FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 0-28740
MIM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 05-0489664
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Blue Hill Plaza, Pearl River, New York 10965
(Address of principal executive offices)
(914) 735-3555
(Registrant's telephone number, including area code)
---------------------------------------------------
(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 5, 1998, there were outstanding 13,842,000 shares of the
Company's $.0001 par value per share common stock ("Common Stock").
<PAGE>
INDEX
Page Number
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PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets at
June 30, 1998 (Unaudited) and December 31, 1997 3
Unaudited Consolidated Statements of Operations for the
three months and six months ended June 30, 1998 and 1997 4
Unaudited Consolidated Statements of Cash Flows for the
three months and six months ended June 30, 1998 and 1997 5
Notes to the Unaudited Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 10
Item 3 Quantitative and Qualitative Disclosures about Market Risk 11
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 12
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
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PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,583 $ 9,593
Investment securities 20,715 19,235
Receivables, less allowance for doubtful accounts of
$1,439 and $1,386 at June 30, 1998 and December 31,
1997, respectively 41,005 23,666
Prepaid expenses and other current assets 1,222 888
-------- --------
Total current assets 65,525 53,382
Investment securities, net of current portion 351 3,401
Other investments 2,300 2,300
Property and equipment, net 3,832 3,499
Due from affiliates, less allowance for doubtful accounts
of $2,360, in 1998 and 1997 -- --
Other assets, net 353 145
-------- --------
Total assets $ 72,361 $ 62,727
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations 231 $ 222
Accounts payable 1,042 931
Deferred revenue -- 2,799
Claims payable 31,829 26,979
Payables to plan sponsors and others 13,073 10,839
Accrued expenses 4,105 2,279
-------- --------
Total current liabilities 50,280 44,049
Capital lease obligations, net of current portion 639 756
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,
13,732,000 and 13,335,120 shares issued and outstanding
at June 30, 1998 and December 31, 1997, respectively 1 1
Additional paid-in capital 73,603 73,585
Accumulated deficit (51,536) (55,061)
Stockholder notes receivable (1,738) (1,715)
-------- --------
Total stockholders' equity 20,330 16,810
-------- --------
Total liabilities and stockholders' equity $ 72,361 $ 62,727
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $ 109,878 $ 45,833 $ 207,841 $ 116,644
Cost of revenue 103,660 41,972 196,044 108,801
--------- --------- --------- ---------
Gross profit 6,218 3,861 11,797 7,843
Selling, general and administrative expenses 4,811 3,994 9,261 7,903
--------- --------- --------- ---------
Income from operations 1,407 (133) 2,536 (60)
Interest income, net 483 548 990 1,171
--------- --------- --------- ---------
Income before minority interest 1,890 415 3,526 1,111
Minority interest (1) 3 (1) 5
--------- --------- --------- ---------
Net income $ 1,889 $ 418 $ 3,525 $ 1,116
========= ========= ========= =========
Basic earnings per share $ 0.14 $ 0.03 $ 0.26 $ 0.09
========= ========= ========= =========
Diluted earnings per share $ 0.12 $ 0.03 $ 0.23 $ 0.07
========= ========= ========= =========
Weighted average shares outstanding used in computing
basic earnings per share 13,594 12,154 13,471 12,119
========= ========= ========= =========
Weighted average shares outstanding used in computing
diluted earnings per share 15,489 15,163 15,467 15,163
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,525 $ 1,116
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Net income (loss) allocated to minority interest 1 (5)
Depreciation and amortization 721 513
Stock option charges 14 121
Provision for losses on receivables and loans to affiliates 53 570
Changes in assets and liabilities:
Receivables (17,392) (2,284)
Prepaid expenses and other assets (334) (25)
Accounts payable 111 (949)
Deferred revenue (2,799) --
Claims payable 4,850 (6,942)
Payables to plan sponsors and others 2,234 2,274
Accrued expenses 1,826 (215)
-------- --------
Net cash used in operating activities (7,190) (5,826)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (1,051) (710)
Purchase of investment securities (16,855) (17,933)
Proceeds from maturities of investment securities 18,425 25,262
Increase in other assets (211) (179)
Stockholder loans, net (23) (47)
Loans to affiliates, net -- 347
-------- --------
Net cash used in investing activities 285 6,740
-------- --------
Cash flows from financing activities:
Principal payments on capital lease obligations (108) (107)
Proceeds from exercise of stock options 3 --
-------- --------
Net cash used in financing activities (105) (107)
-------- --------
Net increase (decrease) in cash and cash equivalents (7,010) 807
Cash and cash equivalents--beginning of period 9,593 1,834
-------- --------
Cash and cash equivalents--end of period $ 2,583 $ 2,641
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ -- $ --
======== ========
Interest $ 37 $ 22
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Equipment acquired under capital lease obligations $ -- $ --
======== ========
Distribution to stockholder through the cancellation of
stockholder notes receivable $ -- $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information, 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 six months ended
June 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").
The accounting policies following 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 for per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 1,889 $ 418 $ 3,525 $ 1,116
======= ======= ======= =======
Denominator:
Weighted average number of common shares
outstanding 13,594 12,154 13,601 12,119
------- ------- ------- -------
Basic Earnings per Share $ .14 $ .03 $ .26 $ .09
======= ======= ======= =======
Denominator:
Weighted average number of common shares
outstanding 13,594 12,154 13,471 12,119
------- ------- ------- -------
Common share equivalents of outstanding stock
options 1,895 3,009 1,996 3,044
------- ------- ------- -------
Total shares outstanding 15,489 15,163 15,467 15,163
------- ------- ------- -------
Diluted Earnings per Share $ .12 $ .03 $ .23 $ .07
======= ======= ======= =======
</TABLE>
6
<PAGE>
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 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 business
development activities, future capital expenditures, the effects of regulation
and competition on the Company's business, future operating performance of the
Company and the results 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 capitated
(i.e., risk-based) contracts, increased government regulation related to the
health care industry 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 and the Form 10-K contain information regarding
important factors which could cause such differences. MIM 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. 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 June 30, 1998, the Company
provided pharmacy benefit management services to 47 health plan sponsors with an
aggregate of approximately 2.0 million plan members. TennCare(R) represented
eight health plans with approximately 1.3 million plan members.
The Company intends to offset, against profit sharing amounts, if any, due
RxCare in the future under the Company's contract with RxCare, approximately
$2.6 million, representing RxCare's share of the Company's cumulative losses and
amounts previously advanced or paid to RxCare as of June 30, 1998.
The contract with RxCare expires on December 31, 1998. In total, this
contract accounted for 74.2% of the Company's revenues for the six months ended
June 30, 1998. While this contract expires by its terms on December 31, 1998, it
automatically renews for a one year period ending December 31, 1999 unless a
termination notice is given by either party on or before October 3, 1998. While
management believes that this contract will be renewed, there can be no
assurance that it will be renewed at all or on terms as favorable as those
currently in effect. Failure to renew this contract in total 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.
Results of Operations
Three months ended June 30, 1998 compared to three months ended June 30, 1997
For the three months ended June 30, 1998, the Company recorded revenue of
$109.9 million compared with revenue of $45.8 million for the three months ended
June 30, 1997, an increase of $64.1 million. Approximately $23.0 million of the
increase in revenues resulted from servicing 12 new commercial plans covering
approximately 404,000 lives throughout the United States as well as increased
enrollment of approximately 102,000 lives in
7
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existing commercial plans. Certain plans managed by Sierra Health Services Inc.
(the "Sierra Plans"), enrolled in October 1997, accounted for $11.7 million of
the $23.0 million increase in commercial revenues. TennCare(R) sponsors were
responsible for the remaining $41.1 million increase of revenue. Approximately
$25.1 million of this increase in revenues from TennCare(R) contracts was
attributable to new contracts entered into in the fourth quarter of 1997 with
one TennCare(R) behavioral health organization ("BHO") and one TennCare(R)
managed care organization ("MCO") to which the Company previously provided
pharmacy benefit management services (the "New TennCare(R) Contracts"). In
addition, contract renewals on more favorable terms since the beginning of the
year and increased enrollment in existing TennCare(R) sponsors increased
revenues by $16.0 million. During the three months ended June 30, 1998,
approximately 35% of the Company's revenues were generated from risk - based
(capitated) contracts, compared to 50% during the three months ended June 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. All of the Company's BHO contracts together
provided $29.1 million of revenues for the three months ended June 30, 1998.
Failure to renew these contracts 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 June 30, 1998 increased to
$103.7 million from $42.0 million for the three months ended June 30, 1997, an
increase of $61.7 million. New commercial contracts together with increased
enrollment in existing commercial plans accounted for $24.4 million of this
increase in cost of revenue (including costs of $11.7 million attributable to
the Sierra Plans). TennCare(R) contracts were responsible for the remaining
$37.3 million of increased cost of revenue. Costs relating to the two New
TennCare(R) Contracts accounted for $22.3 million of such increase and
eligibility increases in existing plans, increased drug prices and increased
utilization of prescription drugs under TennCare(R) contracts accounted for the
remaining $15.0 million of such increase in cost of revenue. As a percentage of
revenue, cost of revenue increased to 94.3% for the three months ended June 30,
1998 from 91.6% for the three months ended June 30, 1997 primarily due to higher
than expected utilization under certain risk-based contracts and continued
increases in drug costs under risk-based contracts.
Selling, general and administrative expenses were $4.8 million for the
three months ended June 30, 1998 compared to $4.0 million for the three months
ended June 30, 1997, an increase of $0.8 million. These increased expenses
reflect the Company's continuing commitment to enhance its ability to manage
efficiently its growth in pharmacy benefits by investing in additional
operational and clinical personnel as well as information technology systems to
support new and existing customers. In addition, the Company incurred additional
legal costs primarily in connection with the final settlement of its dispute
with Sierra. As a percentage of revenue, selling, general and administrative
expenses decreased to 4.4% for the three months ended June 30, 1998 from 8.7%
for the three months ended June 30, 1997.
For the three months ended June 30, 1998, the Company recorded net income
of $1.9 million, or $0.14 per basic share. This compares with net income of $0.4
million, or $0.03 per basic share, for the three months ended June 30, 1997.
This increase is due largely to the above-described changes in revenue and cost
of revenue.
Six months ended June 30, 1998 compared to six months ended June 30, 1997
For the six months ended June 30, 1998, the Company recorded revenue of
$207.8 million compared with revenue of $116.6 million for the six months ended
June 30, 1997, an increase of $91.2 million. Approximately $40.5 million of the
increase in revenues resulted from servicing 12 new commercial plans covering
approximately 404,000 lives throughout the United States as well as increased
enrollment of approximately 102,000 lives in existing commercial plans. The
Sierra Plans accounted for $21.8 million of the $40.5 million increase in
commercial revenues. TennCare(R) sponsors were responsible for the remaining
$50.7 million increase in revenue. Approximately $46.0 million of the increase
in revenues from TennCare(R) contracts was attributable to the New TennCare(R)
Contracts. In addition, contract renewals on more favorable terms during the
first six months of 1998 and increased enrollment in other existing TennCare(R)
sponsors increased revenues by $30.5 million. These increases in TennCare(R)
revenues were partially offset by a decrease of $25.8 million from the
restructuring in April 1997 of a major TennCare(R) contract. The contract was
restructured from a risk-based (capitated) arrangement to a non-risk
(fee-for-service) arrangement, although the Company continued to provide
essentially the same services under the restructured contract. During the six
months ended June 30, 1998, approximately 37% of the Company's
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revenues were generated from risk-based (capitated) contracts, compared to 61%
during the six months ended June 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. All of the Company's BHO contracts together
provided $53.9 million of revenues for the six months ended June 30, 1998.
Failure to renew these contracts 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 six months ended June 30, 1998 increased to $196.0
million from $108.8 million for the six months ended June 30, 1997, an increase
of $87.2 million. New commercial contracts together with increased enrollment in
existing commercial plans accounted for $42.7 million of such increase in cost
of revenue (including costs of $21.7 million attributable to the Sierra Plans).
TennCare(R) contracts were responsible for the remaining $44.5 million of
increased cost of revenue. Costs relating to the two New TennCare(R) Contracts
accounted for $42.3 million of such increase and eligibility increases in
existing plans, increased drug prices and increased utilization of prescription
drugs under TennCare(R) contracts accounted for the remaining $27.5 million of
such increased cost of revenue. These costs were offset by the above-mentioned
restructuring of a major TennCare(R) contract, which resulted in a decrease in
cost of revenue of $25.3 million. As a percentage of revenue, cost of revenue
increased to 94.3% for the six months ended June 30, 1998 from 93.3% for the six
months ended June 30, 1997 primarily due to higher than expected utilization
under certain risk-based contracts and continued increases in drug costs under
risk-based contracts.
At December 31, 1997, a reserve of $4.1 million was established for
anticipated losses in connection with the Sierra Plans. These losses are
expected to result from unfavorable factors, including higher pharmacy
utilization rates than contained in Sierra's historic claims data, higher than
expected inflation in drug costs and the inability to restrict the formularies
under certain Sierra Plans, resulting in higher than anticipated drug costs. For
the six months ended June 30, 1998, $3.4 million of this $4.1 million reserve
was utilized. Management believes that the remaining reserve is adequate to
cover any further losses in connection with the Sierra Plans. The Company's
contract covering the Sierra Plans terminated on August 6, 1998. This
termination is expected to reduce revenues by approximately $3.5 million per
month, but will have no impact on net income in 1998 as the Company reserved for
all anticipated losses in connection with the Sierra Plans at December 31, 1997.
Selling, general and administrative expenses were $9.3 million for the six
months ended June 30, 1998 compared to $7.9 million for the six months ended
June 30, 1997, an increase of $1.4 million. These increased expenses reflect the
Company's continuing commitment to enhance its ability to efficiently manage its
growth in pharmacy benefits by investing in additional operational and clinical
personnel as well as information technology systems to support new and existing
customers. In addition, the Company incurred additional legal costs primarily in
connection with the final settlement of its dispute with Sierra. As a percentage
of revenue, selling, general and administrative expenses decreased to 4.5% for
the six months ended June 30, 1998 from 6.8% for the six months ended June 30,
1997.
For the six months ended June 30, 1998, the Company recorded interest
income of $1.0 million, a decrease of $0.2 million. The decrease in interest
income resulted from a reduced level of investments due to additional working
capital needs of the Company. The level of invested funds decreased $1.6 million
to $23.4 million.
For the six months ended June 30, 1998, the Company recorded net income of
$3.5 million, or $0.26 per basic share. This compares with net income of $1.1
million, or $0.09 per basic share, for the six months ended June 30, 1997. This
increase is due largely to the above-described changes in revenue and cost of
revenue.
Liquidity and Capital Resources
For the six months ended June 30, 1998, net cash used in operating
activities totaled $7.2 million, primarily due to increases in receivables of
approximately $17.4 million. The increase in accounts receivable resulted
primarily from a proportionate increase in pharmacy benefit management business
during the period. In addition, the timing of billing and collection for certain
TennCare(R) clients previously being processed by an outside vendor changed
after the Company began processing these claims in-house. This transition
initially caused a delay in billing and
9
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collections for these clients. Such uses were partially offset by increases in
claims payable of approximately $4.9 million.
At June 30, 1998, the Company had working capital of $15.2 million,
compared to $9.3 million at December 31, 1997. Cash and cash equivalents
decreased to $2.6 million at June 30, 1998 compared with $9.6 million at
December 31, 1997, primarily for the reasons described above. The Company had
investment securities held to maturity of $21.1 million and $22.6 million at
June 30, 1998 and December 31, 1997, respectively.
At June 30, 1998, the Company had, for tax purposes, 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
its deferred tax assets, the Company has recorded a valuation allowance for the
same amount. The Company will assess the need for a valuation allowance at each
balance sheet date. The amount of net operating loss carryforwards which may be
utilized in any given year may become limited by the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder, if a
cumulative change in ownership of more than 50% occurs within a three year
period.
The Company believes that its financial condition and capital structure as
a result of its initial public offering (the "Offering") has enhanced its
ability to negotiate and obtain additional contracts with plan sponsors and
other potential customers. 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 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. Non-risk contracts represented approximately 63% of the Company's
revenue for the six months ended June 30, 1998. Under non-risk contracts,
seasonally higher utilization no longer materially adversely effects the
Company's gross margin.
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 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.
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 as the
year 2000 approaches. The Company believes that it does not and will not have
any material year 2000 problems. This belief is based upon a review of its
internally-generated programs, representations made by external software program
and hardware suppliers, experience processing information with dates on or after
the year 2000 and the known availability of software which the Company may
utilize and which is free of year 2000 problems.
On January 27, 1998, the Company and its wholly owned subsidiary, CMP
Acquisition Corp. ("CMP"), entered into an Agreement and Plan of Merger with
Continental Managed Pharmacy Services, Inc. ("Continental") and certain of its
principal shareholders. Upon consummation of the merger (the "Merger"), CMP and
Continental would merge, whereupon Continental would be the surviving
corporation and the separate corporate existence of CMP would terminate. As a
result thereof, Continental would become a wholly-owned subsidiary of the
Company.
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The Merger is subject to a number of customary conditions to closing. While it
is anticipated that the Merger will occur during the third quarter of 1998,
there can be no assurances that the Merger will occur at such time or at all.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
11
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PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
From August 14, 1996 through June 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 ..... $ 2,686,000
Purchases of real estate ................................. $ --
Acquisition of other business ............................ $ 2,300,000
Repayment of indebtedness ................................ $ --
Working capital .......................................... $18,153,000
Temporary investments:
Marketable securities ............................. $21,066,000
Overnight cash deposits ........................... $ 2,583,000
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 5. Other Information
On January 27, 1998, the Company and its wholly owned subsidiary, CMP
Acquisition Corp. ("CMP"), entered into an Agreement and Plan of Merger with
Continental Managed Pharmacy Services, Inc. ("Continental") and certain of its
principal shareholders. Upon consummation of the merger (the "Merger"), CMP and
Continental would merge, whereupon Continental would be the surviving
corporation and the separate corporate existence of CMP would terminate. As a
result thereof, Continental would become a wholly-owned subsidiary of the
Company. The Merger is subject to a number of customary conditions to closing.
While it is anticipated that the Merger will occur during the third quarter of
1998, there can be no assurances that the Merger will occur at such time or at
all.
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.
12
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
10.49 Employment Agreement dated April 17, 1998 between
MIM Corporation and Scott R. Yablon.
10.50 Amendment No. 1 to Employment Agreement dated as
of May 15, 1998 between MIM Corporation and Barry
A. Posner.
27 Financial Data Schedule
(b) Reports on Form 8-K
The registrant did not file any Reports on Form 8-K during the quarter for
which this Report is filed.
13
<PAGE>
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: August 10, 1998 /s/ Scott R. Yablon
---------------------------------------------------
Scott R. Yablon
President, Chief Operating Officer, Chief Financial
Officer and Director
(Principal Financial Officer)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of April 17, 1998, by and between MIM
Corporation with its principal place of business at One Blue Hill Plaza, 15th
Floor, P.O. Box 1670, Pearl River, New York 10965-8670 (hereinafter referred to
as the "Company"), and Scott R. Yablon residing at 6 Palmer Place, Armonk, NY
10504 (hereinafter referred to as the "Executive").
WHEREAS, the Company wishes to offer employment to the Executive, and the
Executive wishes to accept such offer, on the terms set forth below;
Accordingly, the parties hereto agree as follows:
1. Term. The Company hereby employs the Executive, and the Executive hereby
accepts such employment, commencing as of the date hereof and ending April 30,
2001, unless sooner terminated in accordance with the provisions of Section 4 or
Section 5 (the period during which the Executive is employed hereunder being
hereinafter referred to as the "Term").
2. Duties. The Executive, in his capacity as Chief Financial Officer and
Chief Operating Officer of the Company, shall faithfully perform for the Company
the duties of said offices and such other duties of an executive, managerial, or
administrative nature as shall be specified and designated from time to time by
the Board of Directors of the Company (the "Board") and the Chief Executive
Officer of the Company. The Executive shall devote substantially all of his
business time and effort to the performance of his duties hereunder.
Notwithstanding anything to the contrary contained herein, the Executive's
titles of Chief Financial Officer and Chief Operating Officer shall not be
effective until May 15, 1998.
3. Compensation.
3.1 Salary. The Company shall pay the Executive during the Term an initial
salary at the rate of $325,000 per annum (the "Annual Salary"), in accordance
with the customary payroll practices of the Company applicable to senior
executives, in installments not less frequently than monthly.
3.2 Benefits - In General. The Executive shall be permitted during the Term
to participate in any group life, hospitalization or disability insurance plans,
health programs, pension and profit sharing plans, salary reviews, and similar
benefits (other than bonuses and stock options or other equity-based
compensation, which are provided for under Section 3.3 and 3.4, or severance,
displacement or other similar benefits) which are of a type available from time
to time to other senior executives of the Company generally, in each case to the
extent that the Executive is eligible under the terms of such plans or programs.
3.3 Specific Benefits. Without limiting the generality of Section 3.2, the
Executive during the Term shall (i) be eligible to participate in the Company's
Executive Bonus Program established for the benefit of senior officers in
accordance with its terms as amended from time to time (at levels consistent
with the Executive's position relative to other members of senior management),
(ii) be
<PAGE>
entitled to receive up to $3,000 towards the premium of a life insurance policy
with a face value of $1,000,000 and (iii) be eligible for director and officer
liability insurance to the extent provided to other senior executives of the
Company generally.
3.4 Grant of Option. The Executive shall be granted an option, which shall
not be qualified as an incentive stock option under Section 422 of the Internal
Revenue Code of 1986, as amended, to purchase 1,000,000 shares of common stock
of the Company, par value .0001 per share, at a per-share price equal to the
closing sales price per share on the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ") on April 17, 1998, the date on which
the Company and the Executive executed a letter of intent with respect to the
matters contemplated by this Agreement. Subject to Section 5 hereof and the
applicable award agreement (i) 500,000 of such options shall be fully vested on
the date the Executive commences his employment hereunder, and (ii) one half of
the remaining 500,000 options shall vest and become exercisable, on each of the
first and second anniversaries of the date hereof. The option shall be subject
to the terms of a definitive stock option agreement to be provided by the
Company.
3.5 Vacation. The Executive shall be entitled to vacation of 15 business
days per year, increasing to 20 business days per year on the first anniversary
of the date hereof, to be accrued and available in accordance with the policies
applicable to senior executives of the Company generally.
3.6 Automobile. The Company will provide the Executive a monthly allowance
of $1,000 for the use of an automobile.
3.7 Expenses. The Company shall pay or reimburse the Executive for all
ordinary and reasonable out-of-pocket expenses actually incurred (and, in the
case of reimbursement, paid) by the Executive during the Term in the performance
of the Executive's services under this Agreement including, but not limited to,
business travel expenses; provided that the Executive submits proof of such
expenses, with the properly completed forms as prescribed from time to time by
the Company, in accordance with the policies applicable to senior executives of
the Company generally.
4. Termination upon Death or Disability.
4.1 Termination upon Death. If the Executive dies during the Term, the
obligations of the Company to or with respect to the Employee shall terminate in
their entirety except as otherwise provided under this Section 4. Upon death,
(i) the Executive's estate or beneficiaries shall be entitled to receive any
Annual Salary and other benefits (including bonuses awarded but not yet paid)
earned and accrued under this Agreement prior to the date of termination and
reimbursement for expenses incurred prior to the date of termination as set
forth in Section 3.7, and (ii) the Executive's estate and beneficiaries shall
have no further rights to any other compensation or benefits hereunder on or
after the termination of employment, or any other rights hereunder.
2
<PAGE>
4.2 Termination upon Disability. If the Executive by virtue of ill health
or other disability is unable to perform substantially and continuously the
duties assigned to him for more than 180 consecutive or non-consecutive days out
of any consecutive twelve-month period, the Company shall have the right, to the
extent permitted by law, to terminate the employment of the Executive upon
notice in writing to the Executive; provided that the Company will have no right
to terminate the Executive's employment if, in the opinion of a qualified
physician reasonably acceptable to the Company, it is reasonably certain that
the Executive will be able to resume the Executive's duties on a regular
full-time basis within 30 days of the date the Executive receives notice of such
termination. Upon a termination of employment by virtue of disability, (i) the
Executive shall receive Annual Salary and other benefits (including bonuses
awarded but not yet paid) earned and accrued under this Agreement prior to the
effective date of the termination of employment and reimbursement for expenses
incurred prior to the effective date of the termination of employment as set
forth in Section 3.7; (ii) the Executive shall receive for a period of one year
after termination of employment (A) the Annual Salary that the Executive was
receiving at the time of such termination of employment, payable in accordance
with Section 3.1 and (B) such continuing coverage under the benefit plans and
programs the Executive would have received under this Agreement as would have
applied in the absence of such termination; it being expressly understood and
agreed that nothing in this clause (ii) shall restrict the ability of the
Company to amend or terminate such plans and programs from time to time in its
sole discretion; provided, however, that the Company shall in no event be
required to provide any coverage after such time as the Executive becomes
entitled to coverage under the benefit plans and programs of another employer or
recipient of the Executive's services (and provided, further, that such
entitlement shall be determined without regard to any individual waivers or
other arrangements); and (iii) the Executive shall have no further rights to any
other compensation or benefits hereunder on or after the termination of
employment, or any other rights hereunder.
5. Certain Terminations of Employment.
5.1 Termination for Cause; Termination of Employment by the Executive
without Good Reason.
(a) For purposes of this Agreement, "Cause" shall mean
(i) the Executive's conviction of a felony or a crime of moral
turpitude; or
(ii) the Executive's commission of unauthorized acts intended to
result in the Executive's personal enrichment at the material
expense of the Company; or
(iii) the Executive's material violation of the Executive's
duties or responsibilities to the Company which constitute
willful misconduct or dereliction of duty, or the material breach
of the covenants contained in Section 6; or
3
<PAGE>
(iv) the Executive's other material breach of this Agreement
which breach shall have continued unremedied for 10 days after
written notice by the Company to the Executive specifying such
breach.
(b) The Company may terminate the Executive's employment hereunder for
Cause, and the Executive may terminate his employment upon written notice
to the Company which specifies an effective date of termination of
employment not less than 30 days from the date of such notice. If the
Company terminates the Executive for Cause, or the Executive terminates his
employment and the termination by the Executive is not covered by Section
4, 5.2, or 5.3, (i) the Executive shall receive Annual Salary and other
benefits (including bonuses awarded but not yet paid) earned and accrued
under this Agreement prior to the effective date of the termination of
employment (and reimbursement for expenses incurred prior to the effective
date of the termination of employment as set forth in Section 3.7); and
(ii) the Executive shall have no further rights to any other compensation
or benefits hereunder on or after the termination of employment, or any
other rights hereunder.
5.2 Termination Without Cause; Termination for Good Reason.
(a) For purposes of this Agreement, "Good Reason" shall mean the
existence of any one or more of the following conditions that shall
continue for more than 45 days following written notice thereof by the
Executive to the Company:
(i) the material reduction of the Executive's authority, duties
and responsibilities, or the assignment to the Executive of
duties materially inconsistent with the Executive's position or
positions with the Company;
(ii) the failure by the Company to obtain an agreement in form
and substance reasonably satisfactory to the Executive from any
successor to the business of the Company upon a Change of Control
(as defined below) to assume and agree to perform this Agreement;
or
(iii) the Company's material and continuing breach of this
Agreement.
(b) The Company may terminate the Executive's employment at any time
for any reason and the Executive may terminate the Executive's employment
with the Company for Good Reason. If the Company terminates the Executive's
employment and the termination is not covered by Section 4, 5.1 or 5.3, or
the Executive terminates his employment for Good Reason and the termination
by the Executive is not covered by Section 5.3, (i) the Executive shall
receive Annual Salary and other benefits (including bonuses awarded but not
yet paid) earned and accrued under this Agreement prior to the effective
date of the termination of employment (and reimbursement for expenses
incurred prior to the effective date of the termination of employment as
set forth in Section 3.7); (ii) the Executive shall receive for a period of
one
4
<PAGE>
year after termination of employment (A) the Annual Salary that the
Executive was receiving at the time of such termination of employment,
payable in accordance with Section 3.1 and (B) such continuing coverage
under the benefit plans and programs the Executive would have received
under this Agreement as would have applied in the absence of such
termination; it being expressly understood and agreed that nothing in this
clause (ii) shall restrict the ability of the Company to amend or terminate
such plans and programs from time to time in its sole discretion; provided,
however, that the Company shall in no event be required to provide any
coverage after such time as the Executive becomes entitled to coverage
under the benefit plans and programs of another employer or recipient of
the Executive's services (and provided, further, that such entitlement
shall be determined without regard to any individual waivers or other
arrangements); (iii) all outstanding unvested options held by the Executive
shall vest and become immediately exercisable and shall otherwise be
exercisable in accordance with their terms and the Executive shall become
vested in any pension or other deferred compensation other than pension or
deferred compensation under a plan intended to be qualified under Section
401(a) or 403(a) of the Internal Revenue Code of 1986, as amended; and (iv)
the Executive shall have no further rights to any other compensation or
benefits hereunder on or after the termination of employment, or any other
rights hereunder.
5.3 Certain Terminations after Change of Control.
(a) 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 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 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 outstanding common stock
(the "Common Stock") at such time, 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
5
<PAGE>
or other property (other than the common stock of a company into which
the Company is merged).
(b) If, within the one-year period commencing upon any Change of
Control, the Executive is terminated by the Company or a successor entity
and the termination is not covered by Section 4 or 5.1, or, within such
period, the Executive elects to terminate his employment after the Company
materially reduces the Executive's authority, duties and responsibilities,
or assigns the Executive duties materially inconsistent with the
Executive's position or positions with the Company prior to such Change of
Control, (i) the Executive shall receive Annual Salary and other benefits
(including bonuses awarded but not yet paid) earned and accrued under this
Agreement prior to the effective date of the termination of employment (and
reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7); (ii) the Executive
shall receive for a period of one year after termination of employment (A)
the Annual Salary that the Executive was receiving at the time of such
termination of employment, payable in accordance with Section 3.1 and (B)
such continuing coverage under the benefit plans and programs the Executive
would have received under this Agreement as would have applied in the
absence of such termination; it being expressly understood and agreed that
nothing in this clause (ii) shall restrict the ability of the Company to
amend or terminate such plans and programs from time to time in its sole
discretion; provided, however, that the Company shall in no event be
required to provide any coverage after such time as the Executive becomes
entitled to coverage under the benefit plans and programs of another
employer or recipient of the Executive's services (and provided, further,
that such entitlement shall be determined without regard to any individual
waivers or other arrangements); (iii) all outstanding unvested options held
by the Executive shall vest and become immediately exercisable and shall
otherwise be exercisable in accordance with their terms and the Executive
shall become vested in any pension or other deferred compensation other
than pension or deferred compensation under a plan intended to be qualified
under Section 401(a) or 403(a) of the Internal Revenue Code of 1986, as
amended; and (iv) the Executive shall have no further rights to any other
compensation or benefits hereunder on or after the termination of
employment, or any other rights hereunder.
6. Covenant of the Executive.
6.1 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
6
<PAGE>
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"); (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 this Section 6 are essential to the business and goodwill
of the Company; and (vi) the Company would not have entered into this Agreement
but for the covenants and agreements set forth in this Section 6. 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 Annual Salary in accordance with Section 4 or 5 hereof (unless such
termination is by the Company without Cause), 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 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
7
<PAGE>
and without breach of this Agreement. Notwithstanding the foregoing, this
Section 6.1(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.
(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.
6.2 Rights and Remedies upon Breach.
(a) The Executive acknowledges and agrees that any breach by him of
any of the provisions of Section 6.1 (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 provisions of Section 6.1, 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
8
<PAGE>
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 this Section 6 are unreasonable or otherwise
unenforceable. The existence of any claim or cause of action by the
Executive, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement of the Restrictive Covenants.
7. Other Provisions.
7.1 Severability. The Executive acknowledges and agrees that (i) he has had
an opportunity to seek advice of counsel in connection with this Agreement and
(ii) the Restrictive Covenants are reasonable in geographical and temporal scope
and in all other respects. If it is determined that any of the provisions of
this Agreement, including, without limitation, any of the Restrictive Covenants,
or any part thereof, is invalid or unenforceable, the remainder of the
provisions of this Agreement shall not thereby be affected and shall be given
full effect, without regard to the invalid portions.
7.2 Duration and Scope of Covenants. If any court or other decision-maker
of competent jurisdiction determines that any of Executive's covenants contained
in this Agreement, including, without limitation, any of the Restrictive
Covenants, or any part thereof, is unenforceable because of the duration or
geographical scope of such provision, then, after such determination has become
final and unappealable, the duration or scope of such provision, as the case may
be, shall be reduced so that such provision becomes enforceable and, in its
reduced form, such provision shall then be enforceable and shall be enforced.
7.3 Enforceability; Jurisdictions. Any controversy or claim arising out of
or relating to this Agreement or the breach of this Agreement that is not
resolved by Executive and the Company (or its affiliates, where applicable),
other than those arising under Section 6, to the extent necessary for the
Company (or its affiliates, where applicable) to avail itself of the rights and
remedies provided under Section 6.2, shall be submitted to arbitration in New
York, New York in accordance with New York law and the procedures of the
American Arbitration Association. The determination of the arbitrator(s) shall
be
9
<PAGE>
conclusive and binding on the Company (or its affiliates, where applicable) and
Executive and judgment may be entered on the arbitrator(s)' award in any court
having jurisdiction.
7.4 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, five days after the date of deposit in the United States mails as
follows:
(i) If to the Company, to:
MIM Corporation
One Blue Hill Plaza
15th Floor
P.O. Box 1670
Pearl River, New York 10965-8670
Attention: Richard H. Friedman
with a copy to:
Rogers & Wells
200 Park Avenue - Suite 5200
New York, New York 10166-0153
Attention: Richard A. Cirillo
(ii) If to the Executive, to:
Scott R. Yablon
6 Palmer Place
Armonk, NY 10504
Any such person may by notice given in accordance with this Section 7.4 to the
other parties hereto designate another address or person for receipt by such
person of notices hereunder.
7.5 Entire Agreement. This Agreement contains the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
agreements, written or oral, with respect thereto.
7.6 Waivers and Amendments. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by the parties or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any such right, power or privilege nor
any single or partial exercise of any such right,
10
<PAGE>
power or privilege, preclude any other or further exercise thereof or the
exercise of any other such right, power or privilege.
7.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW.
7.8 Assignment. This Agreement, and the Executive's rights and obligations
hereunder, may not be assigned by the Executive; any purported assignment by the
Executive in violation hereof shall be null and void. In the event of any sale,
transfer or other disposition of all or substantially all of the Company's
assets or business, whether by merger, consolidation or otherwise, the Company
(without limiting the Executive's rights under Section 5.3) may assign this
Agreement and its rights hereunder.
7.9 Withholding. The Company shall be entitled to withhold from any
payments or deemed payments any amount of tax withholding required by law.
7.10 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors, permitted assigns,
heirs, executors and legal representatives.
7.11 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original but all such counterparts together shall constitute one and the same
instrument. Each counterpart may consist of two copies hereof each signed by one
of the parties hereto.
7.12 Survival. Anything contained in this Agreement to the contrary
notwithstanding, the provisions of Sections 6, 7.3 and 7.9, and the other
provisions of this Section 7 (to the extent necessary to effectuate the survival
of Sections 6, 7.3 and 7.9), shall survive termination of this Agreement and any
termination of the Executive's employment hereunder.
7.13 Existing Agreements. Executive represents to the Company that he is
not subject or a party to any employment or consulting agreement,
non-competition covenant or other agreement, covenant or understanding which
might prohibit him from executing this Agreement or limit his ability to fulfill
his responsibilities hereunder.
7.14 Headings. The headings in this Agreement are for reference only and
shall not affect the interpretation of this Agreement.
7.15 Parachutes. If all, or any portion, of the payments provided under
this Agreement, either alone or together with other payments and benefits which
the Executive receives or is entitled to receive from the Company or an
affiliate, would constitute an excess "parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), the
payments
11
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and benefits provided under this Agreement shall be reduced to the extent
necessary so that no portion thereof shall fail to be tax-deductible under
Section 280G of the Code.
IN WITNESS WHEREOF, the parties hereto have signed their names as of the
day and year first above written.
MIM CORPORATION
By: /s/ Barry A. Posner
-------------------------------------
Barry A. Posner
its Vice President & General Counsel
By: /s/ Scott R. Yablon
-------------------------------------
Scott R. Yablon
12
Amendment No. 1 to Employment Agreement
This Amendment No. 1 (this "Amendment") to Employment Agreement is entered
into as of May 15, 1998 by and between MIM Corporation, a Delaware corporation
(the "Company"), and Barry A. Posner ("Executive").
WHEREAS, the Company and Executive entered into an Employment Agreement
dated as of March 26, 1997 (the "Original Agreement");
WHEREAS, the Company and Executive desire to amend the Original Agreement
in certain respects;
NOW, THEREFORE, in consideration for the mutual covenants set forth herein
and other valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Capitalized terms used herein without definition shall have the
meanings ascribed to such terms in the Original Agreement and all
references to the "Agreement" in the Original Agreement shall
hereafter mean the Original Agreement as amended by this Amendment.
2. Section 1 of the Original Agreement is hereby amended to read in its
entirety as follows: "The Company hereby employs the Executive, and
the Executive hereby accepts such employment, commencing as of the
date hereof and continuing for a period ending May 15, 2001 or such
earlier date as this Agreement shall be terminated pursuant to the
provisions of Section 4 or Section 5 hereof (the period during which
the Executive is employed hereunder being hereinafter referred to as
the "Term")."
3. Section 2 of the Original Agreement is hereby amended to read in its
entirety as follows: "The Executive, in his capacity as Vice
President, General Counsel and Corporate Secretary, shall faithfully
perform for the Company the duties of said offices and such other
duties of an executive, managerial, or administrative nature as shall
be specified and designated from time to time by the Board of
Directors of the Company and the Chief Executive Officer of the
Company. The Executive shall devote substantially all of his business
time and effort to the performance of his duties hereunder."
4. All references in the Agreement to "Chief Operating Officer" shall be
deleted in its entirety.
<PAGE>
5. The word "nine" appearing in: (A) clause (ii) of the second sentence
of Section 4.2; and (B) clause (ii) of the second sentence of Section
5.2(b) hereof is deleted, and substituted therefor shall be the word
"twelve".
6. Expect as modified hereby, the Agreement shall remain unmodified and
in full force and effect.
7. This Amendment shall be construed in accordance with, and its
interpretation shall otherwise be governed by, the laws of the State
of New York, without giving effect to otherwise applicable principles
of conflicts of law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the date set forth above.
MIM CORPORATION
By: /s/ Richard H. Friedman
---------------------------
Its: Chief Executive Officer
/s/ Barry A. Posner
---------------------------------
Executive
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,583
<SECURITIES> 23,366
<RECEIVABLES> 42,444
<ALLOWANCES> 1,439
<INVENTORY> 0
<CURRENT-ASSETS> 65,525
<PP&E> 6,219
<DEPRECIATION> 2,387
<TOTAL-ASSETS> 72,361
<CURRENT-LIABILITIES> 50,280
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 20,329
<TOTAL-LIABILITY-AND-EQUITY> 72,361
<SALES> 207,841
<TOTAL-REVENUES> 207,841
<CGS> 196,044
<TOTAL-COSTS> 9,261
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,525
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,525
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,525
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.23
</TABLE>
