FORM 10-Q
UNITED STATES
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 June 30, 2001
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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
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Commission file number 0-28740
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MIM CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 05-0489664
- ---------------------------------------- -------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
100 Clearbrook Road, Elmsford, NY 10523
(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 August 2, 2001 there were outstanding 21,323,941 shares of the Company's
common stock, $.0001 par value per share ("Common Stock").
INDEX
PART I FINANCIAL INFORMATION Page Number
- ------------------------------------------------------------------------------------------------------------
Item 1 Financial Statements
Consolidated Balance Sheets at June 30, 2001 (unaudited)
and December 31, 2000 1
Unaudited Consolidated Statements of Income for the three and six
months ended June 30, 2001 and 2000 2
Unaudited Consolidated Statements of Cash Flows for the
six months ended June 30, 2001 and 2000 3
Notes to the Unaudited Consolidated Interim Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
Item 3 Quantitative and Qualitative Disclosures about Market Risk 13
PART II OTHER INFORMATION 14
Item 1 Legal Proceedings 14
Item 2 Changes in Securities and Use of Proceeds 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
Exhibit Index 18
ii
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
June 30, December 31,
2001 2000
(Unaudited)
----------------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 696 $ 1,290
Receivables, less allowance for doubtful accounts of $6,182 and $8,333
at June 30, 2001 and December 31, 2000, respectively 65,361 60,808
Inventory 2,395 2,612
Prepaid expenses and other current assets 1,509 1,680
-------------- -------------
Total current assets 69,961 66,390
Property and equipment, net 10,425 10,813
Due from officer 2,080 2,012
Other assets, net 2,588 2,163
Intangible assets, net 39,890 39,023
-------------- -------------
Total assets $ 124,944 $ 120,401
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations $ 563 $ 592
Current portion of long-term debt 35 165
Accounts payable 3,118 2,964
Claims payable 42,278 39,337
Payables to plan sponsors and others 25,256 29,040
Accrued expenses 4,862 5,476
-------------- -------------
Total current liabilities 76,112 77,574
Capital lease obligations, net of current portion 1,346 1,621
Other non current liabilities 133 589
Minority interest - 1,112
Stockholders' equity
Preferred stock, $.0001 par value; 5,000,000 shares authorized,
250,000 Series A junior participating shares issued and outstanding - -
Common stock, $.0001 par value; 40,000,000 shares authorized,
20,697,771 and 21,547,312 shares issued and outstanding
at June 30, 2001 and December 31, 2000, respectively 2 2
Treasury stock at cost (2,934) (338)
Additional paid-in capital 99,990 97,010
Accumulated deficit (49,705) (56,398)
Stockholder notes receivable - (771)
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Total stockholders' equity 47,353 39,505
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Total liabilities and stockholders' equity $ 124,944 $ 120,401
============== =============
The accompanying notes are an integral part of these
consolidated financial statements.
1
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------------
2001 2000 2001 2000
(Unaudited) (Unaudited)
-------------------------- --------------------------------
Revenue $ 106,851 $ 89,107 $ 212,887 $ 169,624
Cost of revenue 93,417 80,782 187,817 154,488
------------ ------------- ------------- --------------
Gross profit 13,434 8,325 25,070 15,136
Selling, general and administrative expenses 9,370 7,310 17,773 13,529
TennCare reserve adjustment - - (980) -
Amortization of goodwill and other intangible assets 559 256 1,079 514
------------ ------------- ------------- -------------
Income from operations 3,505 759 7,198 1,093
Interest income (expense), net (24) 323 19 714
------------ ------------- ------------- --------------
Income before taxes 3,481 1,082 7,217 1,807
Income taxes 271 - 524 -
------------ ------------- ------------- --------------
Net income $ 3,210 $ 1,082 $ 6,693 $ 1,807
============== =============== =============== ===============
Basic income per common share $ 0.16 $ 0.06 $ 0.32 $ 0.10
============== =============== =============== ===============
Diluted income per common share $ 0.15 $ 0.06 $ 0.32 $ 0.09
============== =============== =============== ===============
Weighted average common shares used
in computing basic income per share 20,428 18,832 20,657 18,821
============== =============== =============== ===============
Weighted average common shares used
in computing diluted income per share 20,987 18,957 20,967 19,218
============== =============== =============== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
2
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30, June 30,
--------------------------------
2001 2000
--------------------------------
(Unaudited)
Cash flows from operating activities:
Net income $ 6,693 $ 1,807
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other 3,488 2,020
Provision for losses on receivables 737 108
Issuance of stock to employees 28 -
Changes in assets and liabilities, net of acquired assets:
Receivables (5,290) 7,522
Inventory 217 (580)
Prepaid expenses and other current assets 171 (83)
Due from officer (68) (60)
Other assets 43 (804)
Accounts payable 154 1,345
Claims payable 2,941 (4,429)
Payables to plan sponsors and others (3,784) 2,723
Accrued expenses (614) (2,094)
Other non current liabilities (456) 985
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Net cash provided by operating activities 4,260 8,460
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Cash flows from investing activities:
Purchase of property and equipment (1,718) (4,356)
Stockholder loans, net - 757
Cost of acquisitions, net of cash acquired (1,946) -
Purchase of investment securities - (4,000)
Maturities of investment securities - 4,033
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Net cash used in investing activities (3,664) (3,566)
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Cash flows from financing activities:
Principal payments on capital lease obligations (304) (288)
Repayment of long term debt (130) 340
Exercise of stock options 1,840 334
Purchase of treasury stock (2,596) -
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Net cash (used in) provided by financing activities (1,190) 386
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Net (decrease) increase in cash and cash equivalents (594) 5,280
Cash and cash equivalents--beginning of period 1,290 15,306
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Cash and cash equivalents--end of period $ 696 $ 20,586
=============== ==============
(continued)
The accompanying notes are an integral part of these
consolidated financial statements.
3
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(In thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 145 $ 209
============ =============
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Reclassification of stockholder notes to other assets $ 771 $ -
============ =============
Contribution of minority interest to additional paid-in
capital upon dissolution of subsidiary $ 1,112 $ -
============ =============
4
MIM CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM 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 (collectively, the "Company" or "MIM") 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 the Company's 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 six months ended June
30, 2001, are not necessarily indicative of the results of operations or cash
flows, which may be reported for the remainder of 2001.
These unaudited consolidated interim 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 (the "Form
10-K") for the fiscal year ended December 31, 2000, filed with the Commission.
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 Six Months Ended
June 30, June 30,
-------------------------------------
2001 2000 2001 2000
------- ------- ------- -------
Numerator:
Net income ............................ $ 3,210 $ 1,082 $ 6,693 $ 1,807
======= ======= ======= =======
Denominator - Basic:
Weighted average number of common
shares outstanding .................... 20,428 18,832 20,657 18,821
======= ======= ======= =======
Basic income per share ................ $ 0.16 $ 0.06 $ 0.32 $ 0.10
======= ======= ======= =======
Denominator - Diluted:
Weighted average number of common
shares outstanding ................. 20,428 18,832 20,657 18,821
Common share equivalents of outstanding
stock options ...................... 559 125 310 397
------- ------- ------- -------
Total shares outstanding .............. 20,987 18,957 20,967 19,218
======= ======= ======= =======
Diluted income per share .............. $ 0.15 $ 0.06 $ 0.32 $ 0.09
======= ======= ======= =======
NOTE 3 - MINORITY INTEREST
On June 28, 2001 a Certificate of Dissolution was obtained from the State
of Rhode Island and Providence Plantations for the dissolution of MIM Strategic
Marketing, LLC ("Strategic"), which had been originally organized December 8,
1995. The Company does not have any repayment obligation to the minority
interest 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.
5
NOTE 4 - STOCKHOLDER NOTES RECEIVABLE
In March 2001, the Company reclassified stockholders notes receivable 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 borrowers were affiliated (through common ownership) with an individual (the
"Founder") who 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. This stockholder
is no longer President or a majority stockholder of the company and accordingly,
the borrowers and the Company are no longer considered to be entities under
common control.
NOTE 5 - 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 6 - COMMITMENTS AND CONTINGENCIES
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
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 in 2000, payment of $900 in 2001, and payment of $525 in 2002. $975 and
$1,425 were outstanding at June 30, 2001 and December 31, 2000, respectively,
and are included in accrued expenses and other non-current liabilities.
NOTE 7 - ACQUISITIONS
On August 4, 2000, the Company acquired all of the issued and outstanding
membership interests of American Disease Management Associates, L.L.C., a
Delaware limited liability company ("ADIMA"). The aggregate purchase price
approximated $24,000, and included $19,000 in cash and 2,700 shares of MIM
common stock valued at the time of the acquisition at $5,000.
On May 1, 2001, the Company acquired Community Prescription Services'
("CPS") share of its joint venture for $1,500. Additional expenses were incurred
by the Company in connection with the acquisition. The acquisition was treated
as a purchase for financial reporting purposes. The Company recorded a total of
$1,611 of goodwill in connection with this acquisition which will be amortized
over the useful life of five years. Goodwill has been recorded based on
management estimates and the allocation will be finalized based on an appraisal.
Operating results of CPS, which are included in the accompanying statement of
income from the date of acquisition, were not material to the results of
operations for the six months ended June 30, 2001.
ADIMA Pro Forma Financial Information
The following unaudited consolidated pro forma financial information for
the three and six months ended June 30, 2000, has been prepared assuming ADIMA
was acquired as of January 1, 2000, 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 necessarily indicative of
the results that would have been realized had the acquisition occurred on
January 1, 2000. In addition, this pro forma financial information is not
intended to be a projection of future operating results.
6
Pro forma Income Statement
(In thousands, except per share amounts)
(Unaudited)
Three Months ended Six Months ended
June 30, June 30,
2000 2000
------------------ ------------------
Revenues $ 93,605 $ 178,184
Net income 1,776 2,982
Basic income per common share 0.08 0.14
Diluted income per common share 0.08 0.14
NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). The statement establishes accounting and reporting standards requiring
that every derivative instrument be recorded in the balance sheet as either an
asset or liability measured at fair value and that changes in fair value be
recognized currently in earnings, unless specific hedge accounting criteria are
met. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133," which delayed the required adoption of SFAS 133 to fiscal 2001. In June
2000, the FASB issued SFAS 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities, - an amendment of SFAS 133," which was effective
concurrently with SFAS 133. In January 2001, the Company adopted these
standards. The Company currently does not engage in derivative activity and the
adoption of these standards did not have any effect on its results of
operations, financial position or cash flows.
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 revenue. Prior to adoption of EITF 00-22, the Company recorded the
difference between the net 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 $7,249 and reclassify $6,584 of rebates shared as
reductions of revenue for the three month periods ended June 30, 2001 and 2000,
respectively. For the six month periods ended June 30, 2001 and 2000, $14,999
and $15,171 of rebates shared were classified as reductions of revenue.
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,
until which time the Company will continue to amortize its existing goodwill and
intangible assets. The Company has not determined the impact that the adoption
of these standards will have on future financial statements.
NOTE 9 - RECLASSIFICATIONS
Certain amounts in the 2000 financial statements have been reclassified to
conform to current year presentation.
* * * *
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following management's discussion and analysis should be read in
conjunction with the consolidated financial statements of MIM Corporation and
its subsidiaries (collectively, "MIM" or the "Company"), 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, 2000 filed with the U.S. Securities and
Exchange Commission (the "Commission") (the "Form 10-K"), as well as the
Company's 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 June 30, 2001, 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 and the
results, benefits and risks associated with integration of acquired companies,
the likely outcome and the effect of legal proceedings 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, and 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 health insurance
industries in general and more specifically, pharmacy benefit management
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
MIM is a pharmacy benefit management ("PBM"), specialty pharmaceutical and
fulfillment/e-commerce organization that partners with healthcare providers and
sponsors 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 specialty pharmaceutical division specializes in serving the
chronically ill afflicted with life threatening diseases and genetic
impairments. MIM's fulfillment and e-commerce pharmacy specializes in serving
individuals that require long-term maintenance medications. MIM's online
pharmacy, www.MIMRx.com, develops private label websites to offer affinity
groups and other health care providers innovative, customized health information
services and products on the Internet for their members.
Business
The Company derives its revenues primarily from agreements to provide PBM
services, which includes prescription mail service to the members of health plan
sponsors in the United States. The Company also provides specialty pharmacy
services to chronically ill or genetically impaired patients that require
injection and infusion therapies, as well as infusion therapies and home
healthcare products and services to patients recently discharged from hospitals.
A majority of the Company's revenues to date have been derived from
providing PBM services in the State of Tennessee (the "State") to MCOs
participating in the State's TennCare(R) program. At June 30, 2001, the Company
provided PBM services to 132 health plan sponsors with an aggregate of
approximately 7.1 million plan members, of which TennCare(R) represented six
MCOs with approximately 1.2 million plan members. Revenues derived from the
Company's contracts with those TennCare(R) MCOs accounted for 30.4% of the
Company's revenues at June 30, 2001, compared to 48.2% of the Company's revenues
at June 30, 2000.
8
Results of Operations
Three months ended June 30, 2001 compared to three months ended June 30, 2000
Revenues for the quarter were up 20% to $106.9 million compared with $89.1
million for the second quarter a year ago. Commercial PBM and mail order
revenues accounted for $8.6 million of the $17.8 million increase, as a result
of an increase in contracted lives. Specialty pharmaceutical revenue, which
includes revenues derived from ADIMA, contributed $9.1 million of the additional
revenue during the period. For the three months ended June 30, 2001, 27.3% of
the Company's revenues were generated from capitated contracts, compared to
33.3% for the same period in 2000.
Cost of revenue for the three months ended June 30, 2001, was $93.4 million,
compared with $80.8 for the same period in 2000, an increase of $12.6 million.
Cost of revenue increased due to the additional cost of revenue resulting from
the inclusion of ADIMA's operations and increases in commercial PBM and mail
order costs resulting from increases in contracted lives. Gross margin as a
percentage of revenue totaled 12.6% for the three months ended June 30, 2001
compared to 9.3% for the same period in 2000. Gross margins were positively
impacted by lower utilization on the Company's capitated contracts and an
increase in specialty pharmaceutical revenue. Specialty pharmaceutical gross
margins are higher than those historically realized in the Company's PBM and
mail order businesses.
Selling, general and administrative expenses were $9.4 million for the three
months ended June 30, 2001, or 8.8% as a percentage of revenue, compared to $7.3
million for the three months ended June 30, 2000 or 8.2% as a percentage of
revenue. This increase of $2.1 million was primarily the result of the Company's
increased operating expenses as a result of its acquisition of ADIMA in August
2000, as well as increased operating expenses due to the relocation and
modernization of the mail service facility in 2000, and increased sales and
marketing expenses.
For the three months ended June 30, 2001, the Company recorded amortization
of goodwill and other intangibles of $0.6 million compared to $0.3 million for
the same period in 2000. This increase primarily reflects the increased of
goodwill associated with the acquisition of ADIMA in August 2000. The
acquisition of CPS in April 2001 accounted for less then $0.1 million of the
increase in amortization of goodwill and other intangibles.
Interest income, net, decreased by $0.3 million for the three months ended
June 30, 2001 compared to the three months ended June 30, 2000, primarily due to
the excess cash on hand as of June 30, 2000, used to acquire ADIMA during the
third quarter of 2000.
For the three months ended June 30, 2001, the Company recorded net income of
$3.2 million or $0.15 per diluted share. This compares with net income of $1.1
million, or $0.06 per diluted share for the three months ended June 30, 2000.
Earnings before interest, taxes, depreciation and amortization was $5.4
million for the three-month period ended June 30, 2001, compared to $1.8 million
for the three-month period ended June 30, 2000.
Six months ended June 30, 2001 compared to six months ended June 30, 2000
Revenues for the six months ending June 30, 2001, were up 25.5% to $212.9
million compared with $169.6 million for the same period a year ago. Commercial
PBM and mail order revenues accounted for $24.5 million of the $43.3 million
increase, as a result of an increase in contracted lives. Specialty
pharmaceutical revenue, which includes revenues derived from ADIMA, contributed
$18.8 million of the additional revenue during the period. For the six months
ended June 30, 2001, 26.3% of the Company's revenues were generated from
capitated contracts, compared to 35.6% for the same period in 2000.
Cost of revenue for the six months ended June 30, 2001, was $187.8 million,
compared to $154.5 for the same period in 2000, an increase of $33.3 million.
Cost of revenue increased due to the additional costs of revenue resulting from
the inclusion of ADIMA's operations and increases in commercial PBM and mail
order costs resulting from increases in contracted lives. These increases were
partially offset by a decrease in cost of revenue as a result of additional
rebates received in the first quarter of 2001 for prior years. Gross margin as a
percentage of revenue totaled 11.8% for the six months ended June 30, 2001
compared to 8.9% for the same period in 2000. Gross margins were positively
impacted by lower pharmaceutical utilization on the Company's capitated
contracts and an increase in specialty pharmaceutical revenue. Specialty
pharmaceutical gross margins are higher than those historically realized in the
Company's PBM and mail order businesses.
9
Selling, general and administrative expenses were $17.8 million for the six
months ended June 30, 2001, or 8.3% as a percentage of revenue, compared to
$13.5 million for the six months ended June 30, 2000, or 8.0% as a percentage of
revenue. These increases were primarily the result of the Company's increased
operating expenses as a result of its acquisition of ADIMA in August 2000, as
well as increased operating expenses due to the relocation and modernization of
the Company's mail service facility in 2000, and increased sales and marketing
expenses.
For the six months ended June 30, 2001, the Company recorded amortization of
goodwill and other intangibles of $1.1 million compared to $0.5 million for the
same period in 2000. This increase primarily reflects the inclusion of goodwill
associated with the acquisition of ADIMA in August 2000. The acquisition of CPS
in April 2001 accounted for less then $0.1 million of the increase in
amortization of goodwill and other intangibles.
Interest income, net, decreased by $0.7 million for the six months ended
June 30, 2001 compared to the six months ended June 30, 2000, primarily due to
the excess cash on hand as of June 30, 2000, used to acquire Adima during the
third quarter.
For the six months ended June 30, 2001, the Company recorded net income of
$6.7 million or $0.32 per diluted share as compared to $1.8 million, or $0.09
per diluted share for the same period a year ago.
Earnings before interest, taxes, depreciation and amortization was $10.7
million for the six months ended June 30, 2001, and $3.1 million for the six
months ended June 30, 2000.
Liquidity and Capital Resources
The Company utilizes both funds generated from operations and funds
available to it under its credit facility for capital expenditures and other
working capital needs. For the six months ended June 30, 2001, net cash
generated by the Company from operations totaled $4.3 million. This was
primarily due to net income of $6.7 million, partially offset by an increase in
receivables, an increase in claims payable and a decrease in payables to plan
sponsors and others. Receivables and claims payables have increased as a result
of higher revenues from increased business in the first and second quarters of
2001. The change in payables to plan sponsors and others reflects the
fulfillment of obligations to the MCOs for prior quarter rebate share payables.
Net cash used in investing activities was $3.7 million. The Company
purchased property and equipment equal to approximately $1.7 million, which
included the final payment for the automation system at the mail service
facility. In addition, $1.5 million was used for the acquisition of CPS.
For the six months ended June 30, 2001, net cash used in financing
activities was $1.2 million. The repurchase of the Company's shares, in a
private transaction was the majority of cash used in financing activities. This
was partially offset by proceeds from the exercise of stock options by Company
employees.
At June 30, 2001, the Company had a working capital deficit of $6.2 million
compared to a working capital deficit of $11.2 million at December 31, 2000.
On November 1, 2000, the Company entered into a $45 million 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 replaced the Company's existing credit
facilities with its former lenders. The Facility has a three-year term and is
secured by the Company's receivables. Interest is payable monthly and provides
for borrowing of up to $45 million at the London Inter-Bank Offered Rate (LIBOR)
plus 2.1%. In connection with the issuance of the Facility, the Company incurred
financing costs of $1.6 million which are included in other assets and are being
amortized over the term of the Facility. The Facility contains various covenants
that, among other things, require the Company to maintain certain financial
ratios, as defined in the agreements governing the Facility. As of June 30,
2001, there are no amounts outstanding under this Facility.
10
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. Management does not
presently believe that there are any current matters of a material nature,
threatened or pending, and which could have a material adverse effect on the
liquidity, financial position or results of operations of the Company.
At December 31, 2000, the Company had, for federal tax purposes, unused net
operating loss carryforwards of approximately $44.2 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. In 1998,
the company underwent 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 existing at the time
of the "change in control" totaled approximately $34.8 million, which are
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. In 2001, the company has not recorded a
provision for federal income taxes as a result of the Company's existing net
operating loss carryforwards.
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 credit under the Facility 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, fulfillment 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
The TennCare(R) program operates under a demonstration waiver from HCFA.
That waiver is the basis of the Company's ongoing service to those MCOs in the
TennCare(R) program. The waiver is due to expire on December 31, 2001. However,
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, although there can be no assurances that such pharmacy benefits will
continue or that the Company would be chosen to continue to provide pharmacy
benefits to enrollees of a successor program. If the waiver is not renewed and
the Company is not providing pharmacy benefits to those lives under a successor
program or arrangement, then the failure to provide such services would have a
material and adverse affect on the financial position and results of operations
of the Company. The ongoing funding for the TennCare(R) program has been the
subject of significant discussion at various governmental levels since its
inception. Should the funding sources for the TennCare(R) program change
significantly, the Company's ability to serve those customers could be impacted
and would also materially and adversely affect the financial position and
results of operations of the Company.
On November 1, 2000, the TennCare(R) program adopted new rules for
recipients to appeal adverse determinations in the delivery of health care
services and products requiring prior approval including the rejections of
certain pharmaceutical products under existing formularies or guidelines and to
possibly receive a larger supply of the rejected products at the point of
service. The implementation of these rules may impact the quantity of formulary
products excluded or requiring prior approval that are dispensed to the
recipients potentially resulting in a change to the amount of pharmaceutical
manufacturers rebates earned by the Company. The company has not experienced
material adverse affects from this new rule.
As a result of providing capitated PBM services to certain TennCare(R)
MCOs, 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, MCOs members during the colder winter months. The resulting increase in
pharmaceutical costs impacts the profitability of capitated contracts. Capitated
business represented approximately 27.3% of the Company's revenues while
fee-for-service business (including mail order services and specialty)
represented approximately 72.7% of the Company's revenues for the three months
ended June 30, 2001 as compared to 33.3% and 66.7% for the three months ended
June 30, 2000, respectively. Fee-for-service arrangements mitigate the adverse
effect on profitability of higher pharmaceutical costs incurred under capitated
contracts, as higher utilization positively impacts profitability under
fee-for-service (or non-capitated) arrangements. The Company presently
anticipates that approximately 25% of its revenues in fiscal 2001 will be
derived from capitated arrangements.
11
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 capitated arrangements. Because plan sponsors are
billed for the cost of all prescriptions dispensed in fee-for-service
arrangements, the Company's gross profit is not adversely affected by changes in
pharmaceutical prices. To the extent such cost increases adversely affect the
Company's gross profit, the Company may be required to increase capitated
contract rates on new contracts and upon renewal of existing capitated
contracts. However, there can be no assurance that the Company will be
successful in obtaining these rate increases from plan sponsors. The greater
proportion of fee-for-service contracts with the Company's customers in 2001 as
compared to prior years mitigates the potential adverse effects of any such
price increases, although no assurance can be given that the recent trend
towards fee-for-service arrangements will continue or that a substantial
increase in drug costs or utilization would not negatively affect the Company's
overall profitability in any period.
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 pursuant to which the Company is 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.
* * * *
12
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
relates primarily to the Company's debt. The Company does not invest in or
otherwise use derivative financial instruments. 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:
2001 2002 2003 2004 2005 Thereafter
----------------------------------------------------------------------
Long-term debt:
Variable rate instruments $ 35
Weighted average rate 6.80%
In the table above, the weighted average interest rate for fixed and
variable rate financial instruments was computed utilizing the effective
interest rate for that instrument at June 30, 2001, 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 June 30, 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.
* * * *
13
PART II
OTHER INFORMATION
Item 1. 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. In 1999, the Company
recorded a special charge 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 THP under 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 were
credited to income during the first quarter of 2001.
Item 2. Changes in Securities and Use of Proceeds
As of June 30, 2001, 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 United States Securities and Exchange Commission (the "Commission") and
declared effective by the Commission on August 14, 1996, has all been used.
The Company 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 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
(a) The Company's annual meeting of stockholders (the "Annual Meeting")
was held on June 28, 2000.
(b) At the Annual Meeting, the election of seven (7) directors to the
Board of Directors, each to serve for a one (1) year term, was
submitted to a vote of the stockholders and the stockholders elected
the following directors: Richard H. Friedman, Richard A. Cirillo,
Esq., Louis DiFazio, Ph.D., Harold Ford, Michael Kooper, Louis A.
Luzzi, Ph.D. and Ronald K. Shelp.
(c) The votes in favor of and against the election of each director were
as follows:
Name For Withheld
---- --- --------
Richard H. Friedman 17,006,941 117,436
Richard A. Cirillo 17,006,941 117,436
Louis DiFazio, Ph.D. 17,006,941 117,436
Harold Ford 17,006,941 117,436
Michael Kooper 17,006,941 117,436
Louis A. Luzzi, Ph.D. 17,006,941 117,436
Ronald K. Shelp 17,006,941 117,436
Also approved were the following proposals:
Approval and ratification of MIM Corporation 2001 Incentive Stock Plan with
950,000 shares of Common Stock reserved for issuance thereunder (15,756,152
shares in favor, 510,725 shares against, 857,500 shares withheld and zero broker
non-votes); and
Approval of the appointment of Arthur Andersen LLP as independent
accountants for the year 2001 (17,093,702 shares in favor, 22,525-shares
against, 8,050 shares withheld and zero broker non-votes).
(d) Not applicable.
14
Item 5. Other Information
None.
* * * *
15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
- --------------------------------------------------------------------------------
10.75 Employment letter, dated as of June 21, 2001, between MIM
Corporation and Donald Foscato *
10.76 Employment letter, dated as of June 18, 2001, between MIM
Health Plans, Inc. and Donald Dindak *
10.77 Employment letter, dated as of June 19, 2001, between MIM
Health Plans, Inc and Michael Sicilian *
------------
* Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Regulation S-K 601 (iii).
(b) Reports on Form 8-K
None.
* * * *
16
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 August 14, 2001.
MIM CORPORATION
Date: August 14, 2001 /s/ Donald Foscato
-------------------
Donald Foscato
Chief Financial Officer
17
Exhibit Index
(Exhibits being filed with this Quarterly Report on Form 10-Q)
Exhibit Number Description
- --------------------------------------------------------------------------------
10.75 Employment letter, dated as of June 21, 2001, between MIM
Corporation and Donald Foscato *
10.76 Employment letter, dated as of June 18, 2001, between MIM
Health Plans, Inc. and Donald Dindak *
10.77 Employment letter, dated as of June 19, 2001, between MIM
Health Plans, Inc and Michael Sicilian *
------------
* Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Regulation S-K 601 (iii).
18
June 21, 2001
Mr. Donald A. Foscato
61 Thrush Lane
New Canaan, CT 06840
Re: MIM Corporation and Subsidiaries
--------------------------------
Dear Don:
MIM Corporation, a Delaware corporation (the "Company"), is pleased to
offer you employment as the Company's Chief Financial Officer, on the terms and
subject to the conditions set forth below. The terms and conditions of your
employment would be as follows:
1. POSITION AND DUTIES: Chief Financial Officer.
In such capacity, you shall be the principal
financial and accounting officer of the Company
and shall be responsible for all financial
reporting and other matters typical of a Chief
Financial Officer. 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
$200,000.00 per year, payable bi-weekly, or at
such other times as other employees of the Company
are paid.
3. LONG-TERM INCENTIVE
COMPENSATION: 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 definitive agreements with respect to each
such grant, the Company would grant to you (i)
120,000 options ("Options") to purchase the
Company's common stock, par value $0.0001 per
share ("Common Stock"); (ii) 5,000 performance
units ("Performance Units"), having the terms and
conditions set forth in a definitive agreement
with respect to the Performance Units; and (iii)
20,000 performance shares ("Performance Shares")
of Common Stock, having the terms and conditions
set forth in a definitive agreement with respect
to the Performance Shares. The 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
at the closing stock price on the trading day
immediately preceding your first day of employment
with the Company.
4. TRANSPORTATION
ALLOWANCE: During your employment, the Company will provide
you with a monthly allowance of $1000 for the use
of an automobile.
5. 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, including the Company's
medical expense reimbursement plan (the "MERP")
and a life insurance policy equal to three times
your then annual salary. 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. Alternatively, at your
election, in lieu of medical benefits, the Company
will reimburse you for preexisting health benefits
at a monthly rate equal to the lesser of (i) $495;
and (ii) the monthly amount that the Company
contributes to its employees towards medical and
other health benefits.
During the first year of your employment, you
shall be eligible to participate in the Company's
1998 Cash Bonus Program For Key Employees. During
the first calendar year of your employment, you
would participate pro rata based on the number of
days during calendar year 2001 that you were
employed by the Company.
6. 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 (which
shll include professional fees and dues reasonably
necessary to the performance of your duties
hereunder) 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), 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 th3e
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
Directors of the Company, any committee thereof or
any executive officer of the Company or failure to
correct any conduct which constitutes a breach of
any written agreement between you and the Company
or of any written policy promulgated by the Board
of Directors of either the Company, any committee
thereof or any 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). In addition, if you are
terminated by the Company (or any successor)
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 materially
reduces your authority, duties and
responsibilities, or assigns you duties materially
inconsistent with your position or positions with
the Company or a successor entity immediately
prior to such Change of Control, (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 (or
hereafter under the Bonus Program) and held by you
shall vest and become immediately exercisable and
shall otherwise be exercisable in accordance with
their terms and 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; (III) all Performance Units granted under
the Bonus Program and held by you shall vest and
become immediately payable at any time and from
time to time from and after the termination date,
at the maximum target rate set forth in the Bonus
Program; (IV) all Performance Shares granted under
the Bonus Program and held by you shall vest and
become immediately transferable free of any
restrictions on transfer-ability of the
Performance Shares (other than restrictions on
transfer imposed under Federal and state
securities laws) by you and all other restrictions
imposed thereon shall cease other than those
restrictions, limitations and/or obligations
contained in the Bonus Program that expressly
survive the termination of your employment with
the Company or any successor entity, as the case
may be; and (vi) 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)
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 the Company
(including options, warrants, rights and
convertible and exchangeable securities)
representing 30% or more of the combined voting
power of the Company's then outstanding securities
in any one or more transactions unless approved by
at least two-thirds of the Board of Directors then
serving at that time; provided, however, that
purchases by employee benefit 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, 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), 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 own a majority of the Company's
Common Stock at such time; or (iv) at any annual
or special meeting of stockholders of the Company
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 the Company's Board of
Directors shall be duly elected to serve as New
Directors and such New Directors shall have been
elected by stockholders of the Company 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 the
Company 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 are attached hereto as Exhibit A.
9. OTHER TERMS: Your employment, restrictive covenants and option
agreements will include other customary and usual
terms, provisions, conditions and representations
as are found in the Company's similar arrangements
with its employees.
10. CONDITION TO
EMPLOYMENT: Your employment is conditioned on the approval of
your employment and this letter agreement by the
Board of Directors of the Company.
Please call me to discuss any questions or comments that you may have
regarding these terms. After I receive your agreement to the foregoing,
definitive documentation will be prepared. I look forward to hearing from you
and working with you. Best regards.
Sincerely yours,
MIM CORPORATON
By: /s/ Barry A. Posner
----------------------------
Name: Barry A. Posner
Title: Vice President &General Counsel
Agreed to and Accepted By:
/s/ Donald A. Foscato
---------------------
Donald A. Foscato
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) 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 nine months following (i) termination of your employment with the Company
(irrespective of the reason for such termination) or (ii) payment of any
severance, whichever occurs last, you shall not engage, directly or indirectly,
in sales or marketing 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,
(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.
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:
/s/ Donald A. Foscato
- ---------------------
Donald A. Foscato
June 18, 2001
Mr. Donald Dindak
420 Diehl Drive
Mckeesport, PA 15132
Re: MIM Health Plans and Subsidiaries
---------------------------------
Dear Don:
MIM Health Plans, Inc., a Delaware corporation (the "Company"), a
wholly owned subsidiary of MIM Corporation ("MIM") is pleased to offer you
employment as the President of the Company's BioScrip injectable division, on
the terms and subject to the conditions set forth below. The terms and
conditions of your employment would be as follows:
1. POSITION AND DUTIES: President of the Company's BioScrip injectable
division.
In such capacity, you shall be responsible for all
sales and marketing activities of the BioScrip
injectable division and all other aspects of that
division that are not utilized by Scrip PBM on a
shared basis. including the sales representatives
exclusively dedicated to BioScrip injectable sales
and the pull through of patients through data
analysis (that is, "patient pull through").
Accounts. 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
$200,000.00 per year, payable bi-weekly, or at
such other times as other employees of the Company
are paid.
3. LONG-TERM INCENTIVE
COMPENSATION: 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 definitive
agreements with respect to each such grant, the
Company would grant to you (i) 100,000 options
("Options") to purchase the Company's common
stock, par value $0.0001 per share ("Common
Stock"); (ii) 5,000 performance units
("Performance Units"), having the terms and
conditions set forth in a definitive agreement
with respect to the Performance Units; and (iii)
15,000 performance shares ("Performance Shares")
of Common Stock, having the terms and conditions
set forth in a definitive agreement with respect
to the Performance Shares. The 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
at the closing stock price on the trading day
immediately preceding your first day of employment
with the Company. The granting of the incetive
compensation set forth above is subject to the
approval of the Company's stockholders at this
year's annual meeting scheduled to be held on June
28, 2001.
4. TRANSPORTATION
ALLOWANCE: During your employment, the Company will provide
you with a monthly allowance of $500 for the use
of an automobile.
5. 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, including the Company's
medical expense reimbursement plan (the "MERP")
and a life insurance policy equal to three times
your then annual salary. 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.
During the first year of your employment, you
shall be eligible to participate in the Company's
2001 Cash Bonus Program For Key Employees. During
the first calendar year of your employment, you
would participate pro rata based on the number of
days during calendar year 2001 that you were
employed by the Company.
6. 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), 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 or MIM, including,
without limitation, misappropriation or
embezzlement; (3) your willful engagement in
conduct which is materially injurious to the
Company or MIM; or (4) your gross misconduct in
the performance of duties as an employee of the
Company or MIM, including, without limitation,
failure to obey lawful written instructions of the
Board of Directors of the Company or MIM, any
committee thereof or any executive officer of the
Company or MIM or failure to correct any conduct
which constitutes a breach of any written
agreement between you and the Company or MIM or of
any written policy promulgated by the Board of
Directors of either the Company or MIM, any
committee thereof or any executive officer of the
Company or MIM, 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 or MIM in good faith deems such shorter
notice period to be necessary due to the
possibility of material injury to the Company or
MIM). In addition, if you are terminated by the
Company or MIM (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 MIM or a successor entity (A)
materially reduces your authority, duties and
responsibilities assigns you duties materially
inconsistent with your position or positions with
the Company or MIM 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, MIM 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 (or
hereafter under the Bonus Program) and held by you
shall vest and become immediately exercisable and
shall otherwise be exercisable in accordance with
their terms and 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; (iv) all Performance Units granted under
the Bonus Program and held by you shall vest and
become immediately payable at any time and from
time to time from and after the termination date,
at the maximum target rate set forth in the Bonus
Program; (v) all Performance Shares granted under
the Bonus Program and held by you shall vest and
become immediately transferable free of any
restrictions on transferability of the Performance
Shares (other than restrictions on transfer
imposed under Federal and state securities laws)
by you and all other restrictions imposed thereon
shall cease other than those restrictions,
limitations and/or obligations contained in the
Bonus Program that expressly survive the
termination of your employment with the Company or
any successor entity, as the case may be; and (vi)
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)
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 are 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.
10. OTHER TERMS: Your employment, restrictive covenants and option
agreements will include other customary and usual
terms, provisions, conditions and representations
as are found in the Company's similar arrangements
with its employees.
11. CONDITION TO EMPLOYMENT: Your employment is conditioned on the approval of
your employment and this letter agreement by the
Board of Directors of the Company.
Please call me to discuss any questions or comments that you may have
regarding these terms. After I receive your agreement to the foregoing,
definitive documentation will be prepared. I look forward to hearing from you
and working with you. Best regards.
Sincerely yours,
MIM HEALTH PLANS, INC.
By: /s/ Barry A. Posner
----------------------------
Name: Barry A. Posner
Title: Vice President & General Counsel
Agreed to and Accepted By:
/s/ Donald Dindak
-----------------
Donald Dindak
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 MIM Health Plans, 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) nine months following termination of your employment with the Company
(irrespective of the reason for such termination) or (ii) three months following
payment of any severance, whichever occurs last, you shall not engage, directly
or indirectly, in sales or marketing 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,
(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.
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:
/s/ Donald Dindak
- ------------------
Donald Dindak
June 19, 2001
Mr. Michael J. Sicilian
78 Fountain Drive
Ringwood,NJ 07456
Re: MIM Health Plans and Subsidiaries
---------------------------------
Dear Michael:
MIM Health Plans, Inc., a Delaware corporation (the "Company"), a
wholly owned subsidiary of MIM Corporation ("MIM") is pleased to offer you
employment as the President of the Company's BioScrip Infusion division, on the
terms and subject to the conditions set forth below. The terms and conditions of
your employment would be as follows:
1. POSITION AND DUTIES: President of the Company's BioScrip infusion
division.
In such capacity, you shall be responsible for all
sales, marketing and operations of the Company's
BioScrip infusion division, including the
Company's American Disease Management Associates,
LLC subsidiary. 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 and MIM'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 MIM's 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
$225,000.00 per year, payable bi-weekly, or at
such other times as other employees of the Company
are paid.
3. LONG-TERM INCENTIVE
COMPENSATION: 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 definitive agreements with respect to each
such grant, the Company would grant to you (i)
100,000 options ("Options") to purchase the
Company's common stock, par value $0.0001 per
share ("Common Stock"); (ii) 5,000 performance
units ("Performance Units"), having the terms and
conditions set forth in a definitive agreement
with respect to the Performance Units; and (iii)
15,000 performance shares ("Performance Shares")
of Common Stock, having the terms and conditions
set forth in a definitive agreement with respect
to the Performance Shares. The 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
at the closing stock price on the trading day
immediately preceding your first day of employment
with the Company.
4. TRANSPORTATION
ALLOWANCE: During your employment, the Company will provide
you with a monthly allowance of $1000 for the use
of an automobile.
5. 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, including the Company's
medical expense reimbursement plan (the "MERP")
and a life insurance policy equal to three times
your then annual salary. 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.
During the first year of your employment, you
shall be eligible to participate in the Company's
2001 Cash Bonus Program For Key Employees. During
the first calendar year of your employment, you
would participate pro rata based on the number of
days during calendar year 2001 that you were
employed by the Company.
6. 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), 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 or MIM, including,
without limitation, misappropriation or
embezzlement; (3) your willful engagement in
conduct which is materially injurious to the
Company or MIM; or (4) your gross misconduct in
the performance of duties as an employee of the
Company or MIM, including, without limitation,
failure to obey lawful written instructions of the
Board of Directors of the Company or MIM, any
committee thereof or any executive officer of the
Company or MIM or failure to correct any conduct
which constitutes a breach of any written
agreement between you and the Company or MIM or of
any written policy promulgated by the Board of
Directors of either the Company or MIM, any
committee thereof or any executive officer of the
Company or MIM, 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 or MIM in good faith deems such shorter
notice period to be necessary due to the
possibility of material injury to the Company or
MIM). In addition, if (A) you are terminated by
the Company or MIM (or any successor or either)
within one year of a "Change of Control" (as
defined below) or (B) your salary is reduced after
the Change of Control from your current level
immediately prior to the Change of Control, or
within such one (1) year period, you elect to
terminate your employment after the Company or MIM
or a successor entity materially reduces your
authority, duties and responsibilities, or assigns
you duties materially inconsistent with your
position or positions with the Company or MIM or a
successor entity immediately prior to such Change
of Control, (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 (or hereafter under the Bonus
Program) and held by you shall vest and become
immediately exercisable and shall otherwise be
exercisable in accordance with their terms and 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; (iv)
all Performance Units granted under the Bonus
Program and held by you shall vest and become
immediately payable at any time and from time to
time from and after the termination date, at the
maximum target rate set forth in the Bonus
Program; (v) all Performance Shares granted under
the Bonus Program and held by you shall vest and
become immediately transferable free of any
restrictions on transferability of the Performance
Shares (other than restrictions on transfer
imposed under Federal and state securities laws)
by you and all other restrictions imposed thereon
shall cease other than those restrictions,
limitations and/or obligations contained in the
Bonus Program that expressly survive the
termination of your employment with the Company or
any successor entity, as the case may be; and (vi)
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)
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 are attached hereto as Exhibit A.
9. OTHER TERMS: Your employment, restrictive covenants and option
agreements will include other customary and usual
terms, provisions, conditions and representations
as are found in the Company's similar arrangements
with its employees.
10. CONDITION TO EMPLOYMENT: Your employment is conditioned on the approval of
your employment and this letter agreement by the
Board of Directors of the Company.
Please call me to discuss any questions or comments that you may have
regarding these terms. After I receive your agreement to the foregoing,
definitive documentation will be prepared. I look forward to hearing from you
and working with you. Best regards.
Sincerely yours,
MIM HEALTH PLANS, INC.
By: /s/ Barry A. Posner
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Name: Barry A. Posner
Title: Vice President & General Counsel
Agreed to and Accepted By:
/s/ Michael J. Sicilian
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Michael J. Sicilian
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 MIM Health Plans, 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, the provision of infusion pharmaceutical
products and services and home health care products and services, 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 one year following (i) termination of your employment with the Company
(irrespective of the reason for such termination) or (ii) payment of any
severance, whichever occurs last, you shall not engage, directly or indirectly,
in sales or marketing 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,
(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.
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:
/s/ Michael J. Sicilian
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Michael J. Sicilian