) There shall be no default by Tenant under this Lease.
(d) Tenant shall deliver a certificate stating that except for
the amounts, if any, specified in Section 20.3(a) to be due for services or
materials, there is no outstanding indebtedness known, after reasonable inquiry,
which is then due and payable for work, labor, services or materials in
connection with the work which, if unpaid, might become the basis of a vendor's,
mechanic's, laborer's or materialman's statutory or other similar lien upon the
Demised Premises or any part thereof.
-27-
Upon compliance with the foregoing provisions of this Article 20,
Landlord shall, out of the moneys so held by it for such purpose, within ten
(10) days after its receipt of the foregoing certificates, pay or cause to be
paid to the persons named in the certificate furnished pursuant to Section
20.3(a), the respective amounts stated in such certificate to be due them, and
shall pay to Tenant the amounts stated in such certificate to have been paid by
Tenant. If, after all of such work shall be completed in accordance with this
Lease, and all municipal and governmental approvals required on completion of
such work shall have been obtained, there shall be moneys held by Landlord for
application to the cost of such work over and above the amounts withdrawn
pursuant to the provisions of this Article 20, and if Tenant shall not be in
default under this Lease after expiration of applicable notice and cure periods,
then such moneys shall be paid over to Tenant free of trust.
20.4 If (a) Tenant shall fail to commence restoration in accordance
with this Article 20 or thereafter shall fail to diligently and continuously
prosecute such restoration, and such failure shall continue for a period of
twenty (20) consecutive days after notice from Landlord to Tenant for any reason
other than Force Majuere, and (b) Landlord determines, in its sole discretion,
to carry out any of such work, then Landlord shall be entitled to apply the
moneys which it holds for such purpose to the cost of such work. In withdrawing
such moneys, Landlord need not comply with any of the requirements set forth
above in this Article 20, and need comply only with those requirements hereafter
set forth in this paragraph. At the time of each application of funds, Landlord
shall obtain a certificate of either the Architect or another reputable
architect selected by Landlord licensed to do business in the State of New York,
stating that the sum then applied either has been paid by Landlord, and/or is
justly due, to contractors, subcontractors, materialmen, engineers, architects
or other persons (whose names and addresses shall be stated) who have rendered
or furnished certain services or materials for the work and giving a brief
description of such services and materials and the respective amounts so paid or
due to each of such persons in respect thereof. Such certificate shall also
state that no part of the cost of the services or materials described in such
certificate has been or is being made the basis of the withdrawal of any funds
in any previous or then pending application of Landlord.
20.5 If the above-mentioned work shall be of a minor nature, as that
term is defined below, then the requirements set forth above in this Article 20
shall not be applicable, except that Tenant shall obtain and furnish to Landlord
all permits and approvals required by law in connection with the commencement
-28-
and carrying out of such work. Within ten (10) days after receipt by Landlord,
Landlord shall pay over the insurance proceeds or condemnation award or awards,
as the case may be, which are held by it for application to the cost of such
work, to Tenant, or to Landlord, if Landlord shall have completed such work
following a default by Tenant. Such work shall be deemed to be of a minor nature
only if in one continuous project the aggregate cost of such work is less than
Seventy Five Thousand Dollars ($75,000).
20.6 So long as Tenant has maintained in all respects the insurance
coverages required under this Lease, notwithstanding anything in this Lease to
the contrary, in the event the Demised Premises shall be damaged or destroyed by
fire or other casualty during the last year of the term of this Lease (or the
last year of any extension thereof) such that more than 50% of the total area of
the Demised Premises shall be rendered unusable, then Tenant may elect to
terminate this Lease effective upon the delivery of written notice of
termination to Landlord given within thirty (30) days after the date of the
casualty. In such event, Landlord shall be entitled to receive and keep the
insurance proceeds (except for rent loss insurance proceeds for periods prior to
the effective date of termination which proceeds shall be applied to Tenant's
rental obligations hereunder.
Article 21. Assignment; Subletting.
21.1 Tenant shall not by operation of law or otherwise (a) assign or
otherwise transfer this Lease or the term and estate hereby granted, (b) sublet
the Demised Premises or any part thereof or allow the same to be used or
occupied by others, (c) mortgage, pledge or encumber this Lease or the Demised
Premises or any part thereof in any manner by reason of any act or omission on
the part of Tenant, or (d) advertise, or authorize a broker to advertise, for a
subtenant or an assignee, without, in each instance, obtaining the prior written
consent of Landlord, except as otherwise expressly provided in this Article 21.
For purposes of this Article 21, (i) the transfer of a majority of the issued
and outstanding capital stock of any corporate tenant, or of a corporate
subtenant, or the transfer of a majority of the total interest in any
partnership tenant or subtenant, or the transfer of control in any general or
limited partnership tenant or subtenant, or the transfer of a majority of the
issued and outstanding membership interests in a limited liability company
tenant or subtenant, however accomplished, whether in a single transaction or in
a series of related or unrelated transactions, shall be deemed an assignment of
this Lease, or of such sublease, as the case may be, except as set forth in
Section 21.2 below and except that the transfer of the outstanding capital stock
of any corporate tenant, or subtenant, shall be deemed not to include the sale
of such stock by persons or parties, other than those deemed "affiliates" of
-29-
Tenant within the meaning of Rule 144 promulgated under the Securities Act of
1933, as amended, through the "over-the-counter market" or through any
recognized stock exchange, (ii) a takeover agreement shall be deemed a transfer
of this Lease, (iii) any person or legal representative of Tenant, to whom
Tenant's interest under this Lease passes by operation of law, or otherwise,
shall be bound by the provisions of this Article 21, and (iv) a modification,
amendment or extension of a sublease shall be deemed a sublease.
21.2 Subject to the following sentence, the provisions of clauses (a)
and (b) of Section 21.1 shall not apply to transactions with a corporation,
partnership or limited liability company into or with which Tenant is merged or
consolidated or with an entity to which substantially all of Tenant's assets or
stock are transferred (provided such merger, consolidation or transfer of assets
or stock is for a good business purpose and not principally for the purpose of
transferring the leasehold estate created hereby, and provided further, that the
assignee has a net worth at least equal to or in excess of the net worth of
Tenant as of the date of this Lease or, if Tenant is a general or limited
partnership or limited liability company, with a successor partnership or
limited liability company, nor shall the provisions of clauses (a) and (b) of
Section 21.1 apply to transactions with an entity that controls or is controlled
by Tenant or is under common control with Tenant. Nothing in this Section 21.2
shall permit Tenant or any successor to use or occupy the Demised Premises for
any purpose other than the purposes stated in Article 11 of this Lease.
The term "control" as used in this Lease (A) in the case of a
corporation shall mean ownership of more than fifty (50%) percent of the
outstanding capital stock of that corporation, (B) in the case of a general
partnership, shall mean ownership of more than fifty (50%) percent of the
general partnership interests of the partnership, (C) in the case of a limited
partnership, shall mean ownership of more than fifty (50%) percent of the
general partnership interests of such limited partnership, and (D) in the case
of a limited liability company, shall mean ownership of more than fifty (50%)
percent of the membership or equity interests of such limited liability company.
21.3 Any assignment or transfer (other than a sublease), whether made
with Landlord's consent as required by Section 21.1 or without Landlord's
consent pursuant to Section 21.2, shall be made only if, and shall not be
effective until, the assignee shall execute, acknowledge and deliver to Landlord
an agreement, in form and substance reasonably satisfactory to Landlord, whereby
the assignee shall assume the obligations and performance of this Lease and
shall agree to be bound by all of the covenants, agreements, terms, provisions
-30-
and conditions hereof on the part of Tenant to be performed or observed and
whereby the assignee shall agree that the provisions of Section 21.1 hereof
shall, notwithstanding such an assignment or transfer, continue to be binding
upon it in the future. Tenant agrees that, notwithstanding any assignment or
transfer, whether or not in violation of this Lease, and notwithstanding the
acceptance of rent by Landlord from an assignee or transferee or any other
party, Tenant shall remain fully and primarily liable for the payment of the
rent due and to become due under this Lease and for the performance of all of
the covenants, agreements, terms, provisions and conditions of this Lease on the
part of Tenant to be performed or observed and the Guaranty (as defined below)
from MIM Corporation shall remain in full force and effect.
21.4 The liability of Tenant, and the due performance by Tenant of the
obligations on its part to be performed under this Lease shall not be
discharged, released or impaired in any respect by an agreement or stipulation
made by Landlord or any grantee or assignee of Landlord, by way of mortgage, or
otherwise, extending the time of, or modifying any of the obligations contained
in this Lease (unless Landlord and Tenant agree so in writing), or by any waiver
or failure of Landlord to enforce any of the obligations on Tenant's part to be
performed under this Lease, and Tenant shall continue to be liable hereunder. If
any such agreement or modification operates to increase the obligations of a
tenant under this Lease, the liability under this Section 21.4 of Tenant named
in this Lease or any of its successors in interest (unless such party shall have
expressly consented in writing to such agreement or modification) shall continue
to be no greater than if such agreement or modification had not been made.
21.5 Landlord shall not unreasonably withhold or delay its consent to
an assignment of this Lease or a subletting of the whole or a part of the
Demised Premises, provided:
(a) Tenant shall furnish Landlord with the name and business
address of the proposed subtenant or assignee, information with respect to the
nature and character of the proposed subtenant's or assignee's business, or
activities, such references and current financial information with respect to
net worth, credit and financial responsibility as are reasonably satisfactory to
Landlord, and an executed counterpart of the sublease or assignment agreement;
(b) The proposed subtenant or assignee is a reputable party
whose financial net worth, credit and financial responsibility is, considering
the responsibilities involved, reasonably satisfactory to Landlord;
-31-
(c) The nature and character of the proposed subtenant or
assignee, its business or activities and intended use of the Demised Premises
is, in Landlord's reasonable judgment, in keeping with the standards of the
Building;
(d) All costs incurred with respect to providing reasonably
appropriate means of ingress and egress from the sublet space or to separate the
sublet space from the remainder of the Demised Premises shall, subject to the
provisions of Article 10 with respect to alterations, installations, additions
or improvements, be borne by Tenant;
(e) Each sublease shall state specifically that (i) it is
subject to all of the terms, covenants, agreements, provisions and conditions of
this Lease, (ii) the subtenant or assignee, as the case may be, will not have
the right to a further assignment thereof or sublease or assignment thereunder,
or to allow the Demised Premises to be used by others, without the consent of
Landlord in each instance in accordance with Article 21, (iii) a consent by
Landlord thereto shall not be deemed or construed to modify, amend or affect the
terms and provisions of this Lease unless explicitly stated in the consent to
the contrary, or Tenant's obligations hereunder, which shall continue to apply
to the premises involved, and the occupants thereof, as if the sublease or
assignments had not been made, (iv) if Tenant defaults in the payment of any
rent, Landlord is authorized to collect any rents due or accruing from any
subtenant or other occupant of the Demised Premises and to apply the amounts
collected (after payment of any costs and expenses actually incurred by Landlord
in the collection of such amounts) to the rent and other charges reserved
herein, (v) the receipt by Landlord of any amounts from an assignee or subtenant
or other occupant of any part of the Demised Premises shall not be deemed or
construed as releasing Tenant from Tenant's obligations hereunder or the
acceptance of that party as a direct tenant;
(f) Tenant, together with requesting Landlord's consent
hereunder, shall have paid Landlord any reasonable costs actually incurred by
Landlord to review the requested consent, including any reasonable attorneys'
fees actually incurred by Landlord;
(g) The proposed subtenant or assignee is not a government or
any subdivision or agency thereof; and
(h) In the case of a subletting of a portion of the Demised
Premises, the portion so sublet shall be regular in shape and suitable for
normal renting purposes.
21.6 If the Landlord shall give its consent to any assignment of this
Lease or to any sublease, Tenant, in consideration therefor, shall pay the
following to Landlord, as additional rent:
-32-
(a) in the case of an assignment, an amount equal to 50% of
all sums and other consideration paid to Tenant by the assignee for or
by reason of such assignment (including, but not limited to, sums paid
for the sale of Tenant's fixtures, leasehold improvements, equipment,
furniture, furnishings or other personal property, less, in the case of
a sale thereof, the then net unamortized or undepreciated cost thereof
to Tenant determined on the basis of Tenant's federal income tax
returns), less the actual out-of-pocket expenses reasonably and
actually incurred and paid by Tenant and any lease concessions actually
granted by Tenant ("Expenses") on account of such assignment,
including, without limitation, reasonable legal fees paid for preparing
the documents, brokerage commissions and the cost of improvements or
leasehold allowances to prepare the Demised Premises for the new
entity, amortized on a straight line basis over the balance of the
Lease term, free rent and moving allowances; and
(b) in the case of a sublease, an amount equal to 50% of any
rents, additional charges and other consideration payable under the
sublease to Tenant by the subtenant in excess of the rent accruing
during the term of the sublease in respect of the subleased space (at
the rate per square foot payable by Tenant hereunder) pursuant to the
terms hereof (including, but not limited to, sums paid for the sale or
rental of Tenant's fixtures, leasehold improvements, equipment,
furniture or other personal property, less, in the case of the sale
thereof, an amount equal to the then net unamortized or undepreciated
cost thereof to Tenant determined on the basis of Tenant's federal
income tax returns, which amount shall be amortized on a straight line
basis over the term of such sublease), less the Expenses on account of
such sublease, amortized on a straight line basis over the term of the
sublease.
The sums payable under this Section 21.6 shall be paid to Landlord as and when
paid by the assignee or subtenant to Tenant.
21.7 Landlord shall have no liability for brokerage commissions
incurred with respect to any assignment of this Lease or any subletting of all
or any part of the Demised Premises by or on behalf of Tenant. Tenant shall pay,
and shall indemnify and hold Landlord harmless from and against, any and all
cost, expense (including, but not limited to, reasonable attorneys' fees and
expenses) and liability incurred by Landlord in connection with any
compensation, commissions or charges claimed by any broker or agent with respect
to any such assignment or subletting.
-33-
Article 22. Injunction. Landlord, at Landlord's option, in addition to
any other rights reserved to Landlord, and notwithstanding the concurrent
pendency of summary or other dispossess proceedings between Landlord and Tenant,
shall have the right at all times during the term of this Lease to restrain by
injunction any violation or attempted violation by Tenant of any of the terms,
covenants, conditions or agreements of this Lease, and to enforce by injunction
any of the terms, covenants, conditions and agreements hereof.
Article 23. Default; Termination; Conditions of Limitation; Damages.
23.1 (a) This Lease and the term and estate hereby granted are subject
to the limitation that whenever Tenant shall be unable to pay its debts
generally as they become due, or shall make an assignment of the property of
Tenant for the benefit of creditors, or shall consent to, or acquiesce in, the
appointment of a liquidator, receiver, trustee, or other custodian of itself or
the whole or any part of its properties or assets, or shall commence a voluntary
case for relief under the United States Bankruptcy Code or file a petition or
take advantage of any bankruptcy or insolvency act or applicable law of like
import, or whenever an involuntary case under the United States Bankruptcy Code
shall be commenced against Tenant or if a petition shall be filed against it
seeking similar relief under any bankruptcy or insolvency or other applicable
law of like import, or whenever a receiver, liquidator, trustee, or other
custodian of Tenant or of or for substantially all of the property of Tenant
shall be appointed without Tenant's consent or acquiescence, then, (i) at any
time after receipt of notice of the occurrence of any such event, or (ii) if
such event occurs without the acquiescence of Tenant, at any time after the
event continues for sixty (60) days, Landlord may give Tenant a notice of
intention to end the term of this Lease at the expiration of five days from the
date of service of such notice of intention, and upon the expiration of such
five (5) day period, this Lease and the term and estate hereby granted, whether
or not the term shall theretofore have commenced, shall terminate with the same
effect as if that day were the Expiration Date, but Tenant shall remain liable
for damages as provided in this Article.
(b) This Lease and the term and estate hereby granted are
subject to further limitation as follows:
(i) whenever Tenant shall fail to make the payment of any
installment of fixed annual rent, or in the payment of any other charge payable
by Tenant to Landlord, on any day that the same becomes due, and such default
-34-
shall continue uncured for five (5) days (a) after Landlord gives Tenant notice
of such default or (b) after the due date and without notice of such default, if
Tenant shall have failed to pay, in any period of twelve (12) consecutive
months, any two (2) such installments within the five (5) day period after the
same shall have been due and Landlord shall have given Tenant notice of such
default in each such instance, or
(ii) whenever Tenant shall do or permit anything to be
done, whether by action or inaction, contrary to any of Tenant's obligations
hereunder, and if such situation shall continue and shall not be remedied by
Tenant within thirty (30) days (within five (5) days, in the case of Tenant's
failure to furnish any certificate of insurance required under Articles 15, 16
or 17) after Landlord shall have given to Tenant a notice specifying the same,
or, in the case of a happening or default that cannot with due diligence be
cured within a period of thirty (30) days and the continuation of which for the
period required for cure will not subject Landlord to the risk of criminal
liability or termination of any superior lease or foreclosure of any superior
mortgage, if Tenant shall not, (a) within such thirty (30) day period advise
Landlord of Tenant's intention duly to institute all steps necessary to remedy
such situation, (b) duly institute within such thirty (30) day period, and
thereafter diligently and continuously prosecute to completion all steps
necessary to remedy the same, and (c) complete such remedy within such time
after the date of the giving of such notice as shall reasonably be necessary, or
(iii) whenever any event shall occur whereby this Lease
or the estate hereby granted or the unexpired balance of the term hereof, by
operation of law or otherwise, would devolve upon or pass to any person or
entity other than Tenant, except as expressly permitted by Article 21, or
(iv) whenever Tenant shall default in the due keeping,
observing or performance of any covenant, agreement, provision or condition of
Article 11 hereof on the part of Tenant to be kept, observed or performed and if
such default shall continue and shall not be remedied by Tenant within five (5)
Business Days after Landlord shall have given to Tenant a notice specifying the
same, then in any of such cases set forth in the foregoing subsections of this
Section 23.1, Landlord may give to Tenant a notice of intention to end the term
of this Lease at the expiration of five (5) days from the date of the service of
such notice of intention, and upon the expiration of such five (5) day period,
this Lease and the term and estate hereby granted, whether or not the term shall
theretofore have commenced, shall terminate with the same effect as if that day
were the expiration date of this Lease, but Tenant shall remain liable for
damages as provided in this Article.
23.2 If this Lease shall expire as provided in this Article, Landlord
or Landlord's agents and employees immediately or at any time thereafter may
re-enter the Demised Premises, or any part thereof, by summary dispossess
proceedings or by any suitable action or proceeding at law, without being liable
to indictment, prosecution or damages therefrom, to the end that Landlord may
have, hold and enjoy the Demised Premises again as its first estate and interest
therein.
In the event of any termination of this Lease under the provisions of
this Article or in the event of re-entry by or under any summary dispossess or
other judicial proceeding or action by reason of default hereunder on the part
of Tenant, (i) Tenant thereupon shall pay to Landlord the rent payable by Tenant
to Landlord up to the time of such termination of this Lease, or of such
recovery of possession of the Demised Premises by Landlord, as the case may be,
(ii) Tenant shall pay to Landlord all expenses, including court costs and
reasonable attorneys' fees and expenses, incurred by Landlord in recovering
possession of the Demised Premises and all costs and charges for the care of the
Demised Premises while vacant, and (iii) Tenant also shall pay to Landlord the
applicable damages as provided in this Article.
23.3 If this Lease shall terminate under this Article, or in the event
of re-entry by or under any summary dispossess or other judicial proceeding or
action by reason of default hereunder on the part of Tenant, Landlord shall be
entitled to retain all moneys, if any, paid by Tenant to Landlord, whether as
advance rent, security or otherwise, but such moneys shall be credited by
Landlord against any rent due from Tenant at the time of such termination or
re-entry or, at Landlord's option, against any damages payable by Tenant under
this Article or pursuant to law.
23.4 If this Lease is terminated under this Article, or in the event of
re-entry by or under any summary dispossess or other judicial proceeding or
action by reason of default hereunder on the part of Tenant, Tenant shall pay to
Landlord as damages, at the election of Landlord, either
(a) an amount which at the time of such termination of this
Lease or at the time of any such re-entry by Landlord, as the case may be,
represents the then value of the excess, if any, of
(i) the aggregate of the rent payable hereunder that
would have been payable by Tenant for the period commencing with such earlier
-36-
termination of this Lease or the date of any such re-entry, as the case may be,
and ending with the expiration date, had this Lease not so terminated or had
Landlord not so re-entered the Demised Premises, over
(ii) the aggregate rental value of the Demised Premises
for the same period; or
(b) an amount equal to the aggregate of the rent payable
hereunder that would have been payable by Tenant had this Lease not so
terminated, or had Landlord not so re-entered the Demised Premises, payable upon
the due dates therefor specified herein following such termination or such
re-entry and until the expiration date; provided, however, that if Landlord
shall re-let the Demised Premises during such period, Landlord shall credit
Tenant with the net rents received by Landlord from such re-letting, such net
rents to be determined by first deducting from the gross rents as and when
received by Landlord from such re-letting, the expenses incurred or paid by
Landlord in terminating this Lease or in re-entering the Demised Premises and in
securing possession thereof, as well as the expenses of re-letting, including
altering and preparing the Demised Premises for new tenants, brokers'
commissions, attorneys' fees and expenses, and all other expenses properly
chargeable against the Demised Premises and the rental thereof; it being
understood that any such re-letting may be for a period shorter or longer than
the remaining term of this Lease and that Landlord may grant concessions and
free rent; but in no event shall Tenant be entitled to receive any excess of
such rents over the sums payable by Tenant to Landlord hereunder, nor shall
Tenant be entitled in any suit for the collection of damages pursuant to this
subsection to a credit in respect of any net rents from a re-letting, except to
the extent that such net rents actually are received by Landlord. Landlord shall
make commercially reasonable efforts to re-let the Demised Premises, however, so
long as Landlord uses such commercially reasonable efforts to relet, Landlord in
no event shall be liable in any way whatsoever for failure to re-let the Demised
Premises nor shall such failure affect Tenant's liability for damages.
If the Demised Premises or any part thereof shall be re-let by Landlord
for the unexpired portion of the term of this Lease, or any part thereof, before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent reserved upon such re-letting, prima facie, shall be the fair and
reasonable rental value for the Demised Premises, or part thereof, so re-let
during the term of the re-letting.
23.5 Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
-37-
postpone suit until the date when the term of this Lease would have expired if
it had not been so terminated under this Article, or under any provision of law,
or had Landlord not re-entered the Demised Premises. Nothing herein contained
shall be construed to limit or to preclude recovery by Landlord against Tenant
of any sums or damages to which, in addition to the damages specifically
provided above, Landlord lawfully may be entitled by reason of any default
hereunder on the part of Tenant. Nothing herein contained shall be construed to
limit or prejudice the right of Landlord to prove for and obtain as liquidated
damages by reason of the termination of this Lease or re-entry of the Demised
Premises for the default of Tenant under this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, such damages are to be proved, whether or
not such amount is greater than, equal to, or less than any of the sums referred
to in this Article.
Article 24. Subordination.
24.1 So long as Tenant obtains written agreement from any ground lessor
or mortgagee with a Lease or Mortgage affecting the Demised Premises which
agreement provides that, so long as Tenant is not in default under this Lease
beyond applicable notice and cure periods, Tenant shall not be disturbed in its
possession of the Demised Premises or its use and enjoyment thereof pursuant to
the Lease (the "Non-Disturbance Agreement"), then this Lease and Tenant's rights
under this Lease are subject and subordinate to any ground lease or underlying
lease, option, mortgage, or other lien, encumbrance or indenture, together with
any renewals, extensions, modifications, consolidations, and replacements
thereof, which now or at any subsequent time affect the Demised Premises, any
interest of Landlord in the Demised Premises, or Landlord's interest in this
Lease and the estate created by this Lease (except to the extent that any such
instrument expressly provides that this Lease is superior to it). Upon
satisfaction of the requirement to provide the Non-Disturbance Agreement from
the mortgage holder requesting subordination, this provision shall be
self-operative and no further instrument of subordination shall be required in
order to effect it. Nevertheless, upon satisfaction of the requirement to
provide the Non-Disturbance Agreement from the mortgage holder requesting
subordination, Tenant shall execute, acknowledge and deliver to Landlord, at any
time and from time to time, upon demand by Landlord, such documents as may be
requested by Landlord to evidence and confirm such subordination. Landlord
represents that, as of the Commencement Date, there are no ground leases or
mortgages encumbering the Demised Premises.
-38-
24.2 If any holder of any mortgage, indenture, deed of trust, or other
similar instrument described in Section 24.1 succeeds to Landlord's interest in
the Demised Premises, Tenant shall pay to such successor in interest all rents
subsequently payable under this Lease. The following provisions shall only be
enforceable against Tenant with respect to a particular mortgage holder from and
after the date the Non-Disturbance Agreement is provided by such mortgage
holder. Tenant shall, upon request of anyone so succeeding to the interest of
Landlord, become the Tenant of, and attorn to, such successor in interest
without change in this Lease. Such successor in interest shall not be bound by
(i) any payment of rent for more than one month in advance, (ii) any material
amendment of this Lease made without its written consent provided Tenant was
previously provided with the name and address of such party in writing, (iii)
any claim against Landlord arising prior to the date on which such successor
succeeded to Landlord's interest except with respect to defaults of a continuing
nature, or (iv) any claim or offset of rent against the Landlord. Upon request
by such successor in interest and without cost to Landlord or such successor in
interest, Tenant will execute, acknowledge, and deliver an instrument or
instruments confirming the above attornment. If Tenant fails or refuses to
execute, acknowledge, and deliver any such instrument within twenty (20) days
after the later of written demand and Tenant's receipt of the Non-Disturbance
Agreement, such successor in interest shall be entitled to execute, acknowledge,
and deliver any such document on behalf of Tenant as Tenant's attorney-in-fact.
Tenant irrevocably constitutes and appoints such successor in interest as
Tenant's attorney-in-fact to execute, acknowledge, and deliver on behalf of
Tenant any document described in this paragraph.
24.3 In the event of any act or omission of Landlord which would give
Tenant the right, immediately or after lapse of a period of time, to cancel or
terminate this Lease, or to claim a partial or total eviction, Tenant shall not
exercise such right (i) until it has given written notice of such act or
omission to the holder of each mortgage and the lessor of each lease whose name
and address shall previously have been furnished to Tenant in writing, and (ii)
if such act or omission shall be one which is capable of being remedied by such
mortgage holder or lessor within a reasonable period of time (not to exceed
sixty (60) days unless such act or omission can only be cured by such mortgage
holder's or lessor's acquisition of title to the Demised Premises, in which
event the reasonable period of time referred to above shall not exceed nine (9)
months), until a reasonable period for remedying such act or omission shall have
elapsed following the giving of such notice and following the time when such
holder or lessor shall have become entitled under such mortgage or lease, as the
case may be, to remedy the same (which reasonable period shall in no event be
less than the period to which Landlord would be entitled under this Lease or
otherwise, after similar notice, to effect such remedy), provided such holder or
lessor shall with due diligence give Tenant written notice of its intention to,
and shall commence and continue to, remedy such act or omission.
-39-
Article 25. Waiver of Rights of Redemption. If, at any time hereafter,
Landlord shall obtain possession of the Demised Premises under legal proceedings
or pursuant to the terms and conditions of this Lease or pursuant to present or
future law, because of default by Tenant in observing or performing any term,
covenant, condition or agreement of this Lease which continues beyond any
applicable notice and cure periods, all rights of redemption provided by any
law, statute or ordinance now in force or hereafter enacted shall be and hereby
are waived by Tenant.
Article 26. Landlord's Right to Cure Tenant's Defaults. Whenever and as
often as Tenant shall fail or neglect to comply with and perform any term,
covenant, condition or agreement to be complied with or performed by Tenant
hereunder within applicable notice and cure periods, then, upon thirty (30)
days' prior written notice to Tenant (or upon shorter notice, or with no notice
at all, if necessary to meet an emergency situation or a governmental or
municipal time limitation), Landlord, at Landlord's option, in addition to all
other remedies available to Landlord, may perform, or cause to be performed,
such work, labor, services, acts or things, and take such other steps, including
entry onto the Demised Premises, as Landlord may deem advisable, to comply with
and perform any such term, covenant, condition or agreement which is in default,
in which event Tenant shall reimburse Landlord within fifteen (15) days after
written demand by Landlord, and from time to time, for all costs and expenses
suffered or incurred by Landlord in complying with or performing such term,
covenant, condition or agreement, together with interest, from the date paid by
Landlord to and including the date Tenant so repays Landlord, at the Interest
Rate. The commencement of any other act by Landlord pursuant to the immediately
preceding sentence shall not be deemed to obligate Landlord to complete the
curing of any term, covenant, condition or agreement which is in default. Tenant
hereby waives any claim, and releases Landlord and Landlord's agents,
contractors and employees from all liability, for damages occasioned by any
action taken by Landlord pursuant to this Article 26, except for claims arising
from Landlord's negligence or willful misconduct.
Article 27. Landlord's Expenses. Tenant shall reimburse Landlord within
fifteen (15) days after written demand by Landlord, for all expenses, including,
but not limited to, reasonable attorneys' fees and expenses, incurred by
Landlord in connection with the collection of any rent in default beyond
applicable notice and cure periods hereunder, or the termination of this Lease
by reason of the default of Tenant beyond applicable notice and cure periods, or
the enforcement of any other obligation of Tenant which is in default hereunder
beyond applicable notice and cure periods or under any other provision in this
Lease under which Tenant is required to reimburse Landlord's expenses.
-40-
Article 28. Waiver of Trial by Jury. Landlord and Tenant hereby waive
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other on any matter arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Demised Premises, and/or any other claims, and any emergency
statutory or any other statutory remedy. If Landlord commences any summary
proceeding for non-payment of rent, Tenant shall not interpose and hereby waives
the right to interpose any compulsory counterclaim with respect to which Tenant
may, under applicable law, institute a separate action or proceeding.
Article 29. Liability; No Merger. Landlord (and, in case Landlord shall
be a joint venture, partnership, limited liability company, tenancy-in-common,
association or other form of joint ownership, the members of any such joint
venture, partnership, tenancy-in-common, association or other form of joint
ownership) shall have absolutely no personal liability with respect to any
provision of this Lease or any obligation or liability arising therefrom or in
connection therewith. Tenant shall look solely to Landlord's estate and interest
in the Demised Premises, and the proceeds of insurance or condemnation proceeds
or the proceeds from any sale of the Demised Premises, for the satisfaction of
any right or remedy of Tenant for the collection of a judgment (or other
judicial process) requiring the payment of money by Landlord, in the event of
any liability of Landlord, and no other property or assets of Landlord shall be
subject to levy, execution, attachment, or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to this Lease, the
relationship of Landlord and Tenant hereunder, or Tenant's use and occupancy of
the Demised Premises, or any other liability of Landlord to Tenant. However,
nothing contained in this Article shall be construed to permit Tenant to offset
against rents due a successor landlord a judgment (or other judicial process)
requiring the payment of money by reason of any default of a prior landlord,
unless the default is of a continuing nature.
In no event shall the leasehold interest, estate or rights of Tenant
merge with any interest, estate or rights of Landlord in or to the Demised
Premises, it being understood that such leasehold interest, estate and rights of
Tenant shall be deemed to be separate and distinct from Landlord's interest,
estate and rights in or to the Demised Premises, notwithstanding that any such
interests, estate or rights shall at any time or times be held by or vested in
the same person, corporation or other entity.
-41-
Article 30. Definitions.
30.1 The term "Landlord" as used in this lease shall at any given time
mean the person or persons, corporation or corporations, limited liability
company or companies, or other entity or entities who are the owner or owners of
the reversionary estate of Landlord in and to the Demised Premises. In the event
of any conveyance or other divestiture of title to the reversionary estate of
Landlord in and to the Demised Premises, the grantor or the person or persons,
corporation or corporations, limited liability company or companies, or other
entity or entities who are divested of title shall be entirely freed and
relieved of all covenants and obligations thereafter accruing hereunder
following such transfer (but not for claims arising during its period of
ownership), and the grantee or the person or persons, corporation or
corporations, limited liability company or companies, or other entity or
entities who otherwise succeeds or succeed to title shall be deemed to have
assumed the covenants and obligations of Landlord thereafter accruing hereunder,
and until the next conveyance or divestiture of title Tenant shall look solely
to such grantee or successor for the observance and performance of the covenants
and obligations of Landlord hereunder so assumed by such grantee or successor.
Tenant agrees to attorn to any such grantee or successor.
30.2 The term "Business Day" as used in this Lease shall exclude
Saturdays, Sundays and all days observed by the federal, New York State or local
government as legal holidays as well as all other days recognized as holidays
under applicable union contracts.
30.3 The term "Force Majeure" shall mean a delay beyond a party's
reasonable control, including acts of God, insurrection, acts of war, terrorism,
labor strikes, earthquakes, hurricane, tornado, flood, unavailability of
materials and the like. Force Majeure shall be deemed to exist only so long as a
party notifies the other party in writing of such delay within a reasonable
period of time following such party's actual knowledge of the event or condition
but in no event later than fifteen (15) days after obtaining such knowledge.
Article 31. Quiet Enjoyment. Landlord covenants that at all times
during the term of this Lease, so long as Tenant is not in default under this
Lease beyond applicable notice and cure periods, Tenant's quiet enjoyment of the
Demised Premises or any part thereof shall not be disturbed by any act of
Landlord, or of anyone acting by, through or under Landlord.
-42-
Article 32. Arbitration. If a dispute shall arise between the parties
hereto, and if, pursuant to any provision of this Lease, such dispute is to be
settled by arbitration or appraisal pursuant to this Article 32, then either
party hereto may serve upon the other party a written notice demanding that the
dispute be resolved pursuant to this Article 32. Within fifteen (15) days after
the giving of such notice, each of the parties hereto shall nominate and appoint
an arbitrator (or appraiser, as the case may be, it being understood that all
references in this Article 32 to arbitrators or arbitration proceedings shall be
deemed, where appropriate, to refer to appraisers or appraisal proceedings) and
shall notify the other party in writing of the name and address of the
arbitrator so chosen. Upon the appointment of the two arbitrators as provided
above, the two arbitrators shall promptly, and within ten (10) days after the
appointment of the second arbitrator, and before exchanging views as to the
question at issue, appoint in writing a third arbitrator and give written notice
of such appointment to each of the parties hereto. In the event that the two
arbitrators shall fail to appoint or agree upon such third arbitrator within
such ten (10) day period, a third arbitrator shall be selected by the parties
themselves if they so agree upon such third arbitrator within a further period
of ten (10) days. If any arbitrator shall not be appointed or agreed upon within
the time provided above, then either party on behalf of both may request such
appointment be made by the American Arbitration Association within five (5) days
after such request.
The arbitrators shall be sworn faithfully and fairly to determine the
question at issue. The three arbitrators shall afford to Landlord and Tenant a
hearing and the right to submit evidence, with the privilege of
cross-examination, on the question at issue, and shall, within fifteen (15)
Business Days, make their determination in writing and shall give notice to the
parties hereto of such determination. The concurring determination of any two of
the three arbitrators shall be binding upon the parties hereto, or, in case no
two of the arbitrators shall render a concurring determination, then the
determination of the third arbitrator appointed shall be binding upon the
parties hereto. Each party shall pay the fees of the arbitrator appointed by it,
and the fees of the third arbitrator shall be divided equally between Landlord
and Tenant.
In the event that any arbitrator appointed shall thereafter die or
become unable or unwilling to act, his or her successor shall be appointed in
the same manner provided in this Article 32 for the appointment of the
arbitrator so dying or becoming or unable or unwilling to act.
Article 33. Intentionally Deleted
-43-
Article 34. Condition of Premises.
34.1 Tenant agrees to accept the Demised Premises in their present "as
is" condition.
The Demised Premises, the improvements thereon, the sidewalks and
structures adjoining the Demised Premises, subsurface conditions, and the
present uses thereof, have been examined by Tenant and Tenant's agents,
contractors and consultants, and Tenant accepts the same, without recourse to
Landlord, in the condition or state in which they or any of them now are,
without representation or warranty, express or implied in fact or by law, as to
the nature, condition or usability thereof or as to the use or uses to which the
Demised Premises or any part thereof may be put or as to the expenses of
operation of, the Demised Premises. Nothing contained herein shall affect
Landlord's obligations which may arise after the date hereof to make any
Structural Repairs pursuant to Section 7.3 of this Lease.
Article 35. Landlord's Right of Entry. Landlord and Landlord's
authorized agents and employees shall have the right from time to time, at
Landlord's option, to enter and pass through the Demised Premises and all
buildings and improvements thereon during business hours and, except in the case
of an emergency, upon reasonable prior notice to examine the same and to show
them to prospective purchasers, mortgagees and others, but this shall not
obligate Landlord to make any such entry or examination. Landlord will not
unreasonably interfere with Tenant's business operations during such entry.
Article 36. Consents and Approvals. Wherever in this Lease Landlord's
consent or approval is required, if Landlord shall delay or refuse such consent
or approval, Tenant in no event shall be entitled to make, nor shall Tenant
make, any claim, and Tenant hereby waives any claim, for money damages (nor
shall Tenant claim any money damages by way of set-off, counterclaim or defense)
based upon any claim or assertion by Tenant that Landlord unreasonably withheld
or unreasonably delayed its consent or approval. Tenant's sole remedy shall be
an action or proceeding to enforce any such provision, for specific performance,
injunction or declaratory judgment.
Article 37. Notices. Any notice, demand, consent, approval,
disapproval, or statement (collectively, "Notices") from Landlord to Tenant or
from Tenant to Landlord shall be in writing and shall be deemed duly given (a)
if mailed by registered or certified mail, postage prepaid, return receipt
requested, or (b) if delivered by personal delivery, with receipt acknowledged,
to the address[es] for Notices set forth in this Article 37 or (c) if delivered
by nationally recognized overnight courier. Notices to Tenant shall be sent to
the address of Tenant set forth below or to such other address as Tenant shall
-44-
have last designated by Notice in writing to Landlord. Notices to Landlord shall
be sent to the address of Landlord set forth below or to such other address as
Landlord shall have last designated by Notice in writing to Tenant.
Notices to Tenant shall be sent to:
Vitality Home Infusion Services, Inc.
c/o MIM Corporation
100 Clearbrook Road
Elmsford, New York 10523
Attention: Barry Posner
with copies to:
King & Spalding
1185 Avenue of the Americas
New York, NY 10036
Attention: E. William Bates, II, Esq.
Notices to Landlord shall be sent to:
Bar-Marc Realty, LLC
c/o Marc Wiener
2 Madison Place
Jericho, New York 11753
with copies to:
Stephen B. Silverman, Esq.
Taylor, Colicchio & Silverman, LLP
99 Park Avenue
New York, New York 10016
A Notice shall be deemed given upon receipt or refusal of delivery.
Article 38. Estoppel Certificates. Tenant agrees that at any time and
from time to time during the term of this Lease, within ten (10) days after
request by Landlord, it will execute, acknowledge and deliver to Landlord or any
prospective purchaser, permitted assignee or mortgagee designated by Landord, a
certificate stating: (a) that this Lease is unmodified and in force and effect
(or if there have been modifications, that this Lease is in force and effect as
modified, and identifying the modification agreements); (b) the date to which
fixed annual rent has been paid; (c) whether or not there is any existing
default by Tenant in the payment of any fixed annual rent or other sum of money
hereunder, and whether or not there is any other existing default by Tenant with
respect to which a notice of default has been served, and, if there is any such
default, specifying the nature and extent thereof; and (d) whether or not there
are any setoffs, defenses or counterclaims against enforcement of the
obligations to be performed hereunder existing in favor of Tenant.
-45-
Article 39. Rights Cumulative. All the rights and remedies of Landlord
and Tenant under this Lease or pursuant to present or future law shall be deemed
to be separate, distinct and cumulative and no one or more of them, whether
exercised or not, nor any mention of or reference to, any one or more of them in
this Lease, shall be deemed to be in exclusion of, or a waiver of, any of the
others, or any of the rights or remedies which Landlord or Tenant may have,
whether by present or future law or pursuant to this Lease and Landlord and
Tenant shall have, to the fullest extent permitted by law, the right to enforce
any rights or remedies separately and to take any lawful action or proceedings
to exercise or enforce any right or remedy without thereby waiving or being
barred or estopped from exercising and enforcing any other rights and remedies
by appropriate action or proceedings.
Article 40. Interest.
In each instance when Tenant shall be obligated to make any payment of
any sum of money whatsoever hereunder and shall fail to do so, interest shall
accrue thereon and be payable hereunder at a fluctuating rate of interest per
annum (the "Interest Rate") equal to the lesser of (a) 3% above the prime or
base commercial lending rate of interest announced from time to time by
Citibank, N.A. (or any successor institution, or, if such bank and its
successors are no longer in existence, any other commercial bank in the City of
New York selected by Landlord), at its principal office in New York City, in
effect from time to time, or (b) the maximum rate of interest permitted by law.
Such interest shall be computed from the date such payment first became due
hereunder until the date such repayment is made to Landlord.
Article 41. Non-Waiver. No waiver by Landlord or Tenant of any breach
by the other party of any term, covenant, condition or agreement herein and no
failure by Landlord or Tenant to exercise any right or remedy in respect of any
breach hereunder, shall constitute a waiver or relinquishment for the future of
any such term, covenant, condition or agreement, nor bar any right or remedy of
Landlord or Tenant in respect of any such subsequent breach, nor shall the
receipt of any rent, or any portion thereof, by Landlord or Tenant, operate as a
waiver of the rights of Landlord or Tenant to enforce the payment of any sum
then or thereafter in default, or to terminate this Lease, or in the case of
Landlord to recover the Demised Premises or in the case of both parties to
invoke any other appropriate remedy which Landlord or Tenant may select as
provided in this Lease or as provided by law.
-46-
Article 42. Surrender. Tenant shall, on the Expiration Date or upon any
sooner termination of this Lease, surrender and deliver the Demised Premises,
with the improvements then located thereon and the appurtenances thereto, into
the possession and use of Landlord, without delay and in the condition and
repair in which they were delivered (normal wear and tear and casualty, if this
Lease is terminated in accordance with the terms hereof as the result of a
casualty, excepted), free and clear of all lettings and occupancies, and free
and clear of all liens and encumbrances other than those existing on the date of
this Lease and those, if any, created by Landlord, without any payment or
allowance whatever by Landlord on account of or for any buildings and
improvements erected or maintained on the Demised Premises at the time of the
surrender, or for the contents thereof or appurtenances thereto. All fixtures,
trade fixtures, personal property and other belongings of Tenant or of any
subtenant or other occupant of space in the Demised Premises left upon the
Demised Premises at the time of such surrender (or five (5) days after surrender
in the event of an early termination of this Lease) shall have been deemed to
have been abandoned by Tenant.
Tenant acknowledges that possession of the Demised Premises must be
surrendered to Landlord at the expiration or earlier termination of the term of
this Lease.
The parties recognize and agree that the damage to Landlord resulting
from any failure by Tenant timely to surrender possession of the Demised
Premises will be extremely substantial, will exceed the amount of the rent
theretofore payable hereunder, and will be impossible to accurately measure.
Tenant therefore agrees that if possession of the Demised Premises is not
surrendered to Landlord within twenty-four (24) hours after the date of the
expiration or earlier termination of the term of this Lease, then,
notwithstanding anything to the contrary contained in this Lease, Tenant shall
pay to Landlord for each month and for each portion of any month during which
Tenant holds over in the Demised Premises after the expiration or sooner
termination of the term of this Lease, rent at a rate equal to two times the
aggregate of that portion of the rent that was payable under this Lease for the
last month of the term hereof. Nothing herein contained shall be deemed to
permit Tenant to retain possession of the Demised Premises after the expiration
or earlier termination of the term of this Lease. The provisions of this Article
shall survive the expiration or other termination of the term of this Lease.
-47-
Article 43. Guaranty.
43.1 As security for the performance of Tenant's obligations under this
Lease, Tenant shall, simultaneously with the execution and delivery of this
Lease, cause to be delivered to Landlord a guaranty (the "Guaranty") executed by
MIM Corporation, the owner of all of the issued and outstanding stock of Tenant
(the "Guarantor") in the form of Schedule B annexed hereto.
Article 44. No Partnership. Landlord shall not be deemed, in any way
for any purpose, to have become, by the execution of this Lease or any action
taken under this Lease, a partner of Tenant, in Tenant's business or otherwise,
or a member of any joint enterprise with Tenant.
Article 45. Entire Agreement; No Oral Modifications. Except as set
forth in Section 16.3 above, this Lease and the Schedules attached hereto set
forth all of the covenants, promises, assurances, agreements, representations,
conditions, warranties, statements and understandings (collectively, the
"Representations") between Landlord and Tenant relating to the Demised Premises,
and there are no Representations, either oral or written, between Landlord and
Tenant relating to the Demised Premises other than those set forth in this
Lease.
Except as set forth in Section 16.3 above, this Lease supersedes and
revokes all previous negotiations, arrangements, letters of intent, offers to
lease, lease proposals, brochures, Representations and information conveyed,
whether oral or in writing, between Landlord and Tenant relating to the Demised
Premises or their respective representatives or any other person purporting to
represent Landlord or Tenant relating to the Demised Premises. Landlord and
Tenant have not been induced to enter into this Lease by any Representations not
set forth in this Lease.
Except as may be otherwise provided in this Lease, no subsequent
alteration, amendment, change or addition to this Lease shall be binding upon
Landlord or Tenant unless in writing and signed by the party against whom
enforcement of the alteration, amendment, change or addition is sought.
Article 46. Successors. The terms, covenants, conditions and agreements
of this Lease shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns, subject, however, to Articles 21 and 30
hereof. Any waiver of rights by Tenant shall be deemed to be a waiver of such
rights for and on behalf of each and every successor and assignee of Tenant. The
word "Tenant" as used herein shall in each instance be deemed to mean the person
or persons, corporation or corporations or other entity or entities who from
time to time shall be obligated to perform the obligations of Tenant hereunder.
-48-
Article 47. Invalidity of Any Provision. If any term, covenant,
condition or provision of this Lease or the application thereof to any
circumstance or to any person, corporation or other entity shall be invalid or
unenforceable to any extent, the remaining terms, covenants, conditions and
provisions of this Lease or the application thereof to any circumstances or to
any person, corporation or other entity other than those as to which any term,
covenant, condition or provision is held invalid or unenforceable, shall not be
affected thereby and each remaining term, covenant, condition and provision of
this Lease shall be valid and shall be enforceable to the fullest extent
permitted by law.
Article 48. Brokers. Landlord and Tenant represent and warrant that
such party has not dealt with any broker in connection with this Lease. Each
party shall indemnify and hold harmless the other party from any loss, cost,
damage and expense (including, but not limited to, reasonable attorneys' fees
and disbursements and reasonable attorneys' fees and disbursements incurred in
establishing liability under this Article 48 and in collecting amounts payable
hereunder) which a party may suffer or incur by reason of any broker claiming to
have dealt with the other party in connection with this Lease.
Article 49. Recording. Neither this Lease nor a memorandum of this
Lease shall be recorded in the land records of any jurisdiction.
Article 50. Authority. Each party represents and warrants to the other
that the person or persons executing this Lease have been duly authorized to do
so and that each party has all requisite power and authority to perform its
obligations hereunder.
Article 51. Option to Renew.
51.1 Provided that (i) this Lease is in full force and effect as of the
date of the Renewal Notice (as defined below), (ii) there shall not then be
existing a default under this Lease, and (iii) Tenant or any assignee permitted
or approved in accordance with the terms of Article 21 shall be in physical
occupancy of fifty one or more percent (51%) of the entire Demised Premises,
Tenant shall have one (1) option to extend the term of this Lease for the entire
Demised Premises for an additional term of seven (7) years (the "Renewal Term")
commencing on the day after the Expiration Date. Tenant's option with respect to
the Renewal Term shall be exercisable by written notice (the "Renewal Notice")
to Landlord given not later than nine (9) months prior to the expiration date
-49-
accompanied by a letter from the Guarantor confirming that the Guaranty shall
continue to be in full force and effect during the Renewal Term. The Renewal
Term shall constitute an extension of the initial term of this Lease and shall
be upon all of the same terms and conditions as the initial term, except that
the fixed annual rent for the Renewal Term shall be payable at a rate per annum
equal to the greater of (a) the fair market rental value of the Demised Premises
as of the first day of the Renewal Term and (b) the fixed annual rent payable
pursuant to Article 2 of this Lease in respect of the last year of the initial
term of this Lease, as adjusted pursuant to Section 2.2. During the Renewal
Term, Section 2.2 of this Lease shall continue to apply except that the Base
Price Index shall mean the Consumer Price Index for the first month of the
Renewal Term, and all sums of additional rent that Tenant is obligated to pay
under this Lease during the initial term shall continue without interruption, it
being the intention of the parties hereto that the Renewal Term shall be deemed
a part of and a continuation of the initial Term of this Lease. For purposes of
this Lease, "Fair Market Rent" shall mean the base rent, for comparable space,
net of all free or reduced rent periods, work letters, cash allowances, fit-out
periods and other tenant inducement concessions however denominated except as
hereinafter provided. In determining the Fair Market Rent, Landlord, Tenant and
any appraiser shall take into account applicable measurement and loss factors,
applicable lengths of lease term, differences in size of the space demised, the
location of the Building and comparable buildings, amenities in the Building and
comparable buildings, the age of the Building and comparable buildings,
differences in base years or stop amounts for operating expenses and tax
escalations and other factors normally taken into account in determining Fair
Market Rent. The Fair Market Rent shall reflect any level of improvement
currently existing in the Demised Premises and any improvements to be made by
Landlord to the space as compared to improvements in comparable leases.
51.2 If Tenant shall have given the Renewal Notice, in accordance with
Section 51.1, the parties shall endeavor to agree upon the fair market rental
value of the Demised Premises as of the first day of the Renewal Term in
accordance with the factors set forth in Section 51.1. In the event that the
parties are unable to agree upon such fair market value for the Renewal Term
within thirty (30) days after the giving of the Renewal Notice, then either
party may request that the fair market rental value be determined in accordance
with the factors set forth in Section 51.1 by two senior officers of recognized
leasing brokerage firms located in Nassau County, New York, one to be selected
and paid for by Landlord and one to be selected and paid for by Tenant. The
officers selected by the parties shall have at least 10 years experience in (i)
the leasing of commercial space in Nassau County, New York or (ii) the appraisal
-50-
of commercial buildings in Nassau County, New York and shall be selected within
ten (10) days of the expiration of the thirty (30) day period. The determination
of the parties so selected shall be made within fifteen (15) Business Days of
appointment and shall be in writing and shall be final and conclusive on
Landlord and Tenant and shall constitute the fixed annual rent for the Renewal
Term. If such officers are unable to agree on such fair market rental value,
they shall select within ten (10) days another officer who shall have the same
qualifications as are set forth in this Section 51.2 and who shall render a
decision within fifteen (15) Business Days of appointment and the determination
of a majority of such officers shall be binding upon Landlord and Tenant and
shall constitute the fixed annual rent for the Renewal Term. The fee of the
additional officer selected pursuant to the preceding sentence shall be shared
equally by Landlord and Tenant. If, as of the commencement date of the Renewal
Term, the amount of the fixed annual rent payable during the applicable Renewal
Term in accordance with this Article 51 shall not have been determined, then,
pending such determination, Tenant shall pay fixed annual rent equal to the
fixed annual rent payable in respect of the last year of the initial term. After
the final determination of the fixed annual rent payable for the Renewal Term,
the parties promptly and appropriately shall adjust rental payments theretofore
made during the Renewal Term and shall execute a written agreement specifying
the amount of the fixed annual rent as so determined. Any failure of the parties
to execute such written agreement shall not affect the validity of the fixed
annual rent as so determined.
51.3 It is an express condition of the option granted to Tenant
pursuant to this Article 51 that time is of the essence with respect to Tenant's
exercise of such option within the period provided above.
-51-
LANDLORD
BAR-MARC REALTY, LLC
By:___________________________
Marc Wiener
Member
By:___________________________
Barbara Kammerer
Member
TENANT
VITALITY HOME INFUSION SERVICES, INC.
By:___________________________
Name:______________________
Title:_____________________
-52-
Schedule A
----------
Description of Demised Premises
-------------------------------
ALL that certain plot, piece or parcel of land, with the buildings and
improvements thereon erected, situate, lying and being at Roslyn Heights, Town
of North Hempstead, County of Nassau, State of New York, being a part of lots 23
to 28 inclusive and all of lots Nos. 29, 30 in block No. 1, "Map of Woodside
Park" and filed in the Office of the Clerk of the County of Nassau on June 25,
1925 as Map No. 562, New Map No. 3451, being more particularly bounded and
described as follows:
BEGINNING at the corner formed by the intersection of the north side of
Powerhouse Road (North Service Road, Long Island Expressway) with the east side
of Linden Street;
RUNNING THENCE North 08 degrees 58 minutes 45 seconds east 123.90 feet;
RUNNING THENCE South 81 degrees 01 minutes 15 seconds east 100 feet;
THENCE south 08 degrees 58 minutes 45 seconds west 40 feet;
THENCE south 81 degrees 01 minutes 15 seconds east 20 feet;
THENCE south 08 degrees 58 minutes 45 seconds west 79.64 feet to the north side
of Powerhouse Road (North Service Road, Long Island Expressway);
THENCE north 83 degrees 10 minutes 55 seconds west along aforesaid Powerhouse
Road 120.09 feet to the point or place of BEGINNING.
A-1
SCHEDULE B
GUARANTY
MIM Corporation, a Delaware corporation ("Guarantor"), for value
received, hereby guarantees to Bar-Marc Realty, LLC ("Landlord") the full and
punctual payment and performance when due of all obligations of Vitality Home
Infusion Services, Inc. ("Tenant") to Landlord under the Net Lease dated as of
the date of this guaranty between Landlord and Tenant of the land and building
located at 10 Powerhouse Road, Roslyn Heights, New York (the "Lease"),
including, without limitation, the full and prompt payment when due of all fixed
annual rent and additional rent payable under the Lease (all of such obligations
being referred to, collectively, as the "Obligations"). Each and every default
by Tenant under the Lease shall give rise to a separate cause of action under
this guaranty, and separate suits may be brought under this guaranty as each
cause of action arises.
This guaranty is a continuing, irrevocable and unconditional guaranty
of payment and performance, and, without limitation, is not conditioned or
contingent upon any effort to attempt to seek payment or performance from Tenant
or upon any other condition or contingency. If Tenant at any time shall fail to
pay or perform the Obligations within the applicable notice and cure periods,
Guarantor shall promptly upon written notice effect complete payment and
performance of the Obligations. Landlord shall not be required to first pursue
any right or remedy against Tenant.
The liability of Guarantor under this guaranty shall not be impaired,
abated, diminished, modified or otherwise affected by any event, condition,
occurrence, circumstance, proceeding, action or failure to act whatsoever,
including, but not limited to: (a) any increase in, or modification, compromise,
settlement, adjustment or extension of, the Obligations; (b) any waiver,
consent, indulgence, forbearance, lack of diligence, action or inaction on the
part of Landlord in enforcing the Obligations; (c) any bankruptcy, insolvency,
reorganization, arrangement, or similar proceeding involving or affecting
Tenant; (d) the invalidity or unenforceability of the Lease by virtue of the
lack of power or authority of Tenant or the person executing such document on
behalf of Tenant, to enter into, execute and deliver such document; (e) the
actual or purported assignment of Tenant's leasehold estate under the Lease; (f)
any failure of Landlord to mitigate the damages resulting from any default by
Tenant under the Lease; or (g) any failure by Landlord to draw down upon any
security deposit under the Lease.
B-1
The obligations and liability of Guarantor under this guaranty are
independent of the obligations and liability of Tenant. Guarantor may be joined
in any action or proceeding commenced by Landlord against Tenant based upon or
in connection with the Obligations. Recovery may be had against Guarantor in
such an action or proceeding or in an independent action or proceeding without
any requirement that Landlord previously or simultaneously assert, prosecute or
exhaust any right, power or remedy against Tenant.
Guarantor shall reimburse Landlord on demand for all costs and expenses
(including reasonable attorneys' fees, expenses and court costs) actually
incurred by Landlord in enforcing the obligations and liability of Guarantor
under this guaranty and the Obligations.
Except as set forth herein, Guarantor waives (a) all notices that
otherwise may be necessary, whether by statute, rule of law or otherwise, to
charge Guarantor or to preserve Landlord's rights and remedies against Guarantor
under this guaranty, and (b) all defenses that may otherwise be available to it
under the law of suretyship and guaranty.
No right or benefit in favor of Landlord shall be deemed waived, no
obligation or liability of Guarantor under this guaranty shall be deemed
amended, discharged or otherwise affected, and no provision of this guaranty may
be amended, except by an instrument in writing signed by Landlord.
This guaranty shall be governed by and construed in accordance with the
internal laws of the State of New York without giving effect to any choice or
conflict of law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of laws of any jurisdictions
other than those of the State of New York. This guaranty shall be binding upon
the successors and assigns of Guarantor and inure to the benefit of the
successors and assigns of Landlord.
Guarantor (a) submits to the exclusive jurisdiction of any state or
federal court sitting in Nassau or New York County, New York, in any action or
proceeding arising out of or relating to this guaranty, (b) agrees that all
claims in respect of such action or proceeding shall be heard and determined in
any such court, and (c) agrees not to bring any action or proceeding arising out
of or relating to this guaranty in any other court. Guarantor waives any defense
of inconvenient forum to the maintenance of any action or proceeding so brought
and waives any bond, surety or other security that might be required of any
other party with respect thereto.
Any notice given to Guarantor under this guaranty shall be in writing
and shall be given by hand delivery, receipt acknowledged, or mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
B-2
or by nationally recognized commercial overnight courier, to Guarantor at 100
Clearbrook Road, Elmsford, New York 10523, or to such other address as Guarantor
shall specify by delivery of notice as aforesaid to Landlord at c/o Marc Wiener,
2 Madison Place, Jericho, New York 11753, or at such other address as Landlord
may specify to Guarantor at Guarantor's then specified address. Notices shall be
deemed given when received or delivery is refused.
Guarantor represents and warrants that it is the owner of all of the
issued and outstanding stock of Tenant. Guarantor represents and warrants that
this guaranty has been duly authorized by all necessary corporate action on the
part of Guarantor and is binding and enforceable on Guarantor in accordance with
its terms.
MIM Corporation
By:________________________________
Name:___________________________
Title:__________________________
B-3
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK)
On the ____ day of January in the year 2002 before me, the undersigned,
personally appeared ______________________________, personally known to me or
proved to me on the basis of satisfactory evidence to be the individual(s) whose
name(s) is (are) subscribed to the within instrument and acknowledged to me that
he/she/their signature(s) on the instrument, the individual(s), or the person
upon behalf of which the individual(s) acted, executed the instrument.
----------------------------------
Notary Public
Exhibit 10.50
GUARANTY
MIM Corporation, a Delaware corporation ("Guarantor"), for value
received, hereby guarantees to Bar-Marc Realty, LLC ("Landlord") the full and
punctual payment and performance when due of all obligations of Vitality Home
Infusion Services, Inc. ("Tenant") to Landlord under the Net Lease dated as of
the date of this guaranty between Landlord and Tenant of the land and building
located at 10 Powerhouse Road, Roslyn Heights, New York (the "Lease"),
including, without limitation, the full and prompt payment when due of all fixed
annual rent and additional rent payable under the Lease (all of such obligations
being referred to, collectively, as the "Obligations"). Each and every default
by Tenant under the Lease shall give rise to a separate cause of action under
this guaranty, and separate suits may be brought under this guaranty as each
cause of action arises.
This guaranty is a continuing, irrevocable and unconditional guaranty
of payment and performance, and, without limitation, is not conditioned or
contingent upon any effort to attempt to seek payment or performance from Tenant
or upon any other condition or contingency. If Tenant at any time shall fail to
pay or perform the Obligations within the applicable notice and cure periods,
Guarantor shall promptly upon written notice effect complete payment and
performance of the Obligations. Landlord shall not be required to first pursue
any right or remedy against Tenant.
The liability of Guarantor under this guaranty shall not be impaired,
abated, diminished, modified or otherwise affected by any event, condition,
occurrence, circumstance, proceeding, action or failure to act whatsoever,
including, but not limited to: (a) any increase in, or modification, compromise,
settlement, adjustment or extension of, the Obligations; (b) any waiver,
consent, indulgence, forbearance, lack of diligence, action or inaction on the
part of Landlord in enforcing the Obligations; (c) any bankruptcy, insolvency,
reorganization, arrangement, or similar proceeding involving or affecting
Tenant; (d) the invalidity or unenforceability of the Lease by virtue of the
lack of power or authority of Tenant or the person executing such document on
behalf of Tenant, to enter into, execute and deliver such document; (e) the
actual or purported assignment of Tenant's leasehold estate under the Lease; (f)
any failure of Landlord to mitigate the damages resulting from any default by
Tenant under the Lease; or (g) any failure by Landlord to draw down upon any
security deposit under the Lease.
The obligations and liability of Guarantor under this guaranty are
independent of the obligations and liability of Tenant. Guarantor may be joined
in any action or proceeding commenced by Landlord against Tenant based upon or
in connection with the Obligations. Recovery may be had against Guarantor in
such an action or proceeding or in an independent action or proceeding without
any requirement that Landlord previously or simultaneously assert, prosecute or
exhaust any right, power or remedy against Tenant.
Guarantor shall reimburse Landlord on demand for all costs and expenses
(including reasonable attorneys' fees, expenses and court costs) actually
incurred by Landlord in enforcing the obligations and liability of Guarantor
under this guaranty and the Obligations.
Except as set forth herein, Guarantor waives (a) all notices that
otherwise may be necessary, whether by statute, rule of law or otherwise, to
charge Guarantor or to preserve Landlord's rights and remedies against Guarantor
under this guaranty, and (b) all defenses that may otherwise be available to it
under the law of suretyship and guaranty.
No right or benefit in favor of Landlord shall be deemed waived, no
obligation or liability of Guarantor under this guaranty shall be deemed
amended, discharged or otherwise affected, and no provision of this guaranty may
be amended, except by an instrument in writing signed by Landlord.
This guaranty shall be governed by and construed in accordance with the
internal laws of the State of New York without giving effect to any choice or
conflict of law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of laws of any jurisdictions
other than those of the State of New York. This guaranty shall be binding upon
the successors and assigns of Guarantor and inure to the benefit of the
successors and assigns of Landlord.
Guarantor (a) submits to the exclusive jurisdiction of any state or
federal court sitting in Nassau or New York County, New York, in any action or
proceeding arising out of or relating to this guaranty, (b) agrees that all
claims in respect of such action or proceeding shall be heard and determined in
any such court, and (c) agrees not to bring any action or proceeding arising out
of or relating to this guaranty in any other court. Guarantor waives any defense
of inconvenient forum to the maintenance of any action or proceeding so brought
and waives any bond, surety or other security that might be required of any
other party with respect thereto.
2
Any notice given to Guarantor under this guaranty shall be in writing
and shall be given by hand delivery, receipt acknowledged, or mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
or by nationally recognized commercial overnight courier, to Guarantor at 100
Clearbrook Road, Elmsford, New York 10523, or to such other address as Guarantor
shall specify by delivery of notice as aforesaid to Landlord at c/o Marc Wiener,
2 Madison Place, Jericho, New York 11753, or at such other address as Landlord
may specify to Guarantor at Guarantor's then specified address. Notices shall be
deemed given when received or delivery is refused.
Guarantor represents and warrants that it is the owner of all of the
issued and outstanding stock of Tenant. Guarantor represents and warrants that
this guaranty has been duly authorized by all necessary corporate action on the
part of Guarantor and is binding and enforceable on Guarantor in accordance with
its terms.
MIM Corporation
By:
-----------------------------
Name:
Title:
3
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK)
On the ____ day of January in the year 2002 before me, the undersigned,
personally appeared ______________________________, personally known to me or
proved to me on the basis of satisfactory evidence to be the individual(s) whose
name(s) is (are) subscribed to the within instrument and acknowledged to me that
he/she/their signature(s) on the instrument, the individual(s), or the person
upon behalf of which the individual(s) acted, executed the instrument.
-----------------------------
Notary Public
4
Exhibit 10.51
October 15, 2001
Mr. Russel J. Corvese
1965 Frenchtown Road
East Greenwich, RI 02818
Re: MIM Corporation
Dear Russ:
MIM Corporation, a Delaware corporation (the "Company") is pleased to
confirm your employment as the Chief Information Officer of the Company, on the
terms and subject to the conditions set forth below. The terms and conditions of
your employment are as follows:
1. POSITION AND DUTIES: Chief Information Officer of the Company.
In such capacity, you shall be responsible for all
computer software and hardware, telecommunication,
network, and information systems and technology
utilized by the Company and its subsidiaries. In
such capacity, you will faithfully perform the
duties of said office and position and such other
duties of an executive, managerial and
administrative nature as are specified and
designated from time to time by the Company's
Board of Directors.
You will report primarily to, and shall have such
further duties as shall be assigned to you by the
Chief Executive Officer of the Company, subject to
the authority of the Board of Directors. Subject
to the terms and conditions of this Agreement, you
acknowledge and understand that you are an
employee at will.
2. BASE COMPENSATION: Your base salary will be at an annual rate of
$175,000.00 per year, payable bi-weekly, or at
such other times as other employees of the Company
are paid.
3. TRANSPORTATION
ALLOWANCE: During your employment, the Company will provide
you with a monthly allowance of $500 for the use
of an automobile.
4. PARTICIPATION IN
HEALTH AND OTHER
BENEFIT PLANS During your employment with the Company, you shall
be permitted, if and to the extent eligible, to
participate in all employee health and other
related benefit plans, policies and practices now
or hereafter available to members of senior
management generally and maintained by or on
behalf of the Company. Nothing in this agreement
shall preclude the Company from terminating or
amending any such plans or coverage so as to
eliminate, reduce or otherwise change any benefit
payable thereunder.
Mr. Russell J. Corvese
October 15, 2001
Page 2
You shall be eligible to participate in the
Company's 1998 Cash Bonus Program For Key
Employees ("Bonus Program"), as such plan is
continued by the Company, from year to year.
Eligibility for the aforementioned Bonus Program
will be premised upon your continuing employment
through the end of the calendar year to which the
bonus in any year of your employment relates, and
will be subject to the terms and conditions of the
Bonus Program. The Bonus Program was created to
provide senior executives of the Company with cash
and equity incentives upon reaching certain
predetermined revenue, earnings and share
performance goals. If there shall exist any
conflict between this Agreement and the definitive
documentation governing the Bonus Program, the
definitive documentation (and not this agreement)
shall control.
5. EXPENSES: Subject to such policies as may from time to time
be established by the Company's Board of
Directors, the Company would pay or reimburse you
for all reasonable and necessary expenses actually
incurred or paid by you during the term of your
employment in the performance of your duties, upon
submission and approval of expense statements,
vouchers or other supporting information in
accordance with the then customary practices of
the Company.
6. VACATION: You would be entitled to four weeks (20 business
days) vacation during the term of your employment.
7. TERMINATION; SEVERANCE
CHANGE OF CONTROL: If your employment with the Company is terminated
for any reason whatsoever, whether by you or the
Company, the Company would not be liable for, or
obligated to pay you any bonus compensation or any
other compensation contemplated hereby not already
paid or not already accrued at the date of such
termination, and no other benefits shall accrue or
vest subsequent to such date. If you are
terminated by the Company (or any successor) other
than for "Cause" (as defined below) or you
terminate your employment with the Company for
"Good Reason" (as defined below), you will be
entitled to receive severance payments equal to
six months of salary at your then current salary
level, payable in accordance with the Company's
then applicable payroll practices and subject to
all applicable federal, state and local
withholding.
For purposes of this Agreement, "Cause" shall mean
any of the following: (1) Commission by you of
criminal conduct which involves moral turpitude;
(2) acts which constitute fraud or self-dealing by
or on the part of you against the Company,
including, without limitation, misappropriation or
embezzlement; (3) your willful engagement in
conduct which is materially injurious to the
Company; or (4) your gross misconduct in the
performance of duties as an employee of the
Company, including, without limitation, failure to
obey lawful written instructions of the Board of
Mr. Russell J. Corvese
October 15, 2001
Page 3
Directors of the Company, any committee thereof or
the Chief Executive Officer of the Company or
failure to correct any conduct which constitutes a
breach of this agreement between you and the
Company or of any written policy promulgated by
the Board of Directors of the Company, any
committee thereof or the Chief Executive Officer
of the Company, in either case after not less than
ten days' notice in writing to you of the
Company's intention to terminate you if such
failure is not corrected within the specified
period (or after such shorter notice period if the
Company in good faith deems such shorter notice
period to be necessary due to the possibility of
material injury to the Company).
For purposes of this Agreement, "Good Reason"
shall mean the existence of any one or more of the
following conditions that shall continue for more
than 30 days following written notice thereof by
the Employee to the Company: (i) the assignment to
the Employee of duties materially inconsistent
with the Employee's position or positions with the
Company, (ii) the reduction of your then current
annual salary rate, without your consent or (iii)
requires you to relocate your residence in order
to perform your duties with the Company.
In addition, if you are terminated by the Company
(or any successor or either) within one year of a
"Change of Control" (as defined below) or, within
such one (1) year period, you elect to terminate
your employment after the Company or a successor
entity (A) assigns you duties materially
inconsistent with your position or positions with
the Company or a successor entity immediately
prior to such Change of Control or (B) requires
you to relocate your residence in order to perform
your duties with the Company, the Company or that
successor entity, (I) you shall receive severance
payments equal to six months of your then current
salary (and reimbursement for expenses incurred
prior to the effective date of the termination of
employment; (II) all outstanding unvested Options
granted to you and held by you shall vest and
become immediately exercisable and shall otherwise
be exercisable in accordance with their terms and
(III) you shall become vested in any pension or
other deferred compensation other than pension or
deferred compensation under a plan intended to be
qualified under Section 401(a) or 403(a) of the
Internal Revenue Code of 1986, as amended; and
(IV) you shall have no further rights to any other
compensation or benefits hereunder on or after the
termination of employment or any other rights
hereunder.
For purposes of this Agreement, "Change of
Control" means the occurrence of one or more of
the following: (i) a "person" or "group" within
the means the meaning of sections 13(d) and 14(d)
Mr. Russell J. Corvese
October 15, 2001
Page 4
of the Securities and Exchange Act of 1934 (the
"Exchange Act") becomes the "beneficial owner"
(within the meaning of Rule l3d-3 under the
Exchange Act) of securities of MIM (including
options, warrants, rights and convertible and
exchangeable securities) representing 30% or more
of the combined voting power of MIM's then
outstanding securities in any one or more
transactions unless approved by at least
two-thirds of MIM's Board of Directors then
serving at that time; provided, however, that
purchases by employee benefit plans of MIM and by
MIM or its affiliates shall be disregarded; or
(ii) any sale, lease, exchange or other transfer
(in one transaction or a series of related
transactions) of all, or substantially all, of the
operating assets of MIM or the Company; or (iii) a
merger or consolidation, or a transaction having a
similar effect, where (A) the Company or MIM is
not the surviving corporation, (B) the majority of
the Common Stock of MIM is no longer held by the
stockholders of MIM immediately prior to the
transaction, or (C) the MIM's Common Stock is
converted into cash, securities or other property
(other than the common stock of a company into
which MIM or the Company is merged), unless such
merger, consolidation or similar transaction is
with a subsidiary of the Company or MIM or with
another company, a majority of whose outstanding
capital stock is owned by the same persons or
entities who own a majority of MIM's Common Stock
at such time; or (iv) at any annual or special
meeting of stockholders of MIM at which a quorum
is present (or any adjournments or postponements
thereof), or by written consent in lieu thereof,
directors (each a "New Director" and collectively
the "New Directors") then constituting a majority
of MIM's Board of Directors shall be duly elected
to serve as New Directors and such New Directors
shall have been elected by stockholders of MIM who
shall be an (I) "Adverse Person(s)"; (II)
"Acquiring Person(s)"; or (III) "40% Person(s)"
(as each of the terms set forth in (I), (II), and
(III) hereof are defined in that certain Amended
and Restated Rights Agreement, dated May 20, 1999,
between MIM and American Stock Transfer & Trust
Company, as Rights Agent.
8. RESTRICTIVE COVENANT: As a condition to your employment with the
Company, you will be obligated to enter into a
restrictive covenant agreement between you and the
Company, covering, among other things,
non-competition provisions, non-solicitation
provisions, and the protection of the Company's
trade secrets. A copy of the terms of this
agreement is attached hereto as Exhibit A.
9. NO RELOCATION: You shall not be required to relocate from the
address set forth above in order to perform your
duties; provided, however, that you acknowledge
that you will need to travel that amount of time
necessary to perform your responsibilities and
duties in a manner consistent with the standards
set forth in Section 1 of this Agreement.
Mr. Russel J. Corvese
October 15, 2001
Page 5
10. OTHER TERMS: Your employment will be subject to other customary
and usual terms, provisions, conditions and
representations as are found in the Company's
similar arrangements with its employees.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the subject
matter hereof and supersedes all prior agreements,
written or oral, with respect thereto.
Please call me to discuss any questions or comments that you may have
regarding these terms. I look forward to hearing from you. Best regards.
Sincerely yours,
MIM CORPORATION
By:
-----------------------------------
Name:
Title:
Agreed to and Accepted By:
- ------------------------------------------
Russel J. Corvese
Exhibit A
RESTRICTIVE COVENANTS
Covenant Against Competition; Other Covenants. You acknowledge that (i)
the principal business of the Company (for purposes of these restrictive
covenants, the "Company" shall include all subsidiaries and affiliates of MIM
Corporation, including Scrip Solutions, Inc.) is the provision of a broad range
of services designed to promote the cost-effective delivery of pharmacy
benefits, including pharmacy benefit management services, claims processing, the
purchasing of pharmaceutical products on behalf of pharmacy networks and long
term care facilities (including assisted living facilities and nursing homes)
and specialty pharmaceutical programs and mail order pharmacy services,
including the dispensing of prescription pharmaceutical products, and the sale
and distribution, on a retail and wholesale basis, of OTC's, vitamins,
supplements, herbals and other goods typically offered for sale through a
retail, mail order or internet on-line pharmacy (such business, and any and all
other businesses that after the date hereof, and from time to time during the
Term, become material with respect to the Company's then-overall business,
herein being collectively referred to as the "Business"); (ii) the Company is
dependent on the efforts of a certain limited number of persons who have
developed, or will be responsible for developing the Company's Business; (iii)
is national in scope; (iv) your work for the Company will give you access to the
confidential affairs and proprietary information of the Company; (v) your
covenants and agreements contained in these Restrictive Covenants are essential
to the business and goodwill of the Company; and (vi) the Company would not have
offered you employment but for the covenants and agreements set forth herein.
Accordingly, you covenant and agree that:
(a) At any time during your employment with the Company and
ending (i) twelve months following termination of your employment with the
Company (irrespective of the reason for such termination) or (ii) six months
following payment of any severance, whichever occurs last, you shall not engage,
directly or indirectly, in work relating to information systems,
telecommunications, computer systems or other work related to information
technology, or otherwise assisting any company or other business entity (which
includes, without limitation, owning, managing, operating, controlling, being
employed by, giving financial assistance to, participating in or being connected
in any material way with any person or entity other than the Company), engaged
in (i) the Business or (ii) any material component of the Business; provided,
however, that the Executive's ownership as a passive investor of less than two
percent (2%) of the issued and outstanding stock of a publicly held corporation
shall not be deemed to constitute competition.
(b) During and after the period during which you are employed,
you shall keep secret and retain in strictest confidence, and shall not use for
his benefit or the benefit of others, except in connection with the Business and
affairs of the Company and its affiliates, all confidential matters relating to
the Company's Business and the business of any of its affiliates and to the
Company and any of its affiliates, learned by you heretofore or hereafter
directly or indirectly from the Company or any of its affiliates (the
"Confidential Company Information"), including, without limitation, information
with respect to (i) the strategic plans, budgets, forecasts, intended expansions
of product, service, or geographic markets of the Company and its affiliates,
Mr. Russel J. Corvese
October 15, 2001
Page 7
(ii) sales figures, contracts, agreements, and undertakings with or with respect
to customers, (iii) profit or loss figures, and (iv) customers, clients,
suppliers, sources of supply and customer lists, and shall not disclose such
Confidential Company Information to anyone outside of the Company except with
the Company's express written consent and except for Confidential Company
Information which is at the time of receipt or thereafter becomes publicly known
through no wrongful act of you or is received from a third party not under an
obligation to keep such information confidential and without breach of these
Restrictive Covenants or the Agreement. Notwithstanding the foregoing, this
section (b) shall not apply to the extent that you are acting to the extent
necessary to comply with legal process; provided that in the event that you are
subpoenaed to testify or to produce any information or documents before any
court, administrative agency or other tribunal relating to any aspect pertaining
to the Company, you shall immediately notify the Company thereof.
(c) During the period commencing on the date hereof and ending
two years following the date upon which you shall cease to be an employee of the
Company or its affiliates, you shall not, without the Company's prior written
consent, directly or indirectly, (i) solicit or encourage to leave the
employment or other service of the Company or any of its affiliates, any
employee or independent contractor thereof or hire (on your behalf or any other
person or entity) any employee or independent contractor who has left the
employment or other service of the Company or any of its affiliates within one
year of the termination of such employee's or independent contractor's
employment or other service with the Company and its affiliates, or (ii)
solicit, contact, market to, work for, or assist others in soliciting any
customer or client of the Company with whom the Company was in contact with or
was providing goods and services to at the time of your termination of
employment with the Company. During such period, you will not, whether for your
own account or for the account of any other person, firm, corporation or other
business organization, intentionally interfere with the Company's or any of its
affiliates' relationship with, or endeavor to entice away from the Company or
any of its affiliates, any person who during the Term is or was a customer or
client of the Company or any of its affiliates.
(d) All memoranda, notes, lists, records, property and any
other tangible product and documents (and all copies thereof) made, produced or
compiled by you or made available to you concerning the Business of the Company
and its affiliates shall be the Company's property and shall be delivered to the
Company at any time on request.
Mr. Russel J. Corvese
October 15, 2001
Page 8
Rights and Remedies upon Breach of Restrictive Covenants.
(a) You acknowledge and agree that any breach by him of any of
the provisions of sections (a) through (d) above (the "Restrictive Covenants")
would result in irreparable injury and damage for which money damages would not
provide an adequate remedy. Therefore, if you breach, or threaten to commit a
breach of, any of the Restrictive Covenants, the Company and its affiliates
shall have the following rights and remedies, each of which rights and remedies
shall be independent of the other and severally enforceable, and all of which
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company and its affiliates under law or in
equity (including, without limitation, the recovery of damages):
(b) The right and remedy to have the Restrictive Covenants
specifically enforced (without posting bond and without the need to prove
damages) by any court having equity jurisdiction, including, without limitation,
the right to an entry against you of restraining orders and injunctions
(preliminary, mandatory, temporary and permanent) against violations, threatened
or actual, and whether or not then continuing, of such covenants.
(c) The right and remedy to require you to account for and pay
over to the Company and its affiliates all compensation, profits, monies,
accruals, increments or other benefits (collectively, "Benefits") derived or
received by you as the result of any transactions constituting a breach of the
Restrictive Covenants, and you shall account for and pay over such Benefits to
the Company and, if applicable, its affected affiliates.
(d) You agree that in any action seeking specific performance
or other equitable relief, you will not assert or contend that any of the
provisions of these Restrictive Covenants are unreasonable or otherwise
unenforceable. The existence of any claim or cause of action by you, whether
predicated on the Agreement or otherwise, shall not constitute a defense to the
enforcement of the Restrictive Covenants.
Agreed to and accepted by:
- -----------------------------
Russel J. Corvese
Exhibit 10.52
October 15, 2001
Mr. Recie B. Bomar
11 Ledgewood Lane
South Salem, NY 10590-2022
Re: EMPLOYMENT LETTER AGREEMENT DATED FEBRUARY 8, 1999
Reference is hereby made to the Letter Agreement ("Agreement") between MIM
Corporation (the "Company") and Recie B. Bomar ("Employee") dated February 8,
1999 pursuant to which Employee has been employed by the Company since that
time. In consideration of Employee's service since that time and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Employee hereby amend and supplement the
Agreement, effective as of the date indicated above, on the following terms.
1. Paragraph 1 entitled "POSITION AND DUTIES" is hereby amended and restated in
its entirety as follows:
"1. POSITION AND DUTIES: President of PBM Division of Scrip Solutions, Inc.,
with overall responsibility for PBM business of the Company and its subsidiaries
and affiliates including, but not limited to:
(i) Preparation of, and primary responsibility for sales and marketing
plans of the Company's PBM business;
(ii) Implementing sales and marketing plans and overall responsibility for
PBM business personnel and the generation of sales related revenues; and
(iii) The hiring and termination of personnel in support of the PBM
business, with the prior approval of Chief Executive Officer.
In such capacity, you shall report to, and shall have such further duties
as shall be assigned to you by, the Company's Chief Executive Officer,
Richard H. Friedman."
2. Paragraph 3 entitled "BASE COMPENSATION" is hereby amended and restated in
its entirety as follows:
"3. BASE COMPENSATION: Your base salary shall be at the rate of $225,000.00 per
calendar year, payable bi-weekly, or at such other times as other employees of
the Company are paid generally. Your performance and compensation shall be
reviewed no less frequently than every twelve (12) months. However, any increase
in your compensation shall be in the Company's sole and absolute discretion."
Recie B. Bomar
October 15, 2001
Page 2
3. Paragraph 10 entitled "SEVERANCE; CHANGE OF CONTROL" is hereby amended and
restated in its entirety as follows:
"(a) CHANGE OF CONTROL. If, within the three-month period following a "Change of
Control" (as defined below), you are terminated by the Company or a successor
entity or you elect to terminate your employment after the Company or such
successor entity assigns you duties materially inconsistent with your position
prior to such Change of Control, then you shall be entitled to receive six (6)
months salary and other benefits earned and accrued prior to the effective date
of the termination of your employment (and reimbursement for expenses incurred
prior thereto).
In addition, all outstanding unvested options held by you shall vest
and become immediately exercisable and shall otherwise be exercisable in
accordance with their terms. In such event, you shall also become vested in any
pension or other deferred compensation other than pension or deferred
compensation under a plan intended to be qualified under Section 401(a) or
403(a) of the Internal Revenue Code of 1986, as amended. Thereafter you shall
have no further rights to any other compensation or benefits hereunder on or
after the termination of employment or other triggering event, or any other
rights hereunder.
For purposes of this Agreement, "Change of Control" means the
occurrence of one of the following:
(i) a "person" or "group" within the meaning of sections 13(d) and 14(d)
of the Securities and Exchange Act of 1934 (the "Exchange Act") becomes the
"beneficial owner" (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company (including options, warrants, rights and convertible
and exchangeable securities) representing 50% or more of the combined voting
power of the Company's then outstanding securities in any one or more
transactions; provided, however, that purchases by employee benefits plans of
the Company and by the Company or its affiliates shall be disregarded; or
(ii) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the operating
assets of the Company; or
(iii) a merger or consolidation, or a transaction having a similar effect
(unless such merger, consolidation or similar transaction is with a subsidiary
of the Company or with another company, a majority of whose outstanding capital
stock is owned by the same persons or entities who at that time own a majority
of the Company's outstanding common stock (the "Common Stock")), where (A) the
Company is not the surviving corporation, (B) the majority of the Common Stock
of the Company is no longer held by the stockholders of the Company immediately
prior to the transaction, or (C) the Company's Common Stock is converted into
cash, securities or other property (other than the common stock of a company
into which the Company is merged).
(b) TERMINATION OTHER THAN FOR CAUSE. If you are terminated by the Company or a
successor entity for any reason other than for Cause (as defined below) or you
elect to terminate your employment for Good Reason (as defined below), then you
shall be entitled to receive six (6) months salary and other benefits earned and
accrued prior to the effective date of the termination of your employment other
than for Cause or by you for Good Reason (and reimbursement for expenses
incurred prior thereto).
In addition, all outstanding unvested options held by you shall vest
and become immediately exercisable and shall otherwise be exercisable in
Recie B. Bomar
October 15, 2001
Page 3
accordance with their terms. In such event, you shall also become vested in any
pension or other deferred compensation other than pension or deferred
compensation under a plan intended to be qualified under Section 401(a) or
403(a) of the Internal Revenue Code of 1986, as amended. Thereafter you shall
have no further rights to any other compensation or benefits hereunder on or
after the termination of employment or other triggering event, or any other
rights hereunder.
For purposes of this Agreement, "Cause" shall mean (i) the Employee's
conviction of a felony or a crime of moral turpitude; or (ii) the Employee's
commission of unauthorized acts intended to result in the Employee's personal
enrichment at the material expense of the Company; or (iii) the Employee's
material violation of the Employee's duties or responsibilities to the Company
which constitute willful misconduct or dereliction of duty, or the material
breach of the covenants contained in EXHIBIT B attached hereto.
For purposes of this Agreement, "Good Reason" shall mean the existence
of any one or more of the following conditions that shall continue for more than
30 days following written notice thereof by the Employee to the Company: (i) the
assignment to the Employee of duties materially inconsistent with the Employee's
position or positions with the Company or (ii) the reduction of your then
current annual salary rate, without your consent."
4. Except as modified hereby, all provisions of the Agreement remain unmodified
and in full force and effect.
5. This Agreement, as amended hereby, contains the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements, written or oral, with respect thereto.
Very truly yours,
MIM Corporation
By:
---------------------------------
Barry A. Posner
Executive Vice President
AGREED AND ACCEPTED this ___ day of October 2001.
- -------------------------------------
Recie B. Bomar
Exhibit 21 MIM Investment Corporation, a Delaware corporation Scrip Solutions, Inc., a Delaware corporation MIM Strategic Marketing, LLC, a Delaware limited liability company MIM IPA, Inc., a New York corporation MIM Health Plans of Puerto Rico, Inc., a Delaware corporation MIMRx.com, Inc., a Delaware corporation Continental Managed Pharmacy Services, Inc., an Ohio corporation Scrip Pharmacy, Inc., an Ohio corporation Automated Scripts, Inc., an Ohio corporation Preferred Rx, Inc., an Ohio corporation Valley Physicians Services, Inc., an Ohio corporation Health Management Ventures, Inc., a Wisconsin corporation American Disease Management Associates, L.L.C., a Delaware limited liability company New York ADIMA, LLC, a New York limited liability company d/b/a American Disease Management Associates Vitality Home Infusion Services, Inc., a New York corporation d/b/a Vitality Pharmaceutical Services MIM Funding LLC, a Delaware limited liability company Community Prescription Service, Inc., a Delaware corporation
MIM Corporation
100 Clearbrook Road
Elmsford, NY 10523
(914) 460-1600
March 29, 2002
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D.C. 20549-0408
Ladies and Gentlemen:
This letter is written pursuant to Temporary Note 3T to Article 3 of Regulation
S-X.
MIM Corporation has received a representation letter from Arthur Andersen LLP
("Andersen") stating that the audit of the consolidated balance sheets of MIM
Corporation and subsidiaries as of December 31, 2001 and 2000, and the related
Consolidated Statements of Operations, Stockholders' Equity and Cash Flows for
each of the three years in the period ended December 31, 2001, was subject to
Andersen's quality control system for the U.S. accounting and auditing practice
to provide reasonable assurance that the engagement was conducted in compliance
with professional standards and that there was appropriate continuity of
Andersen personnel working on the audit, availability of national office
consultation. Availability of personnel at foreign affiliates of Andersen is not
relevant to this audit.
Very truly yours,
MIM Corporation
By: /s/ Barry A. Posner
----------------------------
Barry A. Posner
Executive Vice President &
General Counsel