FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 0-28740
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MIM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 05-0489664
- ------------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Clearbrook Road, Elmsford, NY 10523
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(Address of principal executive offices)
(914) 460-1600
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(Registrant's telephone number, including area code)
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Former name, former address and former fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
On April 17, 2000 there were outstanding 18,931,706 shares of the Company's
common stock, $.0001 par value per share ("Common Stock").
PART I FINANCIAL INFORMATION PAGE NUMBER
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Item 1 Financial Statements
Consolidated Balance Sheets at
March 31, 2000 (unaudited) and December 31, 1999 1
Unaudited Consolidated Statements of Operations for the
three months ended March 31, 2000 and 1999 2
Unaudited Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999 3
Notes to the Consolidated Financial Statements 4
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 3 Quantitative and Qualitative Disclosures about Market Risk 11
PART II OTHER INFORMATION
Item 1 Legal Proceedings 12
Item 2 Changes in Securities and Use of Proceeds 12
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
ii
1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
ASSETS (UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 20,677 $ 15,306
Investment securities 5,986 5,033
Receivables, less allowance for doubtful accounts of $8,377 and $8,576
at March 31, 2000 and December 31, 1999, respectively 57,225 62,919
Inventory 1,147 777
Prepaid expenses and other current assets 1,377 1,347
------------ ------------
Total current assets 86,412 85,382
Other investments 2,347 2,347
Property and equipment, net 6,374 5,942
Due from affiliate and officer, less allowance for doubtful accounts of $403
at March 31, 2000 and December 31, 1999, respectively 1,993 1,849
Other assets, net 769 202
Intangible assets, net 19,704 19,961
------------ ------------
TOTAL ASSETS $ 117,599 $ 115,683
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of capital lease obligations $ 509 $ 514
Current portion of long-term debt 284 493
Accounts payable 5,046 5,039
Claims payable 38,745 39,702
Payables to plan sponsors and others 27,812 24,171
Accrued expenses 6,195 6,468
------------ ------------
Total current liabilities 78,591 76,387
Capital lease obligations, net of current portion 564 718
Long-term debt, net of current portion 1,191 2,279
Minority interest 1,112 1,112
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value; 5,000,000 shares authorized,
no shares issued or outstanding 0 0
Common stock, $.0001 par value; 40,000,000 shares authorized,
18,931,706 and 18,829,198 shares issued and outstanding
at March 31, 2000 and December 31, 1999, respectively 2 2
Treasury stock at cost (338) (338)
Additional paid-in-capital 91,854 91,614
Accumulated deficit (53,850) (54,575)
Stockholder notes receivable (1,527) (1,516)
------------ ------------
Total stockholders' equity 36,141 35,187
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 117,599 $ 115,683
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
1
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
THREE MONTHS ENDED
MARCH 31,
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2000 1999
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(UNAUDITED)
Revenue $ 89,104 $ 74,915
Cost of revenue 82,293 66,733
----------------------- -----------------------
Gross profit 6,811 8,182
Selling, general and administrative expenses 6,219 7,512
Amortization of goodwill and other intangibles 258 250
----------------------- -----------------------
Income from operations 334 420
Interest income, net 391 196
Other 0 (12)
----------------------- -----------------------
Net income $ 725 $ 604
======================= =======================
Basic income per common share $ 0.04 $ 0.03
======================= =======================
Diluted income per common share $ 0.04 $ 0.03
======================= =======================
Weighted average common shares used
in computing basic income per share 18,753 18,422
======================= =======================
Weighted average common shares used
in computing diluted income per share 19,425 18,910
======================= =======================
The accompanying notes are an integral part of these consolidated financial
statements.
2
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
THREE MONTHS ENDED
MARCH 31,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES: (UNAUDITED)
Net income $ 725 $ 604
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, amortization and other 992 626
Provision for losses on receivables (199) -
Changes in assets and liabilities:
Receivables 5,893 7,583
Inventory (370) 163
Prepaid expenses and other current assets (30) (44)
Accounts payable 7 (1,683)
Deferred revenue 35 -
Claims payable (957) (9,722)
Payables to plan sponsors and others 3,641 4,231
Accrued expenses (308) (212)
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Net cash provided by operating activities 9,429 1,546
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,167) (784)
Loans to affiliate and officer, net (144) 20
Stockholder loans, net (11) 234
Purchase of investment securities (2,000) -
Maturities of investment securities 1,047 2,819
Decrease (increase) in other assets (567) 127
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Net cash (used in) provided by investing activities (2,842) 2,416
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (159) (210)
(Decrease) increase in debt (1,297) (4,164)
Exercise of stock options 240 8
Purchase of treasury stock - (338)
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Net cash used in financing activities (1,216) (4,704)
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Net decrease in cash and cash equivalents 5,371 (742)
CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD $ 15,306 $ 4,495
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CASH AND CASH EQUIVALENTS--END OF PERIOD $ 20,677 $ 3,753
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 41 $ 86
============= ============
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Equipment acquired under capital lease obligations $ - $ 933
============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
MIM CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements of
MIM Corporation and its subsidiaries (the "Company") have been prepared pursuant
to the rules and regulations of the U.S. Securities and Exchange Commission (the
"Commission"). Pursuant to such rules and regulations, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. In the opinion of management, all adjustments considered necessary for
a fair presentation of the financial statements, primarily consisting of normal
recurring adjustments, have been included. The results of operations and cash
flows for the three months ended March 31, 2000, are not necessarily indicative
of the results of operations or cash flows which may be reported for the
remainder of 2000.
These unaudited consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements, notes
and information included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, filed with the Commission (the "Form
10-K").
The accounting policies followed for interim financial reporting are the
same as those disclosed in Note 2 to the consolidated financial statements
included in the Form 10-K.
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic earnings per share
and diluted earnings per share:
Three Months Ended March 31,
--------------------------------
2000 1999
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Numerator:
Net (loss) income ..................... $ 725 $ 604
======= =======
Denominator - Basic:
Weighted average number of common
shares outstanding ................. 18,753 18,422
======= =======
Basic income per share ................ $ 0.04 $ 0.03
======= =======
Denominator - Diluted:
Weighted average number of common
shares outstanding ................. 18,753 18,422
Common share equivalents of outstanding
stock options ...................... 672 488
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Total shares outstanding .............. 19,425 18,910
======= =======
Diluted income per share .............. $ 0.04 $ 0.03
======= =======
NOTE 3--COMMITMENTS AND CONTINGENCIES
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
4
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 a reorganization under
federal bankruptcy laws, was approved by the Chancery Court (the "Court") of the
State of Tennessee, would allow Xantus to remain operating as a TennCare 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. A plan for the
payment of the remaining amounts has not been finalized and the recovery of any
additional amounts is uncertain. The Company recorded a special charge in 1999
of $2,700 for the estimated loss on the remaining amounts owed, net of the
unpaid amounts to network pharmacies.
As part of the Company's normal review process, the Company determined that
each of the Company's agreements (collectively, the "Agreements") with Tennessee
Health Partnership ("THP") and Preferred Health Partnership of Tennessee, Inc.
("PHP"), were not achieving profitability projections. As a result thereof, in
the first quarter of 1999, and in accordance with the terms of the Agreements,
the Company exercised its right to terminate the Agreements effective on
September 28, 1999. Through a negotiated extension with THP and PHP, the Company
continued to provide PBM services to their respective members through December
31, 1999.
Despite the negotiated extension, there still exist disputes with respect
to unpaid fees and other amounts between the Company and THP. On October 20,
1999, the Company demanded arbitration against THP with respect to approximately
$2,300 inappropriately withheld from the Company by THP during 1998. On February
15, 2000, THP responded by filing a motion to dismiss the arbitration, which was
denied and the arbitration panel scheduled the arbitration to take place in late
August 2000. While the Company intends to vigorously pursue this claim, at this
time, the Company is unable to assess the likelihood that it will prevail in its
claim.
On February 22, 2000, THP and PHP jointly demanded arbitration against the
Company alleging that the Company overbilled THP and PHP, and THP and PHP
overpaid the Company, in the approximate amounts of $1,300 and $1,000,
respectively. On March 20, 2000, the Company filed its answer and counterclaim
and asserted that all amounts billed to, and paid by, THP and PHP were proper
under the Agreements and that THP and PHP improperly withheld payments in the
approximate amount of $500 and $480, respectively. The Company believes that it
is owed these amounts from THP and intends to pursue vigorously its
counterclaims. However, at this time, the Company is unable to assess the
likelihood that it will prevail.
In 1999, the Company recorded a special charge of $3,300 for estimated
future losses related to these disputes.
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 $850,000
and the respective parties released each other from any and all liability with
respect to past or future claims. This agreement will not have a material effect
on the Company's results of operations or financial position.
In 1998, the Company recorded a $2,200 non-recurring 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 a subsidiary prior to the Company's
initial public offering. This settlement is subject to several conditions,
including the execution of a definitive agreement. The Company anticipates that
the investigation will be fully resolved with this settlement.
* * * *
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, the related notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 (the "Form 10-K"), as well as the unaudited
consolidated interim financial statements and the related notes thereto included
in Part I, Item 1 of this Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2000 filed with the Commission (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, the benefits and risks associated with integration of
acquired companies, the likely outcome of, and the effect of legal proceedings
or investigations on the Company and its business and operations and/or the
resolution or settlement thereof. 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 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 organizations, increased competition from the Company's competitors,
including competitors with greater financial, technical, marketing and other
resources, and the existence of complex laws and regulations relating to the
Company's business. This Report contains information regarding important factors
that could cause such differences. The Company does not undertake any obligation
to publicly release the results of any revisions to these forward looking
statements that may be made to reflect any future events and circumstances.
OVERVIEW
The Company is an independent pharmacy benefit management, specialty
pharmaceutical and private label e-commerce and fulfillment organization that
partners with organizations and healthcare providers to control prescription
drug costs. MIM's innovative pharmacy benefit products and services use
clinically sound guidelines to ensure cost control and quality care. MIM's
e-commerce and fulfillment pharmacy specializes in serving individuals afflicted
with chronic diseases, particularly diabetes and AIDS, which require long-term
maintenance medications. MIM's online pharmacy service, www.MIMRx.com, creates
private label websites for affinity groups to offer innovative, customized,
health information services and products on the Internet provided for their
members. A majority of the Company's revenues to date have been derived from
providing PBM services in the State of Tennessee to MCO's participating in the
State of Tennessee's TennCare program. At March 31, 2000, the Company provided
PBM services to 119 health plan sponsors with an aggregate of approximately 3.1
million plan members, of which TennCare represented five MCO's with
approximately 1.1 million plan members. The TennCare Contracts accounted for
49.5% of the Company's revenues at March 31, 2000, and 47.4% of the Company's
revenues at March 31, 1999.
Business
The Company operates a single segment business with several components and
derives its revenues primarily from agreements to provide pharmacy benefit
management ("PBM") services to various health plan sponsors in the United
States. As part of its operations, the Company has mail order and e-commerce
business components. Net sales and operating contribution for these components
for the three months ended March 31, 2000 and 1999, respectively, are presented
below:
6
NET SALES BY COMPONENT
March 31, 2000 March 31, 1999
--------------------------------- -----------------------------------
Percent Percent
Component Sales of Total Sales of Total
- ------------------------------------------------------------------------------------------------------------------------
PBM $ 79,077 89% $ 65,080 87%
Mail Order and E-Commerce 9,897 11% 9,623 13%
Corporate and All Others 130 0% 212 0%
--------------------------------- -----------------------------------
Total Sales $ 89,104 100% $ 74,915 100%
================================= ===================================
OPERATING CONTRIBUTION BY COMPONENT
March 31, 2000 March 31, 1999
-------------------------------------------------
Component Operating Profit
- -----------------------------------------------------------------------------
PBM $ 1,979 $ 2,126
Mail Order and E-Commerce 259 197
Corporate and All Others (1,904) (1,903)
-------------- --------------
Total Operating Profit $ 334 $ 420
============== ==============
RESULTS OF OPERATIONS
Three months ended March 31, 2000 compared to three month ended March 31, 1999
For the months ended March 31, 2000, the Company recorded revenues of $89.1
million compared with $74.9 million for the same period in 1999, an increase of
$14.2 million. Contracts with TennCare sponsors accounted for increased revenues
of $8.6 million, while commercial revenue increased $5.6 million.
Cost of revenue for the three months ended March 31, 2000 increased to
$82.2 million from $66.7 million for the same period in 1999, an increase of
$15.5 million. Cost of revenue with respect to contracts with TennCare sponsors
increased $9.0 million, while the commercial costs increased $6.5 million. As a
percentage of revenue, cost of revenue increased to 92.4% for the three months
ended March 31, 2000, from 89.1% for the three months ended March 31, 1999, an
increase of 3.3%, due to increased pharmaceutical utilization in the Company's
capitated contracts.
For the three months ended March 31, 2000, 34.5% of the Company's revenues
were generated from capitated contracts, compared to 27.8% for the same period a
year ago, an increase of 6.7%. In the first quarter of 1999 the Company did not
process pharmacy claims for one TennCare MCO. We were retained and began
processing again for that MCO in May of 1999. This MCO accounts for the majority
of the difference in the percentage of capitated contracts. Based upon its
present contracted arrangements, the Company anticipates that approximately 25%
of its revenues for the remainder of 2000 will be derived from capitated or
other risk-based contracts.
General and administrative expenses were $6.2 million for the three months
period ended March 31, 2000, as compared to $7.5 million for the three months
ended March 31, 1999, a decrease of $1.3 million. This decrease was primarily a
result of our re-engineering efforts during 1999. Although the Company
experienced increased costs associated with the sales force as well as in the
legal area due to our indemnification responsibilities of certain former
employees, we were able to achieve offsetting operational efficiencies. As a
percentage of revenue, general and administrative expenses decreased to 7% for
the three months ended March 31, 2000, from 10% for the same period for 1999.
7
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 a reorganization under
federal bankruptcy laws, was approved by the Chancery Court (the "Court") of the
State of Tennessee, would allow Xantus to remain operating as a TennCare 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
million to be used solely to repay pre-petition claims of providers, which
claims aggregate approximately $80 million. Under the Plan, the Company received
$4.2 million, including $0.6 million of unpaid rebates to Xantus, which the
Company was allowed to retain under the terms of the preliminary rehabilitation
plan for Xantus. A plan for the payment of the remaining amounts has not been
finalized and the recovery of any additional amounts is uncertain. The Company
recorded a special charge in 1999 of $2.7 million for the estimated loss on the
remaining amounts owed, net of the unpaid amounts to network pharmacies. The
Company does not believe that the failure to collect such amounts will have a
material adverse effect on the Company's business or operations.
The Company has been disputing several improper reductions of payments by
Tennessee Health Partnership ("THP"). These reductions relate to an alleged
coordination of benefits issue raised by THP related to services provided in
prior years for which the Company was not the processor. There also exists a
dispute over items allowed to be billed in addition to the Company's capitated
rate under the contracts with THP and Preferred Health Plans ("PHP"). The
contracts with these organizations require the disputes be arbitrated. While the
Company believes that it is owed these amounts from THP and intends to pursue
vigorously its counterclaims, at this time, the Company is unable to assess the
likelihood that it will prevail. In 1999, the Company recorded a special charge
of $3.3 million for estimated future losses related to these disputes.
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 $0.8
million and the respective parties released each other from any and all
liability with respect to past or future claims. This agreement will not have a
material effect on the Company's results of operations or financial position.
For the three months ended March 31, 2000 and 1999, the Company recorded
amortization of goodwill and other intangibles of $0.3 million in connection
with its acquisition of Continental.
For the three months ended March 31, 2000, the Company recorded interest
income of $0.4 million compared to $0.2 million for the three months ended March
31, 1999, an increase of $0.2 million, primarily due to additional interest
earned on monies derived from the Company's increased collection efforts,
resulting in higher cash balances.
For the three months ended March 31, 2000, the Company recorded net income
of $0.7 million or $0.04 per share. This compares with net income of $0.6
million, or $0.03 per share for the three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company utilizes both funds generated from operations, if any, and
funds raised in the Offering for capital expenditures and working capital needs.
For the three months ended March 31, 2000, net cash provided to the Company by
operating activities totaled $9.4 million primarily due to an increase in
payables to plan sponsors and others of $3.6 million, and a decrease in accounts
receivable of $5.9 million. The increase in payables to plan sponsors and others
reflects increased manufacturer's rebates, which are shared with certain
clients. The decrease in accounts receivable is a result of the Company's
heightened collection efforts and a higher percentage of capitated contracts in
the first quarter of 2000.
8
Net cash used in investing activities was $2.8 million, which was generated
from proceeds of maturities of investment securities of $1.0 million, offset by
the purchases of $2.0 million. This was further offset by the purchase of $1.2
million in equipment. (A portion of these purchases was for computer software
for the Company's MIMRx.com operations.)
For the three months ended March 31, 2000, net cash of $1.2 million was
used for financing activities. Debt acquired with the Continental acquisition
decreased by $1.3 million.
At March 31, 2000, the Company had working capital of $7.8 million compared
to $9.0 million at December 31, 1999. Cash and cash equivalents increased to
$20.7 million at March 31, 2000, compared with $15.3 million at December 31,
1999. Investment securities held to maturity increased to $6.0 million at March
31, 2000, compared to $5.0 million at December 31, 1999.
On February 4, 2000, the Company, through its principal pharmacy benefit
management operating subsidiary, MIM Health Plans, Inc. ("Health Plans"),
secured a $30.0 million revolving credit facility (the "Facility"). The Facility
will be used by the Company for general working capital purposes, capital
expenditures and for future acquisitions. In addition, a portion of the Facility
is available to the Company for the further development of the Company's
e-commerce business and operations. The Facility has a three year term and
provides for borrowing of up to $30.0 million at a rate of interest selected by
the Company equal to the Index Rate (defined as the base rate on corporate loans
at large U.S. money center commercial banks, as quoted in the Wall Street
Journal) plus a margin, or a London InterBank Offered Rate plus a margin. Health
Plans' obligations under the Facility are secured by a first priority security
interest in all of Health Plans' receivables as well as other related
collateral. Health Plans' obligations under the Facility are guaranteed by 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, 1999, the Company had, for tax purposes, unused net
operating loss carry forwards of approximately $43.0 million which will begin
expiring in 2009. As it is uncertain whether the Company will realize the full
benefit from these carryforwards, the Company has recorded a valuation allowance
equal to the deferred tax asset generated by the carryforwards. The Company
assesses the need for a valuation allowance at each balance sheet date. The
Company has undergone a "change in control" as defined by the Internal Revenue
Code of 1986, as amended ("Code"), and the rules and regulations promulgated
thereunder. The amount of net operating loss carryforwards that may be utilized
in any given year will be subject to a limitation as a result of this change.
The annual limitation is approximately $2.7 million. Actual utilization in any
year will vary based on the Company's tax position in that year.
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 or available to fund the Company's anticipated working
capital and other 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 PBM, e-commerce or
specialty pharmacy businesses, which the Company would expect to fund from cash
on hand, the Facility, other future indebtedness or, if appropriate, the sale or
exchange of equity securities of the Company.
OTHER MATTERS
On November 30, 1999, the Governor of the State of Tennessee announced a
series of proposed reforms for the TennCare and TennCare Partners programs (the
"TennCare reforms"), one of which was to have the State of Tennessee assume
responsibility for the provision of pharmacy benefits to TennCare and TennCare
Partners program recipients, effective July 1, 2000. In connection with that
proposal, on December 15, 1999, the State of Tennessee issued a Request for
Proposal (the "RFP") for the provision of such benefits. The Company was a
recipient of the RFP and responded to it. On April 13, 2000, the State of
Tennessee withdrew the RFP and issued a new RFP for the TennCare Partners
behavioral health and long-term care pharmacy benefits program. The Company does
not currently service the behavioral health program. The Company has responded
to the new RFP. Given the reduced scope of the RFP, contrary to the Company's
previous disclosure in its Annual Report Form 10-K, the Company no longer
believes that the failure to be awarded the RFP would have a material adverse
effect on the Company.
9
The implementation of all or a portion of these proposed TennCare reforms
requires both legislative and regulatory approval. Which reforms will actually
be implemented and the timing thereof has not been determined.
As a result of providing capitated PBM services to certain TennCare MCO's,
the Company's pharmaceutical claims costs historically have 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,
MCO's members during the colder months. The resulting increase in pharmaceutical
costs impacts the profitability of capitated contracts and other risk-based
arrangements. Risk-based business represented approximately 35% of the Company's
revenues while non-risk business (including mail order services) represented
approximately 65% of the Company's revenues for the three months ended March 31,
2000, compared to the same period in 1999, which had approximately 28% of
risk-based generated revenue and approximately 72% non-risk (including mail
order services) generated revenue. Non-risk arrangements mitigate the adverse
effect on profitability of higher pharmaceutical costs incurred under risk-based
contracts, as higher utilization positively impacts profitability under
fee-for-service (or non-risk-based) arrangements. The Company presently
anticipates that approximately 25% of its revenues in fiscal 2000 will be
derived from risk-based arrangements.
Changes in prices charged by manufacturers and wholesalers or distributors
for pharmaceuticals, a component of pharmaceutical claims costs, directly
affects the Company's cost of revenue. The Company believes that it is likely
that prices will continue to increase, which could have an adverse effect on the
Company's gross profit on risk-based arrangements. Because plan sponsors are
responsible for the payment of prescription costs in non risk-based
arrangements, the Company's gross profit is not adversely affected by changes in
pharmaceutical prices. To the extent such cost increases adversely effect the
Company's gross profit, the Company may be required to increase risk-based
contract rates on new contracts and upon renewal of existing risk-based
contracts. However, there can be no assurance that the Company will be
successful in obtaining these rate increases.
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.
Previously the Company announced that it was exploring with several
investment banking firms, various alternatives for maximizing growth potential
of MIMRx.com. Among these alternatives was splitting MIMRx.com off as a separate
company and commencing a public offering. We have decided, with our financial
advisors and bankers that it is not the right time. We will continue to grow our
business with priority in E-Commerce and Specialty Pharmaceuticals. At the
appropriate time we will make our decision on a possible spin off, based on
long-term share appreciation. We cannot speculate today on when this will occur
or what the structure may look like.
* * * *
10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk represents the only market risk exposure applicable to
the Company. The Company's exposure to market risk for changes in interest rates
relate primarily to the Company's investments in marketable securities. All of
these instruments are classified as held-to-maturity on the Company's
consolidated balance sheet and were entered into by the Company solely for
investment purposes and not for trading purposes. The Company does not invest in
or otherwise use derivative financial instruments. The Company's investments
consist primarily of corporate debt securities, corporate preferred stock and
State and local governmental obligations, each rated AA or higher. The table
below presents principal cash flow amounts and related weighted average
effective interest rates by expected (contractual) maturity dates for the
Company's financial instruments subject to interest rate risk:
2000 2001 2002 2003 2004 THEREAFTER
---------------------------------------------------------------------------------------
Short-term investments:
Fixed rate investments 6,000 - - - - -
Weighted average rate 4.99% - - - - -
LONG-TERM INVESTMENTS:
Fixed rate investments - - - - - -
Weighted average rate - - - - - -
LONG-TERM DEBT:
Variable rate instruments 284 1,191 - - - -
Weighted average rate 5.57% 8.42% - - - -
In the table above, the weighted average interest rate for fixed and
variable rate financial instruments in each year was computed utilizing the
effective interest rate for that instrument at March 31, 2000, and multiplying
by the percentage obtained by dividing the principal payments expected in that
year with respect to that instrument by the aggregate expected principal
payments with respect to all financial instruments within the same class of
instrument.
At March 31, 2000, the carrying values of cash and cash equivalents,
accounts receivable, accounts payable, claims payable and payables to plan
sponsors and others 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.
* * * *
11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 a reorganization under
federal bankruptcy laws, was approved by the Chancery Court (the "Court") of the
State of Tennessee, would allow Xantus to remain operating as a TennCare 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
million to be used solely to repay pre-petition claims of providers, which
claims aggregate approximately $80 million. Under the Plan, the Company received
$4.2 million, including $0.6 million of unpaid rebates to Xantus, which the
Company was allowed to retain under the terms of the preliminary rehabilitation
plan for Xantus. A plan for the payment of the remaining amounts has not been
finalized and the recovery of any additional amounts is uncertain.
As part of the Company's normal review process, the Company determined that
each of the Company's agreements (collectively, the "Agreements") with Tennessee
Health Partnership ("THP") and Preferred Health Partnership of Tennessee, Inc.
("PHP"), were not achieving profitability projections. As a result thereof, in
the first quarter of 1999, and in accordance with the terms of the Agreements,
the Company exercised its right to terminate the Agreements effective on
September 28, 1999. Through a negotiated extension with THP and PHP, the Company
continued to provide PBM services to their respective members through December
31, 1999.
Despite the negotiated extension, there still exist disputes with respect
to unpaid fees and other amounts between the Company and THP. On October 20,
1999, the Company demanded arbitration against THP with respect to approximately
$2.3 million inappropriately withheld from the Company by THP during 1998. On
February 15, 2000, THP responded by filing a motion to dismiss the arbitration,
which was denied and the arbitration panel scheduled the arbitration to take
place in late August 2000. While the Company intends to vigorously pursue this
claim, at this time, the Company is unable to assess the likelihood that it will
prevail in its claim.
On February 22, 2000, THP and PHP jointly demanded arbitration against the
Company alleging that the Company overbilled THP and PHP, and THP and PHP
overpaid the Company, in the approximate amounts of $1.3 million and $1.0
million, respectively. On March 20, 2000, the Company filed its answer and
counterclaim and asserted that all amounts billed to, and paid by, THP and PHP
were proper under the Agreements and that THP and PHP improperly withheld
payments in the approximate amount of $0.5 million and $0.4 million,
respectively. The Company believes that it is owed these amounts from THP and
intends to pursue vigorously its counterclaims. However, at this time, the
Company is unable to assess the likelihood that it will prevail.
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 $0.8
million and the respective parties released each other from any and all
liability with respect to past or future claims. This agreement will not have a
material effect on the Company's results of operations or financial position.
In 1998, the Company reached 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 a subsidiary prior to the
Company's initial public offering. This settlement is subject to several
conditions, including the execution of a definitive agreement. The Company
anticipates that the investigation will be fully resolved with this settlement.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
From August 14, 1996 through March 31, 2000, the $46.8 million net proceeds
from the Company's underwritten initial public offering of its Common Stock (the
"Offering"), affected pursuant to a Registration Statement assigned file number
333-05327 by the Securities and Exchange Commission (the "Commission") and
12
declared effective by the Commission on August 14, 1996, have been applied in
the following approximate amounts (in thousands):
onstruction of plant, building and facilities............$ 0
Purchase and installation of machinery and equipment......$ 6,492
Purchases of real estate..................................$ 0
Acquisition of other businesses...........................$ 2,325
Repayment of indebtedness.................................$ 0
Working capital...........................................$ 11,308
Temporary investments: $
Marketable securities.............................$ 5,986
Overnight cash deposits...........................$ 20,677
To date, the Company has expended a relatively insignificant portion of the
Offering proceeds on expansion of the Company's "preferred generics" business
which was described more fully in the Offering prospectus and the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. At the time of
the Offering however, as disclosed in the prospectus, the Company intended to
apply approximately $18.6 million of Offering proceeds to fund such expansion.
The Company has determined not to apply any material portion of the Offering
proceeds to fund the expansion of this business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the first quarter of fiscal year 2000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION
- -----------------------------------------------------------------------------------------------------------------
10.63 Employment Letter Agreement, dated as of March 2, 2000, between the Company
and James J. Jones, as amended by amendment letter, dated as of April 6, 2000,
between the Company and James J. Jones.*
27 Financial Data Schedule
- --------------------
*Indicates a management contract or compensatory plan or agreement required to
be filed as an exhibit pursuant to Item 14 (c) of Form 10-K and Regulation
SK-601.
(b) Reports on Form 8-K
Two Current Reports on Form 8-K were filed with the Commission. The first
was filed on February 14, 2000, for period ending February 8, 2000, regarding a
new revolving credit facility agreement entered into with General Electric
Capital Corporation. The second was filed May 2, 2000, regarding the
modifications to the State of Tennessee RFP and the Company's belief that the
failure to secure the TennCare RFP in light of such modifications would not have
a material adverse effect on the Company's business and operations.
13
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 May 11, 2000.
MIM CORPORATION
Date: May 11, 2000 /s/Edward J. Sitar
-------------------
Edward J. Sitar
Chief Financial Officer and Treasurer
(Principal Financial Officer)
14
EXHIBIT INDEX
(Exhibits being filed with this Quarterly Report on Form 10-Q)
EXHIBIT NUMBER DESCRIPTION
- ---------------------- -------------------------------------------------------------------------------
10.63 Employment Letter Agreement, dated as of March 2, 2000, between the Company
and James J. Jones, as amended by amendment letter, dated as of April 6, 2000,
between the Company and James J. Jones.*
27 Financial Data Schedule.
- --------------------
*Indicates a management contract or compensatory plan or agreement required to
be filed as an exhibit pursuant to Item 14 (c) of Form 10-K and Regulation
SK-601.
March 2, 2000
Via Federal Express
Mr. James J. Jones
2715 Laurel Lane
Oak Harbor, WA 98277
Re: MIM Corporation/MIMRx.com
Dear J.J.:
MIM Corporation, a Delaware corporation ("MIM"), is pleased to offer
you employment as the President and Chief Operating Officer of its Continental
Managed Pharmacy Services, Inc., d/b/a MIMRx.com (the "Company") subsidiary, on
the terms and subject to the conditions set forth below. The terms and
conditions of your employment, upon your execution and delivery of this letter
to us, would be as follows:
1. POSITION AND DUTIES:
-------------------
President and Chief Operating Officer of the Company, with overall
responsibility for the business and operations of the Company and its
subsidiaries and affiliates including, but not limited to:
(i) Overall responsibility for sales and marketing plans of the Company's and
its subsidiaries' products and services;
(ii) Subject to MIM's senior management, responsibility for the conversion and
implementation of the conversion of the Company's business and operations
to MIMRx.com, Inc. and the relocation of the Company's operations from
Cleveland, Ohio to Columbus, Ohio; and
(iii)the hiring and termination of personnel in support of the Company, subject
to the approval of MIM's Chief Executive Officer and Chief Operating
Officer.
In such capacity, you shall report to, and shall have such further duties as
shall be assigned to you by, MIM's Chief Executive Officer, Richard H. Friedman.
2. TERM:
----
Subject to the execution and delivery of this letter and the Restrictive
Covenants attached hereto as Exhibit A, your employment shall commence and shall
continue until terminated by you or the Company. The first year of your
employment shall terminate on December 31, 2000. Each year of your employment
thereafter shall coincide with the calendar year.
Mr. James J. Jones
March 2, 2000
Page 2
3. BASE COMPENSATION:
-----------------
Your base salary shall be at the rate of $200,000.00 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 twelve (12)
months after the commencement of your employment and every twelve (12) months
thereafter. However, any increase in your compensation shall be in the Company's
sole and absolute discretion.
4. BONUS COMPENSATION:
------------------
During your employment, you shall be eligible to receive bonus compensation
under the Company's executive bonus program (the "Bonus Program") established
for the benefit of senior executives of the MIM and its subsidiaries or any
subsequent plan established generally for senior management of the Company.
During your first year of employment ending December 31, 2000, you will only be
entitled to receive the cash component of the Bonus Program pro-rata based on
the number of days you were employed by the Company during the first year of
your employment bears to a full calendar year.
Eligibility for the aforementioned bonuses 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. The terms and conditions of the
Bonus Program shall be subject to the completion of definitive documentation
with respect thereto and approval of MIM's compensation committee of its Board
of Directors. If there shall exist any conflict between this Agreement
(including Exhibit A) and the definitive documentation governing the Bonus
Program, the definitive documentation (and not this Agreement) shall control.
All base, bonus or other compensation received shall be subject to applicable
federal, state and local withholding and other taxes.
Mr. James J. Jones
March 2, 2000
Page 3
5. TRANSPORTATION ALLOWANCE:
-------------------------
During your employment, the Company will provide you with a monthly allowance of
$500 for the use of an automobile.
6. RELOCATION ALLOWANCE:
--------------------
The Company will provide you with up to a $35,000 relocation allowance for
reimbursement of actual expenses incurred by you with respect to your relocation
to the Company's chief executive offices located in Elmsford, NY, You will
receive your relocation allowance upon the later to occur of the following: (i)
the completion of the move to your new primary residence in the Elmsford, NY
vicinity, and seven days from and after your first day of employment with the
Company. In either case, you would be required to present appropriate invoices
evidencing payment or other appropriate documentation in support of such
expenses.
You agree that you will repay to the Company all amounts paid to you or on your
behalf under Section 6 hereof if you terminate your employment with the Company
on or before November 1, 2001. In such event, all such amounts will be repaid by
you on or before the last day of your employment.
7. CONDITIONS TO EMPLOYMENT:
------------------------
Your employment shall be conditioned upon completion by the Company of reference
checks with prior employers and others, satisfactory to the Company and MIM in
its sole discretion. You agree that the Company has the right to make such
inquiries and you acknowledge and agree that the Company may make such
inquiries.
8. PARTICIPATION IN HEALTH
-----------------------
BENEFIT PLANS; VACATION:
-----------------------
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 maintained by or on behalf of the
Company, commensurate with your position with 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. You will be entitled to four weeks of vacation. All such benefits
may be amended or modified from time to time or terminated by the Company in its
sole and absolute discretion.
Mr. James J. Jones
March 2, 2000
Page 4
9. EXPENSES:
--------
Subject to such policies as may from time to time be established by the
Company's Board of Directors, the Company will 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 under this agreement,
upon submission and approval of expense statements, vouchers or other reasonable
supporting information in accordance with the then customary practices of the
Company.
10. SEVERENCE; 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 materially
reduces your duties and responsibilities, or 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:
Mr. James J. Jones
March 2, 2000
Page 5
(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), and in each case, such merger, consolidation or transaction is
not approved by a 2/3 of the Board of Directors of the Company and the MIM.
11. RESTRICTIVE COVENANTS:
---------------------
Contemporaneously with the commencement of your employment, you shall execute
and deliver the Restrictive Covenants substantially in the form attached hereto
as Exhibit A, whereby, among other things, you will agree to not compete with
the "Business" of the Company (as defined) during the term of your employment
and for a period of one year following such termination and to not disclose to
any third party any trade secrets or proprietary information relating to the
Company, now or hereafter acquired by you.
12. ASSIGNABILITY; BINDING
----------------------
NATURE:
-------
This agreement is binding upon, and will inure to the benefit of the parties
hereto and their respective successors, heirs, administrators, executors and
assigns. None of your rights or obligations under this agreement may be
transferred by will or operation of law. The rights and obligation of the
Company under this agreement may be assigned or transferred by operation of law
in the event of a merger or consolidation in which the Company is not the
continuing entity, or the sale or liquidation of all or substantially all of the
assets of the Company.
Mr. James J. Jones
March 2, 2000
Page 6
13. ENTIRE AGREEMENT:
----------------
This agreement supersedes all prior agreements, together with the Restrictive
Covenants attached hereto as Exhibit A, contains the entire agreement between
the parties concerning the subject matter hereof.
14. AMENDMENTS AND WAIVERS:
----------------------
This agreement may not be modified, amended, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination is sought.
15. NOTICES:
-------
Any notice given hereunder must be in writing and will be deemed received when
delivered personally or by courier, or five (5) days after being mailed,
certified or registered mail, return receipt requested and duly addressed to the
party concerned at the address indicated above or at such other address as such
party may subsequently provide in writing.
16. GOVERNING LAW :
--------------
The agreement will be governed by, and construed and interpreted in accordance
with the laws of the State of New York.
Mr. James J. Jones
March 2, 2000
Page 7
If you are in agreement with the terms and conditions of your
employment pursuant to this letter agreement, kindly execute this letter
agreement in the space provided below and return it to the undersigned.
Sincerely yours,
MIM Corporation
By: /s/ Richard H. Friedman
------------------------
Name:
Title:
AGREED TO AND ACCEPTED BY:
/s/ James J. Jones
- ----------------------------------------
Name: Mr. James J. Jones
Exhibit A
RESTRICTIVE COVENANTS
Covenant Against Competition; Other Covenants. The Executive acknowledges
that (i) the principal business of the Company is the provision of a broad range
of mail order and internet based sales of pharmaceutical products, including
health and beauty aids, prescription drugs, vitamins, nutrients, over the
counter drugs and other goods and products typically found in drug stores and
other e-commerce pharmacy web (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"); provided, however, that Business
shall not include any areas of business and/or services that the Company is not
engaged in at such time that the Company is sold, merged, consolidated or any
other event that would constitute a "Change of Control" (as defined in Section 9
of the Agreement), regardless of whether the successor or acquiring entity is
then engaged in such other areas of business and/or services; (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)
the Company's Business is national in scope; (iv) the Executive's work for the
Company has given and will continue to give him access to the confidential
affairs and proprietary information of the Company; (v) the covenants and
agreements of the Executive contained in these Restrictive Covenants are
essential to the business and goodwill of the Company; and (vi) the Company
would not have entered into the Agreement (as defined below) but for the
covenants and agreements set forth herein. Accordingly, the Executive covenants
and agrees that:
(a) At any time during his employment with the Company and ending one year
following (i) termination of the Executive's employment with the Company
(irrespective of the reason for such termination) or (ii) payment of any
severance, whichever occurs last, the Executive shall not engage, directly or
indirectly (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), anywhere in the United States in (i) the Business and (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 the Executive is employed, the
Executive 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 the Executive 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,
(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 the Executive 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 the Executive is acting to
the extent necessary to comply with legal process; provided that in the event
that the Executive is 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, he shall immediately notify the Company
thereof.
1
(c) During the period commencing on the date hereof and ending two years
following the date upon which the Executive shall cease to be an employee of the
Company or its affiliates, the Executive 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 behalf of the Executive
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 the Executive's termination
of employment with the Company. During such period, the Executive will not,
whether for his 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 the
Executive or made available to the Executive 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.
Rights and Remedies upon Breach of Restrictive Covenants.
--------------------------------------------------------
(a) The Executive acknowledges and agrees 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 the Executive breaches, or threatens
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):
2
(i) 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 the Executive of restraining orders and injunctions (preliminary,
mandatory, temporary and permanent) against violations, threatened or actual,
and whether or not then continuing, of such covenants.
(ii) The right and remedy to require the Executive 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 him as the result of any transactions constituting a breach of the
Restrictive Covenants, and the Executive shall account for and pay over such
Benefits to the Company and, if applicable, its affected affiliates.
(b) The Executive agrees that in any action seeking specific performance or
other equitable relief, he 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 the
Executive, whether predicated on the Agreement or otherwise, shall not
constitute a defense to the enforcement of the Restrictive Covenants.
Agreed to and accepted by:
/s/ James J. Jones
- -----------------------------
James J. Jones
3
ANNUAL CASH BONUS Target: Up to 40% of annual $______
salary (At plan:1/2on
corporate financial results;
1/2 on individual results)
GRANTS OF LONG-TERM
INCENTIVES: Deferred compensation _______ units
performance units
(Target value: $25 in 2002)
Performance shares _______ shares
(Target share price for early
vesting: $25-$30)
Subject to the terms and
conditions 200,000 shares of a
stock option agreement options
to purchase the common stock,
par value $0.0001 per share of
the Company, subject, however,
to adjustment prior to the
granting thereof, at the good
faith discretion of the
Company's Chief Executive
Officer, based on the revised
capitalization structure of the
Company expected to occur
sometime during the next four
month. The options shall vest in
three equal annual installments
commencing on the first
anniversary date of the
Executive's employment with the
Company, at an exercise price
equal to the average of the bid
and asked on the date the
Executive commences employment
with the Company.
May 9, 2000
By Hand Delivery
Mr. James J. Jones
2715 Laurel Lane
Oak Harbor, WA 98277
Re: MIM Corporation/MIMRx.com
-------------------------
Dear J.J.:
MIM Corporation, a Delaware corporation ("MIM"), would like to amend
the letter of employment between you and MIM, dated as of March 2, 2000 (the
"March 2 Employment Letter"), as follows:
1. Paragraph 3 of the March 2 Employment Letter is deleted and replaced in its
entirety with the following:
"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 twelve (12)
months after the commencement of your employment and every twelve (12) months
thereafter. However, any increase in your compensation shall be in the Company's
sole and absolute discretion."
Such amendment shall be retroactive to your start date with the Company.
2. A new Paragraph 4 entitled "Options to Purchase Common Stock" shall be
added as follows:
"4. OPTIONS TO PURCHASE
-------------------
COMMON STOCK:
------------
As further compensation hereunder, effective upon the later to occur of the date
you commence your employment with the Company and the date you execute the
Option Agreement, the Company would grant to you 225,000 options ("Options") to
purchase Company common stock ("Common Stock"), subject, however, to adjustment
prior to the granting thereof, at the good faith discretion of the Company's
Chief Executive Officer, based on the revised capitalization structure of the
Company expected to occur sometime during the next four months. In no event
would you receive less Options than other employees at your level (being
President of an MIM subsidiary). Such Options shall vest in equal installments
on the first, second and third anniversary dates of your employment. The grant
and vesting of your options would be subject to the terms and conditions set
forth in the form of Option Agreement. Such options shall be priced on the later
to occur of (i) first day of your employment with the Company, and (ii) the date
that the Company's Board of Directors authorizes and approves the plan as
contemplated above."
Mr. James. J. Jones
Page 2
April 6, 2000
3. Paragraphs 4 - 16 of the March 2 Employment Letter shall be renumbered as
appropriate.
4. All capitalized terms not defined herein shall have the meaning assigned
thereto in the March 2 Employment Letter.
5. This amendment will be governed by, and construed and interpreted in
accordance with the laws of the State of New York.
If you are in agreement with the terms and conditions of your
employment pursuant to this letter agreement, kindly execute this letter
agreement in the space provided below and return it to the undersigned.
Sincerely yours,
MIM Corporation
By: /s/ Richard H. Friedman
------------------------
Name:
Title:
AGREED TO AND ACCEPTED BY:
/s/ James J. Jones
- ----------------------------------------
Name: Mr. James J. Jones
5
3-MOS
DEC-31-2000
JAN-1-2000
MAR-31-2000
20,677
5,986
57,225
8,377
1,147
86,412
12,169
5,795
117,599
78,591
1,475
0
0
2
36,139
117,599
89,104
89,104
82,293
82,293
6,219
0
0
725
0
725
0
0
0
725
0.04
0.04
