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 September 30, 1998
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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
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
100 Clearbrook Road, Elmsford, NY 10523
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(Address of principal executive offices)
(914) 460-1600
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(Registrant's telephone number, including area code)
One Blue Hill Plaza, 15th Floor, Pearl River, New York 10965
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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 October 29, 1998, there were outstanding 17,840,748 shares of the
Company's common stock, $.0001 par value per share ("Common Stock").
INDEX
Page Number
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets at
September 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations for the
three months and nine months ended September
30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997 5
Notes to the Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-15
Item 3 Quantitative and Qualitative Disclosures about Market
Risk 15
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
2
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, December 31,
1998 1997
--------- ---------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 10,146 $ 9,593
Investment securities 19,108 19,235
Receivables, less allowance for doubtful accounts
of $3,008 and $1,386 at September 30, 1998 and
December 31, 1997 47,636 23,666
Inventory 905 --
Prepaid expenses and other current assets 842 888
--------- ---------
Total current assets 78,637 53,382
Investment securities, net of current portion 1,027 3,401
Other investments 2,300 2,300
Property and equipment, net 4,446 3,499
Due from affiliates, less allowance for doubtful
accounts of $2,360 -- --
Other assets, net 146 145
Deferred income taxes 270 --
Intangible assets, net 19,452 --
--------- ---------
Total assets $ 106,278 $ 62,727
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations $ 245 $ 222
Current portion of long-term debt 248 --
Accounts payable 5,621 931
Deferred revenue -- 2,799
Claims payable 32,609 26,979
Payables to plan sponsors and others 17,863 10,839
Accrued expenses 3,165 2,279
--------- ---------
Total current liabilities 59,751 44,049
Capital lease obligations, net of current portion 595 756
Long-term debt, less current portion 4,240 --
Commitments and contingencies
Minority interest 1,112 1,112
Stockholders' equity
Preferred stock, $.0001 par value; 5,000,000 shares
authorized, no shares issued or outstanding -- --
Common stock, $.0001 par value; 40,000,000 shares
authorized, 17,840,748 and 13,335,120 shares
issued and outstanding at September 30, 1998 and
December 31, 1997 2 1
Additional paid-in capital 91,608 73,585
Accumulated deficit (49,281) (55,061)
Stockholder notes receivable (1,749) (1,715)
--------- ---------
Total stockholders' equity 40,580 16,810
--------- ---------
Total liabilities and stockholders' equity $ 106,278 $ 62,727
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three months ended Nine months ended
September 30, September 30,
----------------- -------------------
1998 1997 1998 1997
----------------- -------------------
(Unaudited) (Unaudited)
Revenue $115,737 $48,311 $323,578 $164,955
Cost of revenue 107,839 46,558 303,883 155,359
-------- ------- -------- --------
Gross profit 7,898 1,753 19,695 9,596
Selling, general and administrative expenses 6,071 5,240 15,332 13,143
-------- ------- -------- --------
Income (loss) from operations 1,827 (3,487) 4,363 (3,547)
Interest income, net 428 566 1,418 1,737
-------- ------- -------- --------
Income (loss) before minority interest 2,255 (2,921) 5,781 (1,810)
Minority interest -- -- (1) 5
-------- ------- -------- --------
Net income (loss) $ 2,255 $(2,921) $ 5,780 $ (1,805)
======== ======= ======== ========
Basic earnings (loss) per share $ 0.15 $ (0.23) $ 0.41 $ (0.15)
======== ======= ======== ========
Diluted earnings (loss) per share $ 0.14 $ (0.23) $ 0.37 $ (0.15)
======== ======= ======== ========
Weighted average shares outstanding used in computing
basic earnings (loss) per share 15,485 12,911 14,142 12,381
======== ======= ======== ========
Weighted average shares outstanding used in computing
diluted earnings (loss) per share 16,659 12,911 15,753 12,381
======== ======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share amounts)
Nine Months Ended
September 30,
--------------------
1998 1997
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Cash flows from operating activities:
Net income $ 5,780 $ (1,805)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Net loss allocated to minority interest 1 (5)
Depreciation and amortization 1,236 767
Stock option charges 22 22
Provision for losses on receivables and loans to affiliates (139) 562
Changes in assets and liabilities net of effects from
acquisition of subsidiary
Receivables (14,556) (1,662)
Prepaid expenses and other current assets 157 2
Accounts payable (1,644) (662)
Inventory (83) --
Deferred revenue (2,799) --
Claims payable 5,027 (3,931)
Payables to plan sponsors and others 7,024 2,934
Accrued expenses (1,351) 192
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Net cash (used in) operating activities (1,325) (3,586)
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Cash flows from investing activities:
(Increase) decrease in other assets 28 (177)
Loans to affiliates, net -- 329
Stockholder loans, net (34) (58)
Purchase of investment securities (25,872) (25,332)
Maturities of investment securities 28,373 33,598
Purchase of property and equipment (1,568) (1,132)
Cost incurred in purchase of subsidiary net of cash acquired (594) --
-------- --------
Net cash provided by investing activities 333 7,228
-------- --------
Cash flows from financing activities:
Principal payments on capital lease obligations (167) (162)
Net borrowings from line of credit 1,708 --
Proceeds from exercise of stock options 4 113
-------- --------
Net cash provided by (used in) financing activities 1,545 (49)
-------- --------
Net increase (decrease) in cash and cash equivalents 553 3,593
Cash and cash equivalents--beginning of period $ 9,593 $ 1,834
-------- --------
Cash and cash equivalents--end of period $ 10,146 $ 5,427
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 89 $ 32
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
The Company issued 3,912,448 shares of Common Stock to acquire Continental
Managed Pharmacy Services and subsidiaries. The aggregate value of the shares
issued approximated $18,000. See Note 3.
A capital lease obligation of $40 was incurred when the Company entered into a
lease for equipment.
The accompanying notes are an integral part of these consolidated
financial statements.
5
MIM CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements of
MIM Corporation and subsidiaries (the "Company") have been prepared pursuant to
the rules and regulations of the U.S. Securities and Exchange Commission (the
"Commission"). Pursuant to such rules and regulations, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. In the opinion of management, all adjustments considered necessary for
a fair presentation of the financial statements, primarily consisting of normal
recurring adjustments, have been included. The results of operations and cash
flows for the nine months ended September 30, 1998 are not necessarily
indicative of the results of operations or cash flows which may be reported for
the remainder of 1998.
These consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements, notes and information
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as amended by the amendments thereto on Forms 10-K/A, filed
with the Commission (as amended, the "Form 10-K") along with the information
contained in the Registration Statement on Form S-4 (the "Form S-4") filed in
connection with the Company's recent acquisition (Note 3).
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:
(In thousands, except per share amounts)
----------------------------------------
Three Months Nine Months
Ended September 30, Ended September30,
1998 1997 1998 1997
-------- -------- -------- --------
Numerator:
Net income $ 2,255 $ (2,921) $ 5,780 $ (1,805)
======== ======== ======== ========
Denominator:
Weighted average number of
common shares outstanding 15,485 12,911 14,142 12,381
-------- -------- -------- --------
Basic Earnings per Share $ .15 $ (.23) $ .41 $ (.15)
======== ======== ======== ========
Denominator:
Weighted average number of
common shares outstanding 15,485 12,911 14,142 12,381
Common share equivalents
of outstanding stock options 1,174 -- 1,611 --
-------- -------- -------- --------
Total shares outstanding 16,659 12,911 15,753 12,381
-------- -------- -------- --------
Diluted Earnings per Share $ .14 $ (.23) $ .37 $ (.15)
======== ======== ======== ========
6
MIM CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RECENT ACQUISITION
On August 24, 1998, the Company completed its acquisition of Continental
Managed Pharmacy Services, Inc. and its subsidiaries (collectively,
"Continental"). Continental provides pharmacy benefit management and mail order
pharmacy services. The acquisition was treated as a purchase for financial
reporting purposes. The Company issued 3,912,448 shares of Common Stock as
consideration for the purchase. The aggregate purchase price, including costs of
acquisition of $.9 million, approximated $18.9 million. Assets acquired
approximated $11.3 million and liabilities assumed approximated $12.0 million
resulting in approximately $19.6 million of goodwill and other intangible assets
which will be amortized over their estimated useful lives (25 years and 6.5
years, respectively). The consolidated financial statements of the Company for
the three and nine month periods include the results of Continental from date of
acquisition.
The following unaudited consolidated pro forma information has been
prepared assuming Continental was acquired as of January 1, 1997, with pro forma
adjustments for amortization of goodwill and other intangible assets and income
taxes. The pro forma information is presented for informational purposes only
and is not indicative of what would have occurred if the acquisition had been
made on January 1, 1997. In addition, this pro forma information is not intended
to be a projection of future operating results.
Nine months ended September 30,
In Thousands, except per share amounts
--------------------------------------
1998 1997
-------- --------
Revenue $364,224 $196,265
======== ========
Net income (loss) $ 6,140 $ (1,944)
======== ========
Basic earning (loss) per share $ .35 $ (.12)
======== ========
Diluted earning (loss) per share $ .32 $ (.12)
======== ========
The amounts above include $47,684 of revenue from the operations of Continental
for the nine months ended September 30, 1998 and $31,310 for the nine months
ended September 30, 1997.
NOTE 4 - OTHER COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") for the nine months ended
September 30, 1998. There were no transactions during the period that would be
required to be reported as a component of comprehensive income.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, the related notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Form 10-K and the Form S-4 concerning its recent
acquisition (see below), as well as the unaudited consolidated interim financial
statements and the related notes thereto included in Item 1 of this Report.
Certain statements contained in this report are not purely historical and
are considered forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (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, intentions or
strategies regarding the future, as well as statements which are not historical
fact. Forward looking statements may include statements relating to the
Company's business development activities, its' sales and marketing efforts, the
status of material contractual arrangements including the negotiation or
re-negotiation of such arrangements, future capital expenditures, the effects of
regulation and competition on the Company's business, future operating
performance of the Company and the results, the benefits and risks associated
with integration of acquired companies, the effect of year 2000 problems on the
Company's operations and/or effect of legal proceedings or investigations 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 in the forward looking statements as a result of various factors. These
factors include, among other things, risks associated with risk-based or
"capitated" contracts, increased government regulation related to the health
care and insurance industries in general and more specifically, pharmacy benefit
management organizations, increased competition from the Company's competitors,
including competitors which are vertically integrated with pharmaceutical
manufacturers, and the existence of complex laws and regulations relating to the
Company's business. This Report along with the Company's Forms 10-K and S-4
contain information regarding important factors that could cause such
differences. The Company does not undertake any obligation to publicly release
the results of any revisions to these forward looking statements that may be
made to reflect any future events or circumstances.
Overview
A majority of the Company's revenues to date have been derived from
operations in the State of Tennessee in conjunction with RxCare of Tennessee,
Inc. ("RxCare"), a pharmacy services administrative organization owned by the
Tennessee Pharmacists Association, a not-for-profit organization. The Company
assisted RxCare in defining and marketing pharmacy benefit services to private
health plan sponsors on a consulting basis in 1993, but did not commence
substantial operations until January 1994 when RxCare began servicing health
plan sponsors involved in the newly instituted TennCare(R) state health program.
At September 30, 1998, the Company provided pharmacy benefit management services
to 125 health plan sponsors with an aggregate of approximately 3.2 million plan
members. TennCare(R) represented eight health plans with approximately 2.5
million plan members.
The contract with RxCare accounted for 73.4% of the Company's revenues for
the nine months ended September 30, 1998 and expires on December 31, 1998. On
September 29, 1998, in accordance with the terms of that contract, the Company
notified RxCare of its intention not to renew the current agreement. Management
of the Company does not believe it will enter into a new agreement with RxCare,
but rather the Company intends to market its pharmacy benefit management
services in Tennessee directly to managed care organizations, behavioral health
organizations, third party administrators, employer groups as well as the State
of Tennessee. However, no assurances can be made that such marketing efforts
will result in contracts between the Company and such organizations. The failure
of the Company to successfully market the its services directly to health care
organizations in Tennessee would have a material adverse effect on the Company's
financial condition and results of operations.
8
Recent Acquisition
On August 24, 1998, the Company completed its acquisition of Continental,
which provides pharmacy benefit management services to approximately 74 groups
with membership of approximately 195,000 lives along with mail order pharmacy
services for a variety of customers. The acquisition was treated as a purchase
for financial reporting purposes. The Company issued 3,912,448 shares of Common
Stock as consideration for the purchase. The aggregate purchase price, including
costs of acquisition of $.9 million, approximated $18.9 million. Assets acquired
approximated $11.3 million and liabilities assumed approximated $12.0 million
resulting in approximately $19.6 million of goodwill and other intangible assets
which will be amortized over their estimated useful lives (25 years and 6.5
years, respectively). The consolidated financial statements of the Company for
the three and nine month periods include the results of Continental from date of
acquisition.
Results of Operations
Three months ended September 30, 1998 compared to three months ended September
30, 1997
For the three months ended September 30, 1998, the Company recorded
revenue of $115.7 million, an increase of $67.4 million from the same period a
year ago. Approximately $17.3 million of the increase in revenues resulted from
an increase of 71,000 lives managed under existing commercial plans and the
servicing of 18 new commercial plans covering approximately 224,000 lives. The
acquisition of Continental increased revenues $6.6 million. Revenue from
TennCare(R) contracts increased approximately $43.5 million as a result of two
new contracts entered into in the fourth quarter of 1997 ($26.4 million) and
contract renewals on more favorable terms and increased enrollment in the
TennCare(R) plans ($17.1 million).
During the three months ended September 30, 1998, approximately 30% of the
Company's revenues were generated from risk-based (capitated) contracts,
compared to 51% during the three months ended September 30, 1997.
Effective July 1, 1998, the Tennessee Department of Health assumed
financial responsibility for the TennCare(R) behavioral health pharmacy program
and the costs associated therewith. The Company's behavioral health organization
("BHO") contracts provided $31.3 million of revenues for the three months ended
September 30, 1998. The Tennessee Department of Health has the right, but is not
obligated, to enter into a separate agreement with a pharmacy services provider,
which would effectively replace the Company's BHO contracts. To date, the
Department of Health has not taken such action. The BHO contracts, like all of
the TennCare(R) contracts, expire on December 31, 1998. The ability of the
Company to negotiate an arrangement with the Department of Health or the failure
to renew these contracts with the BHO's at all or on terms as favorable as those
currently in effect could have a material adverse effect on the Company's
business and results of operations.
Cost of revenue for the three months ended September 30, 1998 increased
$61.3 million to $107.8 million compared to the same period a year ago. New
commercial contracts, together with increased enrollment in existing commercial
plans accounted for $15.6 million of this increase. The acquisition of
Continental accounted for $5.2 million of this increase. TennCare(R) contracts
were responsible for the remaining $40.5 million of the increase. Costs relating
to the two new TennCare(R) contracts accounted for $25.5 million of such
increase. Costs associated with eligibility increases in existing plans,
increased drug prices and increased utilization of prescription drugs accounted
for the remaining $15.0 million increase. As a percentage of revenue, cost of
revenue decreased to 93.2% for the three months ended September 30, 1998 from
96.4% for the three months ended September 30, 1997 as a result of contract
renewals on more favorable terms and a greater percentage of the Company's
revenues being generated from non-risk based arrangements.
9
Selling, general and administrative expenses were $6.1 million for the
three months ended September 30, 1998 compared to $5.2 million for the three
months ended September 30, 1997. The increase was primarily due to the
acquisition of Continental. As a percentage of revenue, selling, general and
administrative expenses decreased to 5.2% for the three months ended September
30, 1998 from 10.8% for the three months ended September 30, 1997 as revenue
increases did not result in proportional increases in expenditures.
For the three months ended September 30, 1998, the Company recorded
interest income of $.4 million, a decrease of $.1 million from the same period a
year ago. The decrease in interest income resulted from a reduced level of
investment opportunities due to the additional working capital needs of the
Company (See "Liquidity and Capital Resources").
For the three months ended September 30, 1998, the Company recorded net
income of $2.3 million, or $.14 per diluted share. This compares with a net loss
of $2.9 million, or $(.23) per diluted share, for the three months ended
September 30, 1997.
Nine months ended September 30, 1998 compared to nine months ended September 30,
1997
For the nine months ended September 30, 1998, the Company recorded revenue
of $323.6 million, an increase of $158.6 million from the same period a year
ago. Commercial plans provided approximately $57.8 million of the increase
including $26.6 million of revenue from a Nevada based managed care organization
(the "Nevada Plans") The increase in revenues resulted from managing an
additional 71,000 lives under existing commercial plans and servicing 18 new
commercial plans covering approximately 224,000 lives. The acquisition of
Continental resulted in increased revenues of $6.6 million. Revenue from
TennCare(R) contracts increased approximately $92.4 million as a result of two
new contracts entered into in the fourth quarter of 1997 ($72.4 million) and
contract renewals on more favorable terms and increased enrollment in the
TennCare(R) plans ($47.4 million). Increases in TennCare(R) revenues were
partially offset by a decrease of $25.6 million from the restructuring of a
major TennCare(R) contract in April of 1997.
During the nine months ended September 30, 1998, approximately 35% of the
Company's revenues were generated from risk-based (capitated) contracts,
compared to 58% during the same period a year ago.
Effective July 1, 1998, the Tennessee Department of Health assumed
financial responsibility for the TennCare(R) behavioral health pharmacy program
and the costs associated therewith. The Company's BHO contracts provided $85.2
million of revenues for the nine months ended September 30, 1998. The Tennessee
Department of Health has the right, but is not obligated, to enter into a
separate agreement with a pharmacy services provider, which would effectively
replace the Company's BHO contracts. To date, the Department of Health has not
taken such action. The BHO contracts, like all of the TennCare(R) contracts,
expire on December 31, 1998. The ability of the Company to negotiate an
arrangement with the Department of Health or the failure to renew these
contracts with the BHO's at all or on terms as favorable as those currently in
effect could have a material adverse effect on the Company's business and
results of operations.
Cost of revenue for the nine months ended September 30, 1998 increased
$148.5 million to $303.9 million compared to the same period a year ago. New
commercial contracts together with increased enrollment in existing commercial
plans accounted for $58.3 million of the increase, including $26.8 million
relating to the Nevada Plans. Costs attributable to the acquisition of
Continental accounted for $5.2 million of the increase. TennCare(R) contracts
increased cost of revenue $85.0 million. Costs relating to the two new
TennCare(R) contracts accounted for $67.8 million of such increase. Increased
enrollment in existing TennCare(R) sponsors increased cost of revenue $42.6
million. These cost increases were offset by the above-mentioned restructuring
of a major TennCare(R) contract, which resulted in a decrease in cost of revenue
of $25.4 million. As a percentage of revenue, cost of revenue decreased to 93.9%
for the nine months ended September 30, 1998 from 94.2% for the nine months
ended September 30, 1997 as a result of contract renewals on more favorable
terms and a greater percentage of the Company's revenues being generated from
non-risk based arrangements.
10
At December 31, 1997, a reserve of $4.1 million was established for
anticipated losses in connection with certain of the Nevada Plans. These losses
were expected to result from unfavorable factors, including higher pharmacy
utilization rates, higher than expected inflation in drug costs and the
inability to restrict the formularies under certain Nevada Plans, resulting in
higher than anticipated drug costs. The arrangements with these Nevada Plans
were terminated in August of 1998. The reserve established was adequate to
absorb the actual losses.
Selling, general and administrative expenses were $15.3 million for the
nine months ended September 30, 1998 compared to $13.1 million for the nine
months ended September 30, 1997. The acquisition of Continental accounted for
$1.1 million of the increase. The remaining $1.1 million increase reflects the
Company's continued investment in infrastructure partially offset by lower legal
costs. As a percentage of revenue, selling, general and administrative expenses
decreased to 4.7% for the nine months ended September 30, 1998 from 8.0% for the
nine months ended September 30, 1997 as revenue increases did not result in
proportional increases in expenditures.
For the nine months ended September 30, 1998, the Company recorded
interest income of $1.4 million, a decrease of $.3 million from the same period
a year ago. The decrease in interest income resulted from a reduced level of
investment opportunities due to the additional working capital needs of the
Company (See "Liquidity and Capital Resources").
For the nine months ended September 30, 1998, the Company recorded net
income of $5.8 million, or $.37 per diluted share. This compares with a net loss
of $1.8 million, or $(.15) per diluted share, for the nine months ended
September 30, 1997.
Liquidity and Capital Resources
The Company utilizes both funds generated from operations and its initial
public offering (the "Offering") for capital expenditures and working capital
needs. For the nine months ended September 30, 1998, net cash used in operating
activities totaled $1.3 million, primarily due to increases in accounts
receivable of approximately $14.6 million. The increase in accounts receivable
resulted primarily from an increase in the pharmacy benefit management business.
Such uses were largely offset by increases in claims payable of approximately
$5.0 million and payable to plan sponsors of $7.0 million. For the nine months
ended September 30, 1998, the Company purchased $1.6 million of property and
equipment with cash primarily on hand, primarily to upgrade and enhance
information systems necessary to strengthen and support the Company's ability to
manage is customers pharmacy benefits payments. The Company does not have any
additional material commitments for the remainder of 1998.
At September 30, 1998, the Company had working capital of $18.9 million,
compared to $9.3 million at December 31, 1997. Cash and cash equivalents
increased to $10.1 million at September 30, 1998 compared with $9.6 million at
December 31, 1997. The Company had investment securities held to maturity of
$20.1 million and $22.6 million at September 30, 1998 and December 31, 1997,
respectively. The decrease in investment securities was due to increased working
capital requirements.
At December 31, 1997, the Company had unused net operating loss
carryforwards of approximately $18.3 million which will begin expiring in 2008.
As it is uncertain whether the Company will realize the full benefit from these
carryforwards, the Company has recorded a valuation equal to the deferred tax
asset generated by the carryforwards. The Company assesses the need for a
valuation allowance at each balance sheet date. The Company has undergone a
"change in control" as defined by the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder. The amount of net
operating loss carryforwards that may be utilized in any given year will be
subject to a limitation as a result of this change. The annual limitation
approximates $2.7 million. Actual utilization in any year will vary based on the
Company's tax position in that year.
11
As the Company continues to grow it anticipates that its working capital needs
will also continue to increase. The Company believes that it has sufficient cash
on hand or available to fund the Company's anticipated working capital and other
cash needs for at least the next 12 months.
As part of its continued efforts to expand its pharmacy management
business, the Company expects to incur additional sales and marketing expenses.
The Company also may pursue joint venture arrangements, business acquisitions
and other transactions designed to expand its pharmacy benefit management
business, which the Company would expect to fund from cash on hand or future
indebtedness or, if appropriate, the sale or exchange of equity securities of
the Company.
Other Matters
The Company's pharmaceutical claims costs historically have been subject
to a significant increase over annual averages from October through February,
which the Company believes is due to increased medical problems during the
colder months. The resulting increase in pharmaceutical costs impacts the
profitability of risk based or capitated contracts. Risk based contracts
represented approximately 35% of the Company's revenue while non-risk contracts
represented approximately 65% of the Company's revenue for the nine months ended
September 30, 1998. Non-risk contracts mitigate the adverse effect on
profitability of higher pharmaceutical costs incurred under risk based
contracts.
Changes in prices charged by manufacturers and wholesalers for
pharmaceuticals, a component of pharmaceutical claims, have historically
affected the Company's cost of revenue. The Company believes that it is likely
for prices to continue to increase which could have an adverse effect on the
Company's gross profit. To the extent such cost increases adversely effect the
Company's gross profit, the Company may be required to increase contract rates
on new contracts and upon renewal of existing contracts. However, there can be
no assurance that the Company will be successful in obtaining these increased
rates. The higher level of non-risk contracts with the Company's customers
mitigates the adverse effects of price increases.
The TennCare(R) program has been controversial since its inception and has
generated federal and state government investigations and adverse publicity.
There can be no assurances that the Company's association with the TennCare(R)
program will not adversely affect the Company's business or results of
operations in the future.
Year 2000 disclosure
The so-called "year 2000 problem," which is common to many companies,
concerns the inability of information systems, primarily computer software
programs, to recognize properly and process date sensitive information following
December 31, 1999. The Company has committed substantial resources
(approximately $2.2 million) over the past eighteen months to improve its
information systems ("IS project"). The Company has used this IS project as an
opportunity to evaluate its state of readiness, estimate expected costs and
identify and quantify risks associated with any potential year 2000 issues.
State of Readiness:
In evaluating the Company's exposure to the year 2000 problem, management
first identified those systems that were critical to the ongoing business of the
Company and that would require significant manual intervention should those
systems be unable to process dates correctly following December 31, 1999. Those
systems were the Company's claims adjudication and processing system and the
internal accounting system (which includes pharmacy reimbursement). Once those
systems were identified, the following steps were identified as those that would
be required to be taken to ascertain the Company's state of readiness:
I. Obtaining letters from software and hardware vendors concerning the
ability of their products to properly process dates after December
31, 1999;
II. Testing the operating systems of all hardware used in the identified
information systems to determine if dates after December 31, 1999
can be processed correctly;
12
III. Surveying other parties who provide or process information in
electronic format to the Company as to their state of readiness and
ability to process dates after December 31, 1999; and
IV. Testing the identified information systems to confirm that they will
properly recognize and process dates after December 31, 1999.
The Company (excluding for purposes of this year 2000 discussion only,
Continental) anticipates completion of Step I and Step II above for all material
software and hardware by the end of the 1998. Any software or hardware
determined to be noncompliant will be modified, repaired or replaced. The
Company cannot estimate the costs of such modifications, repairs and
replacements at this time, but does not believe that the costs of such
modifications, repairs or replacements will be material. The Company will
attempt to further quantify this estimate in its Annual Report on Form 10-K for
the year ended December 31, 1998 ("1998 Form 10-K") following its completion of
Step II as described above.
With respect to Step III above, the Company has engaged in discussions
with the third party vendors that transmit data from member pharmacies and based
upon such discussions it believes that such third party vendors' systems will be
able to properly recognize and process dates after December 31, 1999. The
Company is in the process of surveying member pharmacies in its network as to
their ability to transmit data correctly to such third party vendors and
anticipates completing this survey during the first quarter of fiscal 1999. Once
this survey is complete, the Company will evaluate any additional steps required
to allow member pharmacies to transmit data after December 31, 1999 and will
disclose such additional steps, if any, and their related costs in the 1998 Form
10-K or in future periodic reports.
With respect to Step IV above, the Company intends to perform a
comprehensive year 2000 compliance test of the claims adjudication and
processing systems as part of the next regularly scheduled disaster recovery
drill, which is currently planned for the first quarter of fiscal 1999. The
Company's internal accounting and other administrative systems have been
internally developed in the last few years or are presently being developed.
Accordingly, in light of the fact that such systems were developed with a view
to year 2000 compliance, the Company fully expects that these systems will be
able to properly recognize and process dates after December 31, 1999. The
Company intends to test these systems for year 2000 compliance as part of the
test described above.
Because the Company only recently completed its acquisition of
Continental, its assessment of the state of readiness at Continental is still
ongoing and is scheduled to be completed in early 1999. The Company will
disclose its assessment of Continental's state of readiness in 1998 Form 10-K or
in future periodic reports.
Costs:
As noted above, the Company spent approximately $2.2 million over the past
18 months to improve its information systems. In addition, the Company
anticipates that it will spend approximately $1.7 million over the next 12
months to further improve its information systems. These improvements were not
specifically instituted to address the year 2000 issue, but rather to address
other business issues. Nonetheless, the IS project provided the Company with a
platform from which to address any year 2000 issues. Management does not believe
that the amount of funds expended in connection with the IS project would have
differed materially in the absence of the year 2000 problem. The Company's cash
on hand as a result of the Offering has provided all of the funds expended to
date on the IS project and is expected to provide substantially all of the funds
expected to be spent in the next 12 months on the IS project.
Risks:
On July 29, 1998, the Commission issued Release No. 33-7558 (the
"Release") in an effort to provide further guidance to reporting companies
concerning disclosure of the year 2000 problem. In this Release the Commission
required that registrants include in its year 2000 disclosure a description of
its "most reasonably likely worst case scenario." Based on the Company's
assessment and the results of remediation performed to date as described above,
the Company believes that all problems related to the year 2000 will
13
be addressed on a timely basis so that the Company will experience little or no
disruption in its business immediately following December 31, 1999. However, if
unforeseen difficulties arise, if the Company's assessment of Continental
uncovers significant problems (which is not presently expected to occur) or if
compliance testing is delayed or necessary remediation efforts are not
accomplished in accordance with the Company's plans described above, the Company
anticipates that its "most reasonably likely worst case scenario" (as required
to be described by the Release) is that some percentage of the Company's claims
would need to be processed manually for some limited period of time. At this
point in time, the Company cannot reasonably estimate the number of pharmacies
or the level of claims involved or the costs that would be incurred if the
Company were required to hire temporary staff and incur other expenses to
manually process such claims. The Company expects to be better able to quantify
the number of pharmacies and level of claims involved as well as the related
costs following its completion of the survey of member pharmacies in the first
quarter of fiscal 1999 and presently intends to disclose such estimates in the
1998 Form 10-K. In addition, the Company anticipates that all businesses
(regardless of their state of readiness), including the Company, will encounter
some minimal level of disruption in its business (e.g., phone and fax systems,
alarm systems, etc.) as a result of the year 2000 problem. However, the Company
does not believe that it will incur any material expenses or suffer any material
loss of revenues in connection with such minimal disruptions.
Contingency Plans:
As discussed above, in the event of the occurrence of the "most reasonably
likely worst case scenario" the Company would hire an appropriate level of
temporary staff to manually process the pharmacy claims submitted on paper. As
discussed above, at this time the Company cannot reasonably estimate the number
of pharmacies or level of claims involved or the costs that would be incurred if
the Company were required to hire temporary staff and incur other expenses to
manually process such claims. While some level of manual processing is common in
the industry and while manual processing increases the time it takes the Company
to pay the member pharmacies and invoice the related payors, the Company does
not foresee any material lost revenues or other material expenses in connection
with this scenario. However, an extended delay in processing claims, making
payments to pharmacies and billing the Company's customers could adversely
impact the Company's liquidity.
In addition, while not part of the "most reasonably likely worst case
scenario," the delay in paying such pharmacies for their claims could result in
adverse relations between the Company and the pharmacies. Such adverse relations
could cause certain pharmacies to drop out of the Company's networks which in
turn could cause the Company to be in breach under service area provisions under
certain of its services agreements with its customers. The Company does not
believe that any material relationship with any pharmacy will be so affected or
that any material number of pharmacies would withdraw from the Company's
networks or that it will breach any such service area provision of any contract
with its customers. Notwithstanding the foregoing, based upon past experience,
the Company believes that it could quickly replace any such withdrawing pharmacy
so as to prevent any breach of any such provision. The Company cannot presently
reasonably estimate the possible impact in terms of lost revenues, additional
expenses or litigation damages or expenses that could result from such events.
Forward Looking Statements:
Certain information set forth above regarding the year 2000 problem and
the Company's plans to address those problems are forward looking statements
under the Securities Act and the Exchange Act. See the second paragraph of
Management's Discussion and Analysis of Financial Condition and Results of
Operations for a discussion of forward looking statements and related risks and
uncertainties. In addition, certain factors particular to the year 2000 problem
could cause actual results to differ materially from those contained in the
forward looking statements, including, without limitation: failure to identify
critical information systems which experience failures, delays and errors in the
compliance and remediation efforts described above, unexpected failures by key
vendors, member pharmacies, software providers or business partners to be year
2000 compliant or the inability to repair critical information systems. In any
such event, the Company's results of operations and financial condition could be
adversely affected. In addition, the
14
failure to be year 2000 compliant of third parties outside of our control such
as electric utilities or financial institutions could adversely effect the
Company's results of operations and financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
15
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
From August 14, 1996 through September 30, 1998, the $46,788,000 net
proceeds from the Offering, pursuant to a Registration Statement assigned file
number 333-05327 by the Securities and Exchange Commission (the "Commission")
and declared effective by the Commission on August 14, 1996, have been applied
in the following approximate amounts:
Construction of plant, building and facilities.................$ --
Purchase and installation of machinery and equipment...........$ 3,171,000
Purchases of real estate.......................................$ --
Acquisition of other business..................................$ 2,300,000
Repayment of indebtedness......................................$ --
Working capital................................................$11,036,000
Temporary investments:
Marketable securities.......................................$20,135,000
Overnight cash deposits.....................................$10,146,000
To date the Company has expended a relatively insignificant portion of the
Offering proceeds on expansion of the Company's "preferred generics" business
although, at the time of the Offering as disclosed in the prospectus related
thereto, the Company intended to apply approximately $18.6 million of Offering
proceeds to fund such expansion. As of the date of this filing, the Company has
not determined the ultimate amount or timing of application of Offering proceeds
to such use.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders ("Annual Meeting") was held
on August 21, 1998 in Trumbull, Connecticut. Listed below are the proposals
submitted to stockholder vote in the Company's Proxy Statement dated August 5,
1998 and the results of the stockholder voting at the Annual Meeting.
1. Issuance of 3,912,448 shares of Common Stock to the holders of Continental in
connection with the merger through which Continental became a wholly owned
subsidiary of the Company.
For Against Abstain
--- ------- -------
8,529,695 40,200 6,800
2. Election of six directors to serve a one-year term. The Company's nominated
and elected directors are Richard H. Friedman, Scott R. Yablon, Louis A. Luzzi,
Ph. D., Richard Cirillo, Michael Kooper and Louis DiFazio, Ph.D. Each of the
directors received the same number of votes.
For Against
--- -------
8,537,295 39,400
3. Transact other Company business that properly comes before the Annual
Meeting.
For Against Abstain
--- ------- -------
8,359,759 171,915 15,021
There were no other proposals submitted for stockholder approval at the Annual
Meeting.
16
Item 5. Other Information
On August 24, 1998, the Company completed its acquisition of Continental,
which provides pharmacy benefit management and mail order pharmacy services. The
acquisition was treated as a purchase for financial reporting purposes. The
Company issued 3,912,448 shares of Common Stock as consideration for the
purchase. The aggregate purchase price, including costs of acquisition of $.9
million, approximated $18.9 million. Assets acquired approximated $11.3 million
and liabilities assumed approximated $12.0 million resulting in approximately
$19.6 million of goodwill and other intangible assets which will be amortized
over their estimated useful lives (25 years and 6.5 years, respectively). The
consolidated financial statements of the Company for the three and nine month
periods include the results of Continental from date of acquisition.
Effective July 6, 1998, the Company consummated a stock option repricing
program. Each then current employee of the Company holding options under the
Company's 1996 Stock Incentive Plan was offered an opportunity to reprice the
exercise price of not less than all options granted at a particular exercise
price to an exercise price of $6.50 per share. In consideration of receiving
repriced options, each employee agreed that all such repriced options, including
those already vested, would become unvested and exercisable in three equal
installments on the first three anniversaries of the date of the repricing.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
10.51 Employment Agreement dated August 19, 1998
between MIM Corporation and Edward J. Sitar.
27 Financial Data Schedule
(b) Reports on Form 8-K
September 8, 1998: Item 2 - reporting the closing of the Continental
transaction; Item 7 - providing historical and pro forma financial
information regarding the Continental transaction and filing other
relevant exhibits.
September 14, 1998: Item 5 - reporting a change in address as a result of
the move of the Company's principal executive offices.
17
SIGNATURES
Pursuant to the requirements 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.
MIM Corporation
Date: November 16, 1998 /s/ Scott R. Yablon
--------------------------------------------
Scott R. Yablon
President, Chief Operating Officer, Chief
Financial Officer and Director
(Principal Financial Officer)
18
EXHIBIT INDEX
Exhibit 10.51 Employment Agreement dated August 19, 1998 between MIM
Corporation and Edward J. Sitar.
Exhibit 27 Financial Data Schedule
19
September 1, 1998
Via Federal Express
Mr. Edward J. Sitar
960 Glenwood Avenue
Plainfield, New Jersey 07060-3420
Re: MIM Corporation
Dear Ed:
MIM Corporation, a Delaware corporation (the "Company"), is pleased to
offer you employment as the Vice President - Finance of the Company, on the
terms and subject to the conditions set forth below. The terms and conditions of
your employment, upon your execution and delivery of this letter to us, will be
as follows:
1. POSITION AND DUTIES Vice President - Finance of the Company,
with overall responsibility for the
accounting and finance areas of the Company
and its subsidiaries and affiliates
including, but not limited to:
(i) Preparation of, and primary
responsibility for all audited and
unaudited financial statements
relating to the Company and its
subsidiaries and affiliates; and
(ii) the hiring of personnel in support of
such group, with the prior approval
of Chief Operating Officer.
In such capacity, you shall report to, and
shall have such further duties as shall be
assigned to you by, the Company's President
and Chief Operating Officer, Scott R.
Yablon.
2. TERM: Subject to the execution and delivery of
this letter, a Non-Qualified Stock Option
Agreement substantially in the form attached
hereto as Exhibit A (the "Option Agreement")
and the Restrictive Covenants substantially
in the form attached hereto as Exhibit B,
each between the Company and you, your
employment shall commence and shall continue
until terminated by you or the Company. The
first year of your employment shall
terminate on December 31, 1998. Each year of
your employment thereafter shall coincide
with the calendar year.
Mr. Edward J. Sitar
September 1, 1998
Page 2
3. BASE COMPENSATION: Your base salary shall be at the rate of
$165,000.00 per calendar year, payable
bi-weekly, or at such other times as other
employees of the Company are paid generally.
Your performance and compensation shall be
reviewed twelve (12) months after the
commencement of your employment and every
twelve (12) months thereafter. However, any
increase in your compensation shall be in
the Company's sole and absolute discretion.
4. BONUS COMPENSATION: During your employment, you shall be
eligible to receive bonus compensation under
the Company's executive bonus program
established for the benefit of senior
executives of the Company. During your first
year of employment ending December 31, 1998,
you not will be eligible to receive any such
bonus. You will be eligible to receive
bonuses under this program beginning in
fiscal 1999.
Eligibility for the aforementioned bonuses
will be premised upon your continuing
employment through the end of the calendar
year to which the bonus in any year of your
employment relates.
All base, bonus or other compensation
received shall be subject to applicable
federal, state and local withholding and
other taxes.
5. TRANSPORTATION
ALLOWANCE: During your employment, the Company will
provide you with a monthly allowance of $500
for the use of an automobile.
6. MOVING EXPENSES: The Company will pay or reimburse you for
all reasonable expenses actually incurred by
you, up to a maximum of $25,000, in
connection with the sale of your current
primary residence, the purchase of a new
primary residence in reasonable proximity to
the Company's principal executive offices
and the moving of your household items to
your new residence, including without
limitation, broker or agent's sales
commissions, reasonable legal fees and
expenses and financing costs.
Mr. Edward J. Sitar
September 1, 1998
Page 3
7. PARTICIPATION IN BENEFIT
PLANS; VACATION: During your employment with the Company, you
shall be permitted, if and to the extent
eligible, to participate in all employee
benefit plans, policies and practices now or
hereafter maintained by or on behalf of the
Company, commensurate with your position
with the Company. Nothing in this agreement
shall preclude the Company from terminating
or amending any such plans or coverage so as
to eliminate, reduce or otherwise change any
benefit payable thereunder. You shall also
be entitled to receive $3,000.00 toward
insurance premiums. You will be entitled to
three weeks of vacation in 1999 and four
weeks of vacation thereafter.
8. EXPENSES: Subject to such policies as may from time to
time be established by the Company's Board
of Directors, the Company will pay or
reimburse you for all reasonable and
necessary expenses actually incurred or paid
by you during the term of your employment in
the performance of your duties under this
agreement, upon submission and approval of
expense statements, vouchers or other
reasonable supporting information in
accordance with the then customary practices
of the Company.
9. SEVERENCE;
CHANGE OF CONTROL: If, within the three-month period following
a "Change of Control" (as defined below),
you are terminated by the Company or a
successor entity or you elect to terminate
your employment after the Company or such
successor entity materially reduces your
duties and responsibilities, or assigns you
duties materially inconsistent with your
position prior to such Change of Control,
then you shall be entitled to receive six
months salary and other benefits earned and
accrued prior to the effective date of the
termination of your employment (and
reimbursement for expenses incurred prior
thereto).
In addition, all outstanding unvested
options held by you shall vest and become
immediately exercisable and shall otherwise
be exercisable in accordance with their
terms. In such event, you shall also become
vested in any pension or other deferred
compensation other than pension or deferred
compensation under a plan intended to be
qualified under Section 401(a) or
Mr. Edward J. Sitar
September 1, 1998
Page 4
403(a) of the Internal Revenue Code of 1986,
as amended. Thereafter you shall have no
further rights to any other compensation or
benefits hereunder on or after the
termination of employment or other
triggering event, or any other rights
hereunder.
For purposes of this Agreement, "Change of
Control" means the occurrence of one of the
following:
(i) a "person" or "group" within the
meaning of sections 13(d) and 14(d)
of the Securities and Exchange Act of
1934 (the "Exchange Act") becomes the
"beneficial owner" (within the
meaning of Rule 13d-3 under the
Exchange Act) of securities of the
Company (including options, warrants,
rights and convertible and
exchangeable securities) representing
50% or more of the combined voting
power of the Company's then
outstanding securities in any one or
more transactions; provided, however,
that purchases by employee benefits
plans of the Company and by the
Company or its affiliates shall be
disregarded; or
(ii) any sale, lease, exchange or other
transfer (in one transaction or a
series of related transactions) of
all or substantially all of the
operating assets of the Company; or
(iii) a merger or consolidation, or a
transaction having a similar effect
(unless such merger, consolidation or
similar transaction is with a
subsidiary of the Company or with
another company, a majority of whose
outstanding capital stock is owned by
the same persons or entities who at
that time own a majority of the
Company's outstanding common stock
(the "Common Stock")), where (A) the
Company is not the surviving
corporation, (B) the majority of the
Common Stock of the Company is no
longer held by the stockholders of
the Company immediately prior to the
transaction, or (C) the Company's
Common Stock is converted into cash,
securities or other property (other
than the common stock of a company
into which the Company is merged).
Mr. Edward J. Sitar
September 1, 1998
Page 5
10. OPTIONS TO PURCHASE
COMMON STOCK: As further compensation hereunder, and to
induce you to accept our employment offer,
effective upon the later to occur of the
date you commence your employment with the
Company and the date you execute the Option
Agreement, the Company shall grant to you
50,000 options to purchase the Common Stock,
par value $0.0001 per share, of the Company
("Common Stock"), on the terms and
conditions set forth in the form of Option
Agreement as aforesaid. The grant of your
options to purchase Common Stock is subject,
however, to approval by the Company's
Compensation Committee of its Board of
Directors. Such options shall vest over a
three year period in three equal annual
installments, all as more fully set forth in
the Option Agreement.
11. RESTRICTIVE COVENANTS: Contemporaneously with the commencement of
your employment, you shall execute and
deliver the Restrictive Covenants
substantially in the form attached hereto as
Exhibit, whereby, among other things, you
will agree to not compete with the
"Business" of the Company (as defined)
during the term of your employment and for a
period of one year following such
termination and to not disclose to any third
party any trade secrets or proprietary
information relating to the Company, now or
hereafter acquired by you.
12. ASSIGNABILITY; BINDING
NATURE: This agreement is binding upon, and will
inure to the benefit of the parties hereto
and their respective successors, heirs,
administrators, executors and assigns. None
of your rights or obligations under this
agreement may be transferred by will or
operation of law. The rights and obligation
of the Company under this agreement may be
assigned or transferred by operation of law
in the event of a merger or consolidation in
which the Company is not the continuing
entity, or the sale or liquidation of all or
substantially all of the assets of the
Company.
13. ENTIRE AGREEMENT: This agreement supersedes all prior
agreements and, together with the Option
Agreement, the Confidentiality Agreement and
the Non-Competition Agreement, contains the
entire
Mr. Edward J. Sitar
September 1, 1998
Page 6
agreement between the parties concerning the
subject matter hereof.
14. AMENDMENTS AND WAIVERS: This agreement may not be modified, amended,
waived, discharged or terminated orally, but
only by an instrument in writing signed by
the party against whom enforcement of the
change, waiver, discharge or termination is
sought.
15. NOTICES: Any notice given hereunder must be in
writing and will be deemed received when
delivered personally or by courier, or five
(5) days after being mailed, certified or
registered mail, return receipt requested
and duly addressed to the party concerned at
the address indicated above or at such other
address as such party may subsequently
provide in writing.
16. GOVERNING LAW: The agreement will be governed by, and
construed and interpreted in accordance with
the laws of the State of New York.
Mr. Edward J. Sitar
September 1, 1998
Page 7
If you are in agreement with the terms and conditions of your employment
pursuant to this letter agreement, kindly execute this letter agreement in the
space provided below and return it to the undersigned.
Sincerely yours,
MIM Corporation
By: /s/ Barry A. Posner
Name: Barry A. Posner
Title: Vice President and General
Counsel
AGREED TO AND ACCEPTED BY:
/s/ Edward J. Sitar
Name: Mr. Edward J. Sitar
Mr. Edward J. Sitar
September 1, 1998
Page 8
Exhibit B
RESTRICTIVE COVENANTS
Covenant Against Competition; Other Covenants. The Executive acknowledges
that (i) the principal business of the Company is the provision of a broad range
of services designed to promote the cost-effective delivery of pharmacy
benefits, including pharmacy benefit management services, claims processing
and/or the purchasing of pharmaceutical products on behalf of pharmacy networks
and long term care facilities (including assisted living facilities and nursing
homes) (such business, and any and all other businesses that after the date
hereof, and from time to time during the Term, become material with respect to
the Company's then-overall business, herein being collectively referred to as
the "Business"); provided, however, that Business shall not include any areas of
business and/or services that the Company is not engaged in at such time that
the Company is sold, merged, consolidated or any other event that would
constitute a "Change of Control" (as defined in Section 9 of the Agreement),
regardless of whether the successor or acquiring entity is then engaged in such
other areas of business and/or services; (ii) the Company is dependent on the
efforts of a certain limited number of persons who have developed, or will be
responsible for developing the Company's Business; (iii) the Company's Business
is national in scope; (iv) the Executive's work for the Company has given and
will continue to give him access to the confidential affairs and proprietary
information of the Company; (v) the covenants and agreements of the Executive
contained in these Restrictive Covenants are essential to the business and
goodwill of the Company; and (vi) the Company would not have entered into the
Agreement (as defined below) but for the covenants and agreements set forth
herein. Accordingly, the Executive covenants and agrees that:
(a) At any time during his employment with the Company and ending
one year following (i) termination of the Executive's employment with the
Company (irrespective of the reason for such termination) or (ii) payment of any
severance in accordance with Section 9 of Executive's Employment Agreement with
the Company dated September 1, 1998 (the "Agreement"), whichever occurs last,
the Executive shall not engage, directly or indirectly (which includes, without
limitation, owning, managing, operating, controlling, being employed by, giving
financial assistance to, participating in or being connected in any material way
with any person or entity other than the Company), anywhere in the United States
in (i) the Business and (ii) any 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
Mr. Edward J. Sitar
September 1, 1998
Page 9
outstanding stock of a publicly held corporation shall not be deemed to
constitute competition.
(b) During and after the period during which the Executive is
employed, the Executive shall keep secret and retain in strictest confidence,
and shall not use for his benefit or the benefit of others, except in connection
with the Business and affairs of the Company and its affiliates, all
confidential matters relating to the Company's Business and the business of any
of its affiliates and to the Company and any of its affiliates, learned by the
Executive heretofore or hereafter directly or indirectly from the Company or any
of its affiliates (the "Confidential Company Information"), including, without
limitation, information with respect to (i) the strategic plans, budgets,
forecasts, intended expansions of product, service, or geographic markets of the
Company and its affiliates, (ii) sales figures, contracts, agreements, and
undertakings with or with respect to customers, (iii) profit or loss figures,
and (iv) customers, clients, suppliers, sources of supply and customer lists,
and shall not disclose such Confidential Company Information to anyone outside
of the Company except with the Company's express written consent and except for
Confidential Company Information which is at the time of receipt or thereafter
becomes publicly known through no wrongful act of the Executive or is received
from a third party not under an obligation to keep such information confidential
and without breach of these Restrictive Covenants or the Agreement.
Notwithstanding the foregoing, this section (b) shall not apply to the extent
that the Executive is acting to the extent necessary to comply with legal
process; provided that in the event that the Executive is subpoenaed to testify
or to produce any information or documents before any court, administrative
agency or other tribunal relating to any aspect pertaining to the Company, he
shall immediately notify the Company thereof.
(c) During the period commencing on the date hereof and ending two
years following the date upon which the Executive shall cease to be an employee
of the Company or its affiliates, the Executive shall not, without the Company's
prior written consent, directly or indirectly, solicit or encourage to leave the
employment or other service of the Company or any of its affiliates, any
employee or independent contractor thereof or hire (on behalf of the Executive
or any other person or entity) any employee or independent contractor who has
left the employment or other service of the Company or any of its affiliates
within one year of the termination of such employee's or independent
contractor's employment or other service with the Company and its affiliates.
During such period, the Executive will not, whether for his own account or for
the account of any other person, firm, corporation or other business
organization, intentionally interfere with the Company's or any of its
affiliates' relationship with, or endeavor to entice away from the Company or
any of its affiliates, any person who during the Term is or was a customer or
client of the Company or any of its affiliates.
Mr. Edward J. Sitar
September 1, 1998
Page 10
(d) All memoranda, notes, lists, records, property and any other
tangible product and documents (and all copies thereof) made, produced or
compiled by the Executive or made available to the Executive concerning the
Business of the Company and its affiliates shall be the Company's property and
shall be delivered to the Company at any time on request.
Rights and Remedies upon Breach of Restrictive Covenants.
(a) The Executive acknowledges and agrees that any breach by him of
any of the provisions of sections (a) through (d) above (the "Restrictive
Covenants") would result in irreparable injury and damage for which money
damages would not provide an adequate remedy. Therefore, if the Executive
breaches, or threatens to commit a breach of, any of the Restrictive Covenants,
the Company and its affiliates shall have the following rights and remedies,
each of which rights and remedies shall be independent of the other and
severally enforceable, and all of which rights and remedies shall be in addition
to, and not in lieu of, any other rights and remedies available to the Company
and its affiliates under law or in equity (including, without limitation, the
recovery of damages):
(i) The right and remedy to have the Restrictive Covenants
specifically enforced (without posting bond and without the need to prove
damages) by any court having equity jurisdiction, including, without limitation,
the right to an entry against the Executive of restraining orders and
injunctions (preliminary, mandatory, temporary and permanent) against
violations, threatened or actual, and whether or not then continuing, of such
covenants.
(ii) The right and remedy to require the Executive to account
for and pay over to the Company and its affiliates all compensation, profits,
monies, accruals, increments or other benefits (collectively, "Benefits")
derived or received by him as the result of any transactions constituting a
breach of the Restrictive Covenants, and the Executive shall account for and pay
over such Benefits to the Company and, if applicable, its affected affiliates.
(b) The Executive agrees that in any action seeking specific
performance or other equitable relief, he will not assert or contend that any of
the provisions of these Restrictive Covenants are unreasonable or otherwise
unenforceable. The existence of any claim or cause of action by the Executive,
whether predicated on the Agreement or otherwise, shall not constitute a defense
to the enforcement of the Restrictive Covenants.
/s/ Edward J. Sitar
Edward J. Sitar
5
9-MOS
DEC-31-1998
JAN-1-1998
SEP-30-1998
10,146
20,135
50,644
3,008
905
78,637
8,554
4,108
106,278
59,721
0
0
0
2
40,578
106,278
323,578
323,578
303,883
303,883
0
10
0
5,780
0
5,780
0
0
0
5,780
0.41
0.37
