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 SEPTEMBER 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 0-28740
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MIM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 05-0489664
- ------------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Clearbrook Road, Elmsford, NY 10523
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(Address of principal executive offices)
(914) 460-1600
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(Registrant's telephone number, including area code)
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Former name, former address and former fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
On November 4, 1999, there were outstanding 18,729,198 shares of the
Company's common stock, $.0001 par value per share ("Common Stock").
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<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
<S> <C>
Item 1 Financial Statements
Consolidated Balance Sheets at
September 30, 1999 (unaudited) and December 31, 1998 3
Unaudited Consolidated Statements of Operations for the
three months and nine months ended September 30, 1999 and 1998 4
Unaudited Consolidated Statements of Cash Flows for the
nine months ended September 30, 1999 and 1998 5
Notes to the Consolidated Financial Statements 6-8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-17
Item 3 Quantitative and Qualitative Disclosures about Market Risk 17
PART II OTHER INFORMATION
Item 1 Legal Proceedings 18-19
Item 2 Changes in Securities and Use of Proceeds 19-20
Item 4 Submission of Matters to a Vote of Security Holders 20-21
Item 5 Other Information 21
Item 6 Exhibits and Reports on Form 8-K 21
SIGNATURES 22
Exhibit Index 23
</TABLE>
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PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------ -------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 15,307 $ 4,495
Investment securities 5,057 11,694
Receivables, less allowance for doubtful accounts of $1,984 and $2,239
at September 30, 1999 and December 31, 1998, respectively 72,797 64,747
Inventory 956 1,187
Prepaid expenses and other current assets 716 857
------------------ -------------------
Total current assets 94,833 82,980
Other investments 2,317 2,311
Property and equipment, net 6,180 4,823
Due from affiliate and officer, less allowance for doubtful accounts of $403
at September 30, 1999 and December 31, 1998, respectively 1,606 34
Other assets, net 159 293
Deferred income taxes - 270
Intangible assets, net 20,218 19,395
------------------ -------------------
Total assets $ 125,313 $ 110,106
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations $ 504 $ 277
Current portion of long-term debt 337 208
Accounts payable 5,088 6,926
Claims payable 46,593 32,855
Payables to plan sponsors and others 21,168 16,490
Accrued expenses 6,851 6,401
------------------ -------------------
Total current liabilities 80,541 63,157
Capital lease obligations, net of current portion 856 598
Long-term debt, net of current portion 1,997 6,185
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,
18,729,198 and 18,090,748 shares issued and outstanding
at September 30, 1999 and December 31, 1998, respectively 2 2
Treasury stock at cost (338) -
91,614 91,603
Accumulated deficit (48,922) (50,790)
Stockholder notes receivable (1,550) (1,761)
------------------ -------------------
Total stockholders' equity 40,807 39,054
------------------ -------------------
Total liabilities and stockholders' equity $ 125,313 $ 110,106
================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------------------
1999 1998 1999 1998
------------------ -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $ 101,388 $ 115,737 $ 265,197 $ 323,578
Cost of revenue 93,711 107,839 241,522 303,883
--------- --------- --------- ---------
Gross profit 7,677 7,898 23,675 19,695
Selling, general and administrative expenses 7,090 6,053 21,641 15,314
Amortization of goodwill and other intangibles 312 18 805 18
--------- --------- --------- ---------
Income from operations 275 1,827 1,229 4,363
Interest income, net 254 428 638 1,418
Other - - - -
--------- --------- --------- ---------
Income before minority interest 529 2,255 1,867 5,781
Minority interest - - - (1)
--------- --------- --------- ---------
Net income $ 529 $ 2,255 $ 1,867 $ 5,780
========= ========= ========= =========
Basic income per common share $ 0.03 $ 0.15 $ 0.10 $ 0.41
========= ========= ========= =========
Diluted income per common share $ 0.03 $ 0.14 $ 0.10 $ 0.37
========= ========= ========= =========
Weighted average common shares used
in computing basic income per share 18,729 15,485 18,636 14,142
========= ========= ========= =========
Weighted average common shares used
in computing diluted income per share 18,861 16,659 18,902 15,753
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities: (Unaudited)
Net income $ 1,867 $ 5,780
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Minority Interest 1
Depreciation, amortization and other 1,735 1,236
Stock option charges 6 22
Provision for losses on receivables and due from affiliates (55) (139)
Changes in assets and liabilities:
Receivables (7,995) (14,556)
Inventory 231 (83)
Prepaid expenses and other current assets 141 157
Accounts payable (1,838) (1,644)
Deferred revenue - (2,799)
Claims payable 13,738 5,027
Payables to plan sponsors and others 4,677 7,024
Accrued expenses 450 (1,351)
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Net cash provided by (used in) operating activities 12,957 (1,325)
-------- ---------
Cash flows from investing activities:
Purchase of property and equipment (1,843) (1,568)
Loans to affiliate and officer, net (2,064) -
Stockholder loans, net 211 (34)
Purchase of investment securities - (25,872)
Maturities of investment securities 6,637 28,373
Decrease (increase) in other assets 131 28
Cost incurred in purchase of subsidiary,net of cash acquired (379) (594)
-------- ---------
Net cash provided by investing activities 2,693 333
-------- ---------
Cash flows from financing activities:
Principal payments on capital lease obligations (447) (167)
(Decrease) increase in debt (4,058) 1,708
Stock Option charges 5 4
Purchase of treasury stock (338) -
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Net cash used in financing activities (4,838) 1,545
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Net increase in cash and cash equivalents 10,812 553
Cash and cash equivalents--beginning of period $ 4,495 $ 9,593
--------- ---------
Cash and cash equivalents--end of period $ 15,307 $ 10,146
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest $ 135 $ 37
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Equipment acquired under capital lease obligations $ 933 $ -
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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MIM CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements of MIM
Corporation and 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, 1999 are not necessarily
indicative of the results of operations or cash flows which may be reported for
the remainder of 1999.
These unaudited consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements, notes
and information included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 filed with the Commission (the "Form 10-K").
The accounting policies followed for interim financial reporting are the
same as those disclosed in Note 2 to the consolidated financial statements
included in the Form 10-K.
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic earnings per share
and diluted earnings per share:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 1998 1999 1998
------- ------- ------- -------
NUMERATOR:
Net income $ 529 $ 2,255 $ 1,867 $ 5,781
======= ======= ======= =======
DENOMINATOR:
Weighted average number of
common shares outstanding 18,729 15,485 18,636 14,142
------- ------- ------- -------
BASIC EARNINGS PER SHARE $ .03 $ .15 $ .10 $ .41
======= ======= ======= =======
DENOMINATOR:
Weighted average number of
common shares outstanding 18,729 15,485 18,636 14,142
Common share equivalents
of outstanding stock options 132 1,174 266 1,611
------- ------- ------- -------
Total shares outstanding 18,861 16,659 18,902 15,753
------- ------- ------- -------
DILUTED EARNINGS PER SHARE $ .03 $ .14 $ .10 $ .37
======= ======= ======= =======
NOTE 3 - ACQUISITION
On August 24, 1998, the Company completed its acquisition of Continental
Managed Pharmacy Services, Inc. and its subsidiaries (collectively,
"Continental"), a company which provides pharmacy benefit management services
and mail order pharmacy services. The acquisition was treated as a purchase for
financial reporting purposes. The Company issued 3,912 shares of Common Stock as
consideration for
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the purchase. The aggregate purchase price, including costs of acquisition of
$2,681, approximated $21,081. The fair value of assets acquired approximated
$11,100 and liabilities assumed approximated $11,800, resulting in approximately
$19,881 of goodwill and $1,200 of other intangible assets which will be
amortized over their estimated useful lives (25 years for goodwill and six and
four years, respectively, for other intangibles). The consolidated financial
statements of the Company for the three and nine month periods ended September
30, 1999 include the results of Continental.
The following unaudited consolidated pro forma information has been
prepared assuming Continental was acquired as of January 1, 1998, 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, 1998. In addition, this pro forma information is not intended
to be a projection of future operating results.
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
---- ----
Revenue $ 265,197 $ 364,225
============= ===========
Net income $ 1,867 $ 5,099
============= ===========
Basic earnings per share $ .10 $ .36
============= ===========
Diluted earnings per share $ .10 $ .36
============= ===========
The amounts above include $39,349 of revenue from the operations of Continental
for the nine months ended September 30, 1999 and $47,685 for the nine months
ended September 30, 1998.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
On March 31, 1999, the State of Tennessee, (the "State"), and Xantus
Healthplan of Tennessee, Inc. ("Xantus"), a TennCare customer, entered into a
consent decree under which Xantus was placed in receivership under the laws of
the State of Tennessee. On September 2, 1999 the Commissioner of the Tennessee
Department of Commerce and Insurance, (the "Commissioner") as receiver of
Xantus, filed a proposed plan of rehabilitation (the "Plan"), as opposed to a
liquidation of Xantus. A rehabilitation under receivership, similar to a
reorganization under federal bankruptcy laws, if approved by the Chancery Court
(the "Court"), of the State of Tennessee, would allow Xantus to remain operating
as a TennCare managed care organization, providing full health care related
services to its enrollers. Under the Plan, the State has, among other things,
agreed to loan to Xantus approximately $30,000 to be used solely to repay
pre-petition claims of providers, which claims aggregate approximately $80,000.
Under the Plan, the receivers have also proposed that Xantus would contribute a
portion of its pre-petition available cash flow towards repayment of
pre-petition provider claims, making $34,800 million in total available to repay
provider's pre-petition claims. The receivers have proposed, among other things,
that (i) all providers other than MIM receive the pro-rata portion that each
provider's pre-petition claim bears to the pre-petition claims of all providers;
and (ii) MIM receive (A) its pro-rata portion of its actual out of pocket
expenditures, that is $6.8 million, rather than its total claim against Xantus
of $10.8 million, and (B) its pro-rata portion of unpaid pharmacy claims which
it would be required in turn to pay over to pharmacies on account of unpaid
pharmacy claims. The Company has filed, among other motions, a Motion to Modify
the Plan on the grounds that, among other things, it unfairly and inequitably
treats MIM differently than all other providers and asking the Court to modify
the Plan to treat MIM similarly. The hearing to approve the Plan is scheduled
for November 12, 1999, at which time the Company shall be heard on its
objections. As of October 1, 1999, Xantus owed the Company $10,866 for pharmacy
benefit management ("PBM") services rendered by the Company from January 1, 1999
through April 1, 1999, approximately $4,000 of which the Company has withheld
from its pharmacy providers as permitted by the Company's agreements with them.
On November 12, 1999, the Court ruled in favor of the Company's Motion, thereby
requiring the receivers to treat the Company the same as all other providers. As
such, the Plan will require Xantus to pay the Company over $4,000, $2,000 of
which is expected to be received by the end of November 1999 and the remainder
of which is expected to be received by year end. The failure of the Company to
collect from Xantus or other third parties against whom the Company may have
claims all or a substantial portion of the unrecovered monies paid out to
pharmacies could have a material adverse effect on the Company's results of
operations.
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NOTE 5 - LOAN TO OFFICER
In April 1999, the Company loaned to its Chairman and Chief Executive
Officer $1,700, evidenced by a promissory note secured by a pledge of 1,500
shares of the Company's Common Stock. The note requires repayment of principal
and interest by March 31, 2004. Interest accrues monthly at the "Prime Rate" (as
defined in the note) then in effect. The loan was approved by the Company's
Board of Directors in order to provide funds with which such executive officer
could pay the Federal and state tax liability associated with the exercise of
stock options representing 1,500 shares of the Company's Common Stock in January
1998.
NOTE 6 - CONTRACTS
As part of the Company's normal review process, the Company determined that
each of the Company's agreements (collectively, the "Agreements") with Tennessee
Health Partnership ("THP") and Preferred Health Partnership of Tennessee, Inc.
("PHP") were not achieving profitability projections. As a result thereof, in
the first quarter of 1999, and in accordance with the terms of the Agreements,
the Company exercised its right to terminate the Agreements effective on
September 28, 1999.
On June 25, 1999, the Company notified both THP and PHP that it would cease
providing PBM services to them and their members if past due amounts of
approximately $500 and $540 were not paid within 30 days as required by the
Agreements. On July 23, 1999, THP and PHP filed complaints in the United States
District Court for the Eastern District of Tennessee alleging that the Company
did not have the right to cease providing PBM services under the Agreements. The
complaints also alleged that THP and PHP disputed the outstanding amounts
invoiced by the Company under the Agreements and demanded that such disputes be
arbitrated as required under the Agreements. Additionally, THP and PHP applied
for a temporary restraining order as well as a preliminary and permanent
injunction to prevent the Company from ceasing to provide PBM services until the
conclusion of such arbitration proceedings.
The hearing on the motion for the temporary restraining order was
scheduled to be heard on Wednesday, August 4, 1999. However, on Tuesday, August
3, 1999, the Company, THP and PHP agreed, among other things, that (i) the
Company would withdraw its termination notices which were to become effective
September 28, 1999; (ii) the Agreements would be extended until December 31,
1999 under a fee-for-service (rather than on capitated) arrangement effective
October 1, 1999 through December 31, 1999; and (iii) THP and PHP would dismiss
the complaints without prejudice, subject to sharing or arbitration as described
below. The Company and THP and PHP will terminate their relationship on December
31, 1999. MIM has demanded arbitration with respect to certain unpaid amounts
withheld by THP during 1998 and the Company intends to commence arbitration on
disputed amounts under the Agreements shortly. The Company does not believe that
its inability to enter into the New Agreements with either or both of THP and
PHP will have a material adverse effect on the Company's results of operations
or financial condition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, the related notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 (the "Form 10-K"), as well as the unaudited
consolidated interim financial
8
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statements and the related notes thereto included in Part I, Item 1 of this
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1999
filed with the Commission (this "Report").
This Report contains statements not purely historical and which may be
considered forward looking statements within the meaning of Section 27A of the
Securities Act 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, beliefs, intentions or
strategies regarding the future. Forward looking statements may include
statements relating to the Company's business development activities, sales and
marketing efforts, the status of material contractual arrangements including the
negotiation or re-negotiation of such arrangements, future capital expenditures,
the effects of regulation and competition on the Company's business, future
operating performance of the Company and the results, the benefits and risks
associated with integration of acquired companies, the effect of year 2000
problems on the Company's operations, the likely outcome of, and the effect of
legal proceedings or investigations on the Company and its business and
operations and/or the resolution or settlement thereof. Investors are cautioned
that any such forward looking statements are not guarantees of future
performance and involve risks and uncertainties, 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 with greater financial,
technical, marketing and other resources, and the existence of complex laws and
regulations relating to the Company's business. This Report along with the
Company's Form 10-K 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 and circumstances.
OVERVIEW
The Company is an independent pharmacy benefit management ("PBM") and
prescription mail service organization that partners with managed care
organizations and healthcare providers to endeavor to control prescription drug
costs. A majority of the Company's revenues have been derived from providing PBM
services in the State of Tennessee to managed care organizations ("MCO's")
participating in the State of Tennessee's TennCare program and behavioral health
organizations ("BHO's") participating in the State of Tennessee's TennCare
Partners program. At September 30, 1999, the Company provided PBM services to
120 health plan sponsors with an aggregate of approximately 3.1 million plan
members, of which TennCare represented 7 health plans with approximately 1.2
million plan members. The TennCare contracts accounted for 52.9% of the
Company's revenues for the nine months ended September 30, 1999 and 73.4% of the
Company's revenues for the nine months ended September 30, 1998.
RESULTS OF OPERATIONS
Three months ended September 30, 1999 compared to three months ended September
30, 1998
For the three months ended September 30, 1999, the Company recorded revenue
of $101.4 million compared with revenue of $115.7 million for the three months
ended September 30, 1998, a decrease of $14.3 million. Contracts with TennCare
sponsors accounted for decreased revenues of $26.7 million as the Company did
not retain contracts as of January 1, 1999 with the two TennCare BHO's it
previously managed under a contract (the "RxCare Contract") with RxCare of
Tennessee, Inc ("RxCare"), which expired on December 31, 1998. See "Other
Matters" below for a more detailed discussion of the Company's past relationship
with RxCare and the expiration of the RxCare Contract. The loss of these
contracts represents $18.8 and $12.5 million respectively of the decrease in
revenue, partially offset by increases in other contracts with TennCare sponsors
of approximately $4.6 million. Commercial revenue increased $12.7 million,
offset by a decrease of $3.4 million due to the loss of a contract with a
Nevada-based managed care organization, representing a net increase of $9.3
million in commercial revenue. This overall decrease in revenues was partially
offset by an increase in revenues of $3.0 million as a result of the
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Company's acquisition in August 1998 of the operations of Continental Managed
Pharmacy Services Inc. ("Continental").
For the three months ended September 30, 1999, approximately 46% of the
Company's revenues were generated from capitated contracts compared to 35% for
the three months ended September 30, 1998, an increase of 11%. As of January 1,
1999, the Company began providing capitated PBM services to major MCO's
previously managed on a fee-for-service basis through 1998 under the RxCare
contract.
Cost of revenue for the three months ended September 30, 1999 decreased to
$93.7 million from $107.8 million for the three months ended September 30, 1998,
a decrease of $14.1 million. Contracts with TennCare sponsors accounted for
$24.7 million of such decrease as the Company did not retain contracts as of
January 1, 1999 with the two TennCare BHO's it previously managed under the
RxCare Contract and did not begin providing services to another TennCare MCO
previously managed under the RxCare Contract until May 1, 1999. The loss of
these contracts represents $30.8 million., of the decrease, partially offset by
increases in other contracts with TennCare sponsors of approximately $6.1
million. Cost of revenue increases of $12.7 million from commercial business
were offset by a decrease in cost of revenue of $4 million due to the loss of a
contract with a Nevada-based managed care organization, representing an increase
of $8.7 million. As a percentage of revenue, cost of revenue decreased to 92.4%
for the three months ended September 30, 1999 from 93.2% for the three months
ended June 30, 1998, a decrease of .8%. This decrease resulted primarily due to
the contribution of Continental's mail service drug distribution business which
has experienced better profit margins than historically experienced by the
Company's PBM business.
Selling, general and administrative expenses were $7.1 million for the
three months ended September 30, 1999 compared to $6.1 million for the three
months ended June 30, 1998, an increase of $1.0 million. The acquisition of
Continental accounted for the entire $1.0 million increase. As a percentage of
revenue, selling, general and administrative expenses increased to 7.0% for the
three months ended September 30, 1999 from 5.2% for the three months ended
September 30, 1998, an increase of 1.8%, primarily attributable to revenue
decreases experienced from the loss of certain contracts with TennCare sponsors
as discussed above.
Amortization expense relates solely to the Company's acquisition of
Continental. The Continental acquisition resulted in the recording of
approxieately $19.9 million of goodwill and $1.2 million of other intangible
assets, which will be amortized over their estimated useful lives (25 years for
goodwill and six years and four years for other intangible assets).
For the three months ended September 30, 1999, the Company recorded
interest income, net of interest expense, of $.3 million compared to interest
income of $.4 million for the three months ended September 30, 1998, a decrease
of $.1 million. This 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, 1999, the Company recorded net
income of $.5 million, or $.03 per diluted share as compared to net income of
$2.3 million, or $.14 per diluted share, for the three months ended September
30, 1998.
Nine months ended September 30, 1999 compared to nine months ended September 30,
1998
For the nine months ended September 30, 1999, the Company recorded revenue
of $265.2 million compared with revenue of $323.6 million for the nine months
ended September 30, 1998, a decrease of $58.6 million. Contracts with TennCare
sponsors accounted for decreased revenues of $97.2 million as the Company did
not retain contracts as of January 1, 1999 with the two TennCare BHO's it
previously managed under the RxCare Contract and did not begin providing PBM
services to another TennCare MCO previously managed under the RxCare Contract
until May 1, 1999. The loss of these contracts represents
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$50.5 million and $33.5 million, respectively, of the decrease in revenue, with
additional decreases in other contracts with TennCare sponsors of approximately
$13.2 million. This additional decrease was primarily the result of the Company
not contracting with one TennCare MCO until May 1, 1999. Commercial revenue
increased $27.5 million, offset by a decrease of $21.7 million due to the loss
of a contract with a Nevada- based managed care organization, representing a net
increase of $5.8 million in commercial revenue. The overall decrease in revenues
was partially offset by an increase in revenues of $32.8 million as a result of
the Company's acquisition of Continental.
For the nine months ended September 30, 1999, approximately 41% of the
Company's revenues were generated from capitated contracts compared to 35% for
the nine months ended September 30, 1998, an increase of 6%. This increase
resulted from changes in arrangements with the TennCare MCO's in 1999 as
compared to 1998. As of January 1, 1999, the Company began providing capitated
PBM services to two major MCO's previously managed on a fee-for-service basis
throughout 1998 under the RxCare Contract.
Cost of revenue for the nine months ended September 30, 1999 decreased to
$241.5 million from $303.9 million for the nine months ended September 30, 1998,
a decrease of $62.4 million. Contracts with TennCare sponsors accounted for
$88.0 million of such decrease as the Company did not retain contracts as of
January 1, 1999 with the two TennCare BHO's it previously managed under the
RxCare Contract and did not begin providing PBM services to another TennCare MCO
previously managed under the RxCare Contract until May 1, 1999. The loss of
these contracts represents $48.0 million and $32.1 million, respectively, of the
decrease, with additional decreases in other contracts with TennCare sponsors of
approximately $7.9 million. Cost of revenue increases of $26.1 million from
commercial business included a decrease in cost of revenue of $25.8 million due
to the loss of a contract with a Nevada-based managed care organization,
representing a net decrease of $.3 million. Such decreases in cost of revenue
were partially offset by increases of $25.9 million as a result of the Company's
acquisition of Continental. As a percentage of revenue, cost of revenue
decreased to 91.1% for the nine months ended September 30, 1999 from 93.9% for
the nine months ended September 30, 1998, a decrease of 2.8%. This decrease
resulted primarily due to the contribution of Continental's mail service drug
distribution business which has experienced better profit margins than
historically experienced by the Company's PBM business.
Selling, general and administrative expenses were $21.6 million for the nine
months ended September 30, 1999 compared to $15.3 million for the nine months
ended September 30, 1998, an increase of $6.3 million. The acquisition of
Continental accounted for $5.9 million of the increase. The remaining $.4
million increase in expenses reflects expenditures incurred in connection with
the Company's continuing commitment to enhance its ability to manage efficiently
pharmacy benefits by investing in information systems to support new and
existing customers. As a percentage of revenue, selling, general and
administrative expenses increased to 8.2% for the nine months ended September
30, 1999 from 4.7% for the nine months ended September 30, 1998, an increase of
3.5%, primarily attributable to revenue decreases experienced from the loss of
certain contracts with TennCare sponsors as discussed above.
Amortization expense relates solely to the Company's acquisition of
Continental. The Continental acquisition resulted in the recording of
approximately $19.9 million of goodwill and $1.2 million of other intangible
assets, which will be amortized over their estimated useful lives (25 years for
goodwill and six years and four years for other intangible assets).
For the nine months ended September 30, 1999, the Company recorded interest
income, net of interest expense, of $0.6 million compared to interest income of
$1.4 million for the nine months ended September 30, 1998, a decrease of $0.8
million. This decrease in interest income resulted from a reduced level of
invested capital due to the additional working capital needs of the Company. See
"Liquidity and Capital Resources."
For the nine months ended September 30, 1999, the Company recorded net
income of $1.9 million, or $.10 per diluted share compared to net income of $5.8
million, or $.37 per diluted share, for the nine months ended September 30,
1998.
LIQUIDITY AND CAPITAL RESOURCES
11
<PAGE>
The Company utilizes both funds generated from operations, if any, and funds
raised in its initial public offering (the "Offering") for capital expenditures
and working capital needs. For the nine months ended September 30, 1999, net
cash provided from operating activities totaled $13.0 million, due mainly to an
increase in claims payable of $13.7 million.
Investing activities generated $2.7 million primarily from the proceeds of
maturities of investment securities of $6.6 million. This cash provided was
partially offset by purchases of $1.8 million of equipment and a loan to an
officer of $1.7 million. The equipment purchases were primarily upgrades and
enhancements of information systems necessary to strengthen and support the
Company's ability to manage its customer's PBM programs and to be competitive in
the PBM industry. The loan to an officer enabled the Chairman to pay Federal and
state tax liabilities associated with the exercise of stock options. Financing
activities used $4.8 million of cash primarily to decrease the Company's
revolving debt by $4.0 million.
At September 30, 1999, the Company had working capital of $14.3 million
compared to $19.8 million at December 31, 1998, a decrease of $5.5 million. Cash
and cash equivalents increased to $15.3 million at September 30, 1999 compared
with $4.5 million at December 31, 1998, an increase of $10.8 million. The
Company had investment securities held to maturity of $5.1 million at September
30, 1999 compared with $11.7 million at December 31, 1998, a decrease of $6.6
million. The decrease in investment securities was due to the Company's
increased working capital requirements. With the exception of the Company's $2.3
million preferred stock investment in Wang Healthcare Information Systems, Inc.,
the Company's investments are corporate debt securities rated AA or higher and
government securities.
On March 31, 1999, the State of Tennessee, (the "State"), and Xantus
Healthplan of Tennessee, Inc. ("Xantus"), a TennCare customer, entered into a
consent decree under which Xantus was placed in receivership under the laws of
the State of Tennessee. On September 2, 1999 the Commissioner of the Tennessee
Department of Commerce and Insurance, (the "Commissioner") as receiver of
Xantus, filed a proposed plan of rehabilitation (the "Plan"), as opposed to a
liquidation of Xantus. A rehabilitation under receivership, similar to a
reorganization under federal bankruptcy laws, if approved by the Chancery Court
(the "Court"), of the State of Tennessee, would allow Xantus to remain operating
as a TennCare managed care organization, providing full health care related
services to its enrollers. Under the Plan, the State has, among other things,
agreed to loan to Xantus approximately $30 million to be used solely to repay
pre-petition claims of providers, which claims aggregate approximately $80
million. Under the Plan, the receivers have also proposed that Xantus would
contribute a portion of its pre-petition available cash flow towards repayment
of pre-petition provider claims, making $34.8 million in total available to
repay provider's pre-petition claims. The receivers have proposed among other
things, that (i) all providers other than MIM receive the pro-rata portion that
each provider's pre-petition claim bears to the pre-petition claims of all
providers; and (ii) MIM receive (A) its pro-rata portion of its actual out of
pocket expenditures, that is $6.8 million, rather than its total claim against
Xantus of $10.8 million, and (B) its pro-rata portion of unpaid pharmacy claims
which it would be required in turn to pay over to pharmacies on account of
unpaid pharmacy claims. The Company has filed, among other motions, a Motion to
Modify the Plan on the grounds that, among other things, it unfairly and
inequitably treats MIM differently than all other providers and asking the Court
to modify the Plan to treat MIM similarly. The hearing to approve the Plan is
scheduled for November 12, 1999, at which time the Company shall be heard on its
objections. As of October 1, 1999, Xantus owed the Company $10.86 for pharmacy
benefit management ("PBM") services rendered by the Company from January 1, 1999
through April 1, 1999, approximately $4 million of which the Company has
withheld from its pharmacy providers as permitted by the Company's agreements
with them. On November 12, 1999 the Court ruled in favor of the Company's
Motion, thereby requiring the receivers to treat the Company the same as all
other providers. As such, the Plan will be modified to require Xantus to pay the
Company over $4 million, approximately $2.0 million of which is expected to be
received by the end of November 1999 and the remainder of which is expected to
be received by year end. The failure of the Company to collect from Xantus or
other third parties against whom the Company may have claims all or a
substantial portion of the unrecovered monies paid out to pharmacies could have
a material adverse effect on the Company's results of operations.
As part of the Company's normal review process, the Company determined that
each of the Company's agreements (collectively, the "Agreements") with Tennessee
Health Partnership ("THP") and Preferred
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<PAGE>
Health Partnership of Tennessee, Inc. ("PHP") were not achieving profitability
projections. Accordingly, in the first quarter of 1999, in accordance with the
terms of the Agreements, the Company exercised its right to terminate the
Agreements effective on September 28, 1999.
On June 25, 1999, the Company notified both THP and PHP that it would cease
providing PBM services to them and their members if past due amounts of
approximately $500 and $540 were not paid within 30 days as required by the
Agreements. On July 23, 1999, THP and PHP filed complaints in the United States
District Court for the Eastern District of Tennessee alleging that the Company
did not have the right to cease providing services under the Agreements. The
complaints also alleged that THP and PHP disputed the outstanding amounts
invoiced by the Company under the Agreements and demanded that such disputes be
arbitrated as required under the Agreements. Additionally, THP and PHP applied
for a temporary restraining order as well as a preliminary and permanent
injunction to prevent the Company from ceasing to provide PBM services until the
conclusion of such arbitration proceedings.
The hearing on the motion for the temporary restraining order was
scheduled to be heard on Wednesday, August 4, 1999. However, on Tuesday, August
3, 1999, the Company, THP and PHP agreed, among other things, that (i) the
Company would withdraw its termination notices which were to become effective
September 28, 1999; (ii) the Agreements would be extended until December 31,
1999 under a fee-for-service (rather a than capitated) arrangement effective
October 1, 1999 through December 31, 1999; and (iii) THP and PHP would dismiss
the complaints without prejudice, subject to sharing or arbitration as described
below. The Company and THP and PHP will terminate their relationship effective
December 31, 1999. The Company has demanded arbitration with respect to certain
unpaid amounts withheld by THP during 1998 and the Company intends to commence
arbitration on disputed amounts under the existing agreement shortly. The
Company does not believe that its inability to renegotiate successfully
contracts with either or both of THP and PHP would have a material adverse
effect on its results of operations or financial condition.
In April 1999, the Company loaned its Chairman and Chief Executive Officer
$1.7 million, evidenced by a promissory note secured by a pledge of 1.5 million
shares of the Company's Common Stock. The note requires repayment of principal
and interest by March 31, 2004. Interest accrues monthly at the "Prime Rate" (as
defined in the note) then in effect. The loan was approved by the Company's
Board of Directors in order to provide funds with which such executive officer
could pay the Federal and state tax liability associated with the exercise of
stock options representing 1.5 million shares of the Company's Common Stock in
January 1998.
UnderSection 145 of the Delaware General Corporation Law ("Section 145")
and the Company's Amended and Restated By-Laws ("By-Laws"), the Company is
obligated to indemnify two former officers of the Company (one of which is also
a former director and still a principal stockholder of the Company) who are the
subject of indictments brought in the United States District Court for the
Western District of Tennessee (as more fully described in the Form 10-K), unless
it is ultimately determined by the Company's Board of Directors that these
former officers failed to act in good faith and in a manner they reasonably
believed to be in the best interests of the Company, that they had reason to
believe that their conduct was unlawful of for any other reason under which
indemnification would not be required under Section 145 or the By-Laws. In
addition, until the Board makes such a determination, the Company is also
obligated under Section 145 and its By-Laws to advance the costs of legal
defense to such persons; however, if the Board determines that either or both of
these former officers are not entitled to indemnification, such individuals
would be obligated to reimburse the Company for all amounts so advanced. The
Company is not presently in a position to assess the likelihood that either or
both of these former officers will be entitled to such indemnification and
continued advancement of legal defense costs or to estimate the total amount
that the Company may have to pay or advance in connection with such obligations
or the time period over which such amounts will have to be advanced. No
assurance can be given, however, that the Company's obligations to either or
both of these former officers would not have a material adverse effect on the
Company's results of operations or financial condition or liquidity.
13
<PAGE>
At December 31, 1998, the Company had, for tax purposes, unused net
operating loss ("NOL") carryforwards of approximately $47 million which will
begin expiring in 2008. As it is uncertain whether the Company will realize the
full benefit from these NOL carryforwards, the Company has recorded a valuation
allowance equal to the deferred tax asset generated by the carryforwards. The
Company assesses the need for a valuation allowance at each balance sheet date.
The Company has undergone a "change in control" as defined in the Internal
Revenue Code of 1986, as amended ("Code"), and the rules and regulations
promulgated thereunder. The amount of NOL 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.
As the Company grows, it anticipates that its working capital needs will
also increase. The Company expects to spend approximately $.7 million on capital
expenditures during the fourth quarter of 1999 primarily for expansion and
continued upgrading of information systems. 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 twelve months.
The Company may also pursue joint venture arrangements, business
acquisitions and other strategic transactions and arrangements designed to
expand its 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
From January 1994 through December 31, 1998, the Company provided a broad
range of PBM services on behalf of RxCare, to the TennCare, TennCare Partners
and commercial PBM business under the RxCare Contract. Under the terms of the
RxCare Contract, the Company performed essentially all of RxCare's obligations
under its PBM contracts with plan sponsors, including designing and marketing
PBM programs and services. Under the RxCare Contract, the Company paid certain
amounts to RxCare and shared with RxCare the profit, if any, derived from
services performed under RxCare's contracts with the plan sponsors.
The Company and RxCare did not renew the RxCare Contract which expired on
December 31, 1998. The negotiated termination of the Company's relationship with
RxCare, which among other things, allowed the Company to market directly its
services to Tennessee customers, including those MCO's and commercial customers
then serviced by the Company through the RxCare Contract, prior to its
expiration. The RxCare Contract had previously prohibited the Company from
soliciting and/or marketing its PBM services in Tennessee other than on behalf
of, and for the benefit of, RxCare. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 for a
more detailed discussion of the Company's past relationship with RxCare and the
expiration of the RxCare Contract.
The Company's pharmaceutical claims costs historically have been subject to
significant increases from October through February, which the Company believes
is due to the need for increased medical attention to, and intervention with,
MCO's members during the colder months. The resulting increase in pharmaceutical
costs impacts the profitability of capitated contracts or other risk-based
arrangements. Risk-based business represented approximately 41% of the Company's
revenues while non-risk business (including the provision of mail order
services) represented approximately 59% of the Company's revenues for the nine
months ended September 30, 1999. Non-risk arrangements mitigate the adverse
effect on profitability of higher pharmaceutical costs incurred under risk-based
contracts. The Company presently anticipates that approximately 41% of its
revenues in fiscal 1999 will be derived from risk-based arrangements.
Changes in prices charged by manufacturers and wholesalers or distributors
for pharmaceuticals, a component of pharmaceutical claims, have historically
affected the Company's cost of revenue. The Company believes that it is likely
that prices will continue to increase which could have an adverse effect on the
Company's gross profit. To the extent such cost increases adversely effect the
Company's gross
14
<PAGE>
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 rate increases. The higher
level of non-risk contracts with the Company's customers in 1999 compared to
prior years mitigates the adverse effects of price increases, although no
assurance can be given that the recent trend towards non-risk arrangements will
continue.
Generally, loss contracts arise only on capitated or other risk-based
contracts and primarily result from higher than expected pharmacy utilization
rates, higher than expected inflation in drug costs and the inability of the
Company to restrict its MCO clients' formularies to the extent anticipated by
the Company at the time contracted PBM services are implemented, thereby
resulting in higher than expected drug costs. At such time as management
estimates that a contract will sustain losses over its remaining contractual
life, a reserve is established for these estimated losses. Management does not
believe that there is an overall trend towards losses on its existing capitated
contracts.
YEAR 2000 DISCLOSURE
The so-called "year 2000 problem," which is common to many companies,
concerns the inability of information systems, primarily computer hardware and
software programs, to recognize properly and process date sensitive information
following December 31, 1999. 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 potential 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;
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) has completed Step I. The Company will continue to obtain letters
from new hardware and software vendors. The Company has completed the
implementation of Step II. All server/host operating systems have been upgraded
to manufacturer specifications to be year 2000 compliant. The Company will
continue to monitor software manufacturer patch releases for additional
enhancements.
With respect to Step III above, the Company has engaged in discussions with
the third party vendors that transmit data from member pharmacies and has been
advised that such third party vendors' systems will be able to properly
recognize and process dates after December 31, 1999.
With respect to Step IV above, the Company successfully completed a year
2000 compliance test of the claims adjudication and processing systems during
our regularly scheduled disaster recovery drill, which took place on June 28,
1999. As a result of this compliance test, the Company believes its claims
adjudication and processing system will be able to properly accept and transmit
data after December 31, 1999 with no significant disruption. The Company's
internal accounting and other administrative systems
15
<PAGE>
generally have been internally developed during 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 expects that
these systems will be able to properly recognize and process dates after
December 31, 1999.
Continental's computer systems related to the delivery of pharmaceutical
products through mail order were upgraded in the fourth quarter of 1998 to
become year 2000 compliant. Continental's internal accounting systems were
upgraded during the second quarter of 1999, and are now year 2000 compliant. The
substantial amount of the remaining systems are compliant. Work is continuing on
those systems that are not yet compliant, and will be completed shortly.
COSTS:
As noted above, the Company spent approximately $2.6 million during 1997
and 1998 to improve its information systems. In addition, the Company has spent
approximately $1.0 million during the first nine months of 1999 and anticipates
that it will spend approximately $.7 million in the fourth quarter of 1999, to
further improve its information systems. These improvements were not, and are
not intended to specifically address the year 2000 issue, but rather to address
other business needs and issues. Nonetheless, the IS project has provided the
Company with a platform from which to address all 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 during 1999 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 be addressed in a
timely manner so that the Company will experience little or no disruption in its
business immediately following December 31, 1999. However, if unforeseen
difficulties arise, or if further compliance testing is delayed, 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, because
member pharmacies would not be able to transmit data electronically. 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. 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 payers, the Company does
not foresee any material lost revenues or other material expenses that would be
incurred if this scenario occured. However,
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<PAGE>
an extended delay in processing claims, making payments to pharmacies and
billing the Company's customers could materially 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 Cgmpany 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. Also, certain states' laws
and regulations generally require that doctors and pharmacy providers be paid by
health insurers (or by their PBM and other subcontractors) within a fixed number
of days (usually between 30 and 45 days) of the submission by such providers of
properly completed claims forms and submissions. To the extent that delays in
the adjudication of pharmacy claims are delayed beyond the number of days
legally permitted under applicable state law, such delays could lead to the
imposition of monetary fines or the suspension or revocation of particular state
permits, licenses, consents or approvals. In light of the uniqueness of the Y2K
problem, the Company does not believe that many state regulators, in exercising
discretion would impose sanctions as severe as suspension or revocation of any
such licenses, permits or approvals, but no such assurances can be given that
such sanctions would not be imposed. 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 first paragraph in
"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 the
time frames described above. In any such event, the Company's results of
operations and financial condition could be materially adversely affected. In
addition, the failure to be year 2000 compliant of third parties outside of the
Company's 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
The Company believes that interest rate risk represents the only market
risk exposure applicable to the Company. The Company's exposure to market risks
associated with changes in interest rates relates primarily to the Company's
investments in marketable securities in accordance with the Company's corporate
investment policies and guidelines. All of these instruments are classified as
"held-to-maturity" on the Company's consolidated balance sheets and were entered
into by the Company solely for investment purposes and not for trading purposes.
The Company does not invest in or otherwise use derivative financial
instruments. The Company's investments consist primarily of corporate debt
securities, corporate preferred stock and State and local governmental
obligations, each rated AA or higher. The table below presents principal cash
flow amounts and related weighted average effective interest rates by expected
(contractual) maturity dates for the Company's financial instruments subject to
interest rate risk:
17
<PAGE>
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER
---- ---- ---- ---- ---- ----------
Short-term investments
<S> <C> <C> <C> <C> <C> <C>
Fixed rate investments 5,000 - - - - -
Weighted average rate 6.70% - - - - -
Long-term investments:
Fixed rate investments - - - - - -
Weighted average rate - - - - - -
Long-term debt:
Variable rate instruments 46 312 1,977 - - -
Weighted average rate 9.00% 9.00% 7.78% - - -
</TABLE>
In the table above, the weighted average interest rate for fixed and
variable rate financial instruments in each year was computed utilizing the
effective interest rate at September 30, 1999 for that instrument multiplied by
the percentage obtained by dividing the principal payments expected in that year
with respect to that instrument by the aggregate expected principal payments
with respect to all financial instruments within the same class of instrument.
At September 30, 1999, the carrying values of cash and cash equivalents,
accounts receivable, accounts payable, claims payable and payables to plan
sponsors and others approximate fair value due to their short-term nature.
Because management does not believe that its exposure to interest rate
market risk is material at this time, the Company has not developed or
implemented a strategy to manage this market risk through the use of derivative
financial instruments or otherwise. The Company will assess the significance of
interest rate market risk from time to time and will develop and implement
strategies to manage that risk as appropriate.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 31, 1999, the State and Xantus entered into a consent decree under
which Xantus was placed in receivership under the laws of the State of
Tennessee. On September 2, 1999 the Commissioner, as receiver of Xantus, filed
the Plan, as opposed to a liquidation of Xantus. A rehabilitation under
receivership, similar to a reorganization under federal bankruptcy laws, if
approved by Court, would allow Xantus to remain operating as a TennCare managed
care organization, providing full health care related services to its enrollers.
Under the Plan, the State has, among other things, agreed to loan to Xantus
approximately $30 million to be used solely to repay pre-petition claims of
providers, which claims aggregate approximately $80 million. Under the Plan, the
receivers have also proposed that Xantus would contribute a portion of its
pre-petition available cash flow towards repayment of pre-petition provider
claims, making $34.8 million in total available to repay provider's pre-petition
claims. The receivers have proposed among other things, that (i) all providers
other than MIM receive the pro-rata portion that each provider's pre-petition
claim bears to the pre-petition claims of all providers; and (ii) MIM receive
(A) its pro-rata portion of its actual out of pocket expenditures, that is $6.8
million, rather than its total claim against Xantus of $10.8 million, and (B)
its pro-rata portion of unpaid pharmacy claims which it would be required in
turn to pay over to pharmacies, on account of unpaid pharmacy claims. The
Company has filed, among other motions, a Motion to Modify
18
<PAGE>
the Plan on the grounds that, among other things, it unfairly and inequitably
treats MIM differently than all other providers and asking the Court to modify
the Plan to treat MIM similarly. The hearing to approve the Plan is scheduled
for November 12, 1999, at which time the Company shall be heard on its
objections. As of October 1, 1999, Xantus owed the Company $10.86 million for
pharmacy benefit management ("PBM") services rendered by the Company from
January 1, 1999 through April 1, 1999, approximately $4 million of which the
Company has withheld from its pharmacy providers as permitted by the Company's
agreements with them. On November 12, 1999 the Court ruled in favor of the
Company's Motion, thereby requiring the receivers to treat the Company the same
as all other providers. As such, the Plan will be modified to require Xantus to
pay the Company over $4 million, approximately $2.0 million of which is expected
to be received by the end of November 1999 and the remainder of which is
expected to be received by year end. The failure of the Company to collect from
Xantus or other third parties against whom the Company may have claims all or a
substantial portion of the unrecovered monies paid out to pharmacies could have
a material adverse effect on the Company's results of operations.
As part of the Company's normal review process, the Company determined
that each of the Company's agreements (collectively, the "Agreements") with
Tennessee Health Partnership ("THP") and Preferred Health Partnership of
Tennessee, Inc. ("PHP") were not achieving profitability projections. As a
result thereof, in the first quarter of 1999, and in accordance with the terms
of the Agreements, the Company exercised its right to terminate the Agreements
effective on September 28, 1999.
On June 25, 1999, the Company notified both THP and PHP that it would cease
providing PBM services to them and their members if past due amounts of
approximately $500 and $540 were not paid within 30 days as required by the
Agreements. On July 23, 1999, THP and PHP filed complaints in the United States
District Court for the Eastern District of Tennessee alleging that the Company
did not have the right to cease providing PBM services under the Agreements. The
complaints also alleged that THP and PHP disputed the outstanding amounts
invoiced by the Company under the Agreements and demanded that such disputes be
arbitrated as required under the Agreements. Additionally, THP and PHP applied
for a temporary restraining order as well as a preliminary and permanent
injunction to prevent the Company from ceasing to provide PBM services until the
conclusion of such arbitration proceedings.
The hearing on the motion for the temporary restraining order was
scheduled to be heard on Wednesday, August 4, 1999. However, on Tuesday, August
3, 1999, the Company, THP and PHP agreed, among other things, that (i) the
Company would withdraw its termination notices which were to become effective
September 28, 1999; (ii) the Agreements would be extended until December 31,
1999 under a fee-for-service (rather than on capitated) arrangement effective
October 1, 1999 through December 31, 1999; and (iii) THP and PHP would dismiss
the complaints without prejudice, subject to sharing or arbitration as described
below. The Company and THP and PHP will terminate their relationship on December
31, 1999. The Company has demanded arbitration with respect to certain unpaid
amounts withheld by THP during 1998, and the Company intends to commence
arbitration on disputed amounts under the Agreements shortly. The Company does
not believe that its inability to enter into the New Agreements with either or
both of THP and PHP will have a material adverse effect on the Company's results
of operations or financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
From August 14, 1996 through September 30, 1999, the $46,788,000 net
proceeds from the initial public offering (the "Offering"), pursuant to a
Registration Statement assigned file number 333-05327 by the Securities and
Exchange Commission and declared effective by the Commission on August 14, 1996,
have been applied in the following approximate amounts:
Construction of plant, building and facilities.............$ -
Purchase and installation of machinery and equipment.......$ 6,063,908
Purchases of real estate...................................$ -
Acquisition of other business .............................$ 2,341,000
Repayment of indebtedness..................................$ -
Working capital............................................$18,019,520
19
<PAGE>
Temporary investments:
Marketable securities.................................$ 5,056,773
Overnight cash deposits...............................$15,306,799
To date, the Company has expended a relatively insignificant portion of the
Offering proceeds on expansion of the Company's "preferred generics" business
which was described more fully in the Offering prospectus and the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. At the time of
the Offering, however, as disclosed in the Offering prospectus and subsequent
Forms SR, the Company intended to apply approximately $18.6 million of Offering
proceeds to fund an expansion of the "preferred generics" program. The Company
has determined not to apply any material portion of the Offering proceeds to
fund any expansion of this program. The Company presently intends to use the
remaining Offering proceeds to support the growth of its PBM and mail order
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders (the "Annual Meeting")
was held on August 19, 1999. Listed below are the proposals submitted to
stockholder vote at the Annual Meeting and the results of the stockholder vote
there at:
1. Election of six (6) directors to the Board of Directors, each to serve for a
one (1) year term. The Company's nominated and elected directors are Richard H.
Friedman, Scott R. Yablon, Richard A. Cirillo, Esq., Louis DiFazio, Ph.D.,
Michael Kooper and Louis a. Luzzi, Ph.D., the votes in favor of and against the
election of each director were as follows:
NAME FOR WITHHELD
---- --- --------
Richard H. Friedman 10,639,089 3,028,769
Scott R. Yablon 10,641,689 3,026,169
Dr. Louis A. Luzzi 10,685,597 2,982,261
Richard A. Cirillo 10,641,689 3,026,169
Dr. Louis DiFazio 10,685,597 2,982,261
Michael Kooper 10,685,597 2,982,261
2. Amendments to the Company's Amended and Restated 1996 Stock Incentive Plan
(the "Employee Plan") in order to add performance shares and performance units
as securities subject to grant by the Company to employees thereunder, to make
available an additional 825,450 shares of Common Stock for grant thereunder and
other related technical changes thereto.
FOR AGAINST ABSTAIN
7,361,378 4,700,651 19,960
3. Amendments to the Company's 1996 Non-Employee Director's Plan (the "Directors
Plan") in order to make available under the Directors Plan an additional
2,000,000 shares of Common Stock for grant thereunder.
20
<PAGE>
FOR AGAINST ABSTAIN
8,616,944 3,438,965 26,080
There were no other proposals submitted for stockholder approval at the Annual
Meeting.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.60 Amendment No. 1 to Employment Agreement,
dated as of October 11, 1999 between
MIM Corporation an Richard H. Friedman
10.61 Form of Performance Shares Agreement
10.62 Form of Performance Units Agreement
10.63 Form of Non-Qualified Stock Option Agreement
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the third quarter
of fiscal 1999.
21
<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: November 15, 1999 /S/ EDWARD J. SITAR
--------------------------------------------
Edward J. Sitar
Chief Financial Officer
(Principal Financial Officer)
22
<PAGE>
Exhibit Index
(Exhibits being filed with this Quarterly Report on Form 10-Q)
10.60 Amendment No. 1 to Employment Agreement, dated as of October 11, 1999
between MIM Corporation an Richard H. Friedman
10.61 Form of Performance Shares Agreement
10.62 Form of Performance Units Agreement
10.63 Form of Non-Qualified Stock Option Agreement
27 Financial Data Schedule
23
Exhibit 10.60
Amendment No. 1 to Employment Agreement
This Amendment No. 1 (this "Amendment") to Employment Agreement is
entered into as of October 11, 1999 by and between MIM Corporation, a Delaware
corporation (the "Company"), and Richard H. Friedman ("Executive").
WHEREAS, the Company and Executive entered into an Employment Agreement
dated as of December 1, 1998 (the "Original Agreement");
WHEREAS, certain compensation provisions in the Original Agreement were
subject to stockholder approval pursuant to Section 3.8 of the Original
Agreement;
WHEREAS, the Company included a proposal (the "Proposal") in its proxy
statement dated as of July 2, 1999 with respect to its 1999 Annual Meeting of
Stockholders ("Annual Meeting") in order to obtain stockholder approval of the
relevant compensation provisions of the Original Agreement;
WHEREAS, the Company submitted the Original Agreement to stockholders
for approval primarily to ensure the deductibility for Federal tax purposes of
compensation payable to Executive under the Original Agreement in accordance
with Section 162(m) of the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder;
WHEREAS, with the consent of Executive, the Company withdrew the
Proposal from consideration at the Annual Meeting based upon, among other
things, an insufficient number of shares necessary to approve the Proposal being
voted by proxy prior to the Meeting;
WHEREAS, therefore, the stockholder approval condition precedent set
forth in Section 3.8 will not be satisfied by December 31, 1999 and,
accordingly, the compensation provisions of the Original Agreement subject to
such condition may be ineffective; and
WHEREAS, in light of the withdrawal of the Proposal, the Company and
Executive have agreed to amend the Original Agreement on the terms and
conditions set forth herein so as (a) not to deprive Executive of the benefit of
(i) certain forms of incentive compensation granted in the Original Agreement
and (ii) certain other compensation payable to Executive upon the occurrence of
certain events, including termination, all as more fully described in the
Original Agreement and (b) to ensure on behalf of the Company the deductibility
for Federal tax purposes of any compensation payable to Executive under the
Agreement;
NOW, THEREFORE, in consideration of 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:
<PAGE>
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 and herein
shall hereafter mean the Original Agreement as amended by this
Amendment.
2. Section 3.8 of the Original Agreement is hereby deleted in its
entirety and shall be deemed to be of no further force or effect from
and after the date hereof, and shall be replaced by the following:
"Notwithstanding any provision herein to the contrary, to the extent
that any compensation that would be payable to Executive hereunder
(but for the operation of this Section 3.8) would not be deductible
for Federal tax purposes by the Company as a result of the limitations
of Section 162(m) of the Internal Revenue Code of 1986, as amended, as
determined by the Company's tax counsel or independent public
accountants ("nondeductible compensation"), then such nondeductible
compensation shall not be payable by the Company or paid by the
Company in the taxable year of the Company in which such payment
otherwise would be required (but for the operation of this Section
3.8) to be made under the Agreement or any other agreement entered
into between the Company and Executive to effectuate the provisions
hereof, but, instead, shall be deferred to and become payable in the
next subsequent taxable year of the Company in which such compensation
would be deductible for Federal tax purposes by the Company taking
into account the limitations of Section 162(m)."
3. The proviso of Section 3.9 of the Original Agreement is hereby deleted
in its entirety and shall be deemed to be of no further force or
effect from and after the date hereof.
4. Section 3.3(a) of the Original Agreement is hereby amended to add a
new sentence to the end of the paragraph as follows: "The payment of
all bonus payments made to Executive hereunder shall be subject to the
limitations set forth in Section 3.8 hereof."
5. Section 3.3(b) of the Original Agreement is hereby deleted in its
entirety and replaced with the following: "Upon execution and delivery
of this Agreement, Executive shall be granted and shall be entitled to
receive 200,000 Performance Units under the Company's Amended and
Restated 1996 Stock Incentive Plan ("Plan"), subject to the terms and
conditions of the Plan and a definitive Performance Unit Agreement to
be negotiated and entered into by the parties."
6. Section 3.3(c) of the Original Agreement is hereby deleted in its
entirety.
7. Section 3.4 of the Original Agreement is hereby deleted in its
entirety and replaced with the following: "Upon execution and delivery
of this
<PAGE>
8. Agreement, the Executive shall be granted and shall be entitled to
receive options ("Options") to purchase 250,000 shares of the common
stock, par value $0.0001 per share, of the Company ("Common Stock"),
under the Company's Amended and Restated 1996 Stock Incentive Plan, at
a price per share equal to $2.37 per share in the case of ISO's (as
defined below), being 110% of the closing sales price per share of the
Common Stock, and $2.16 per share in the case of NQSO's (as defined
below), being the closing sales price per share of the Common Stock,
in each case, on the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ") on October 8, 1999, the date on
which the Company's Compensation Committee granted the Executive these
Options. The Options shall, to the extent permitted by Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), be
qualified as incentive stock options ("ISO's"). Options in excess of
the number permitted to receive ISO treatment under Section 422 of the
Code shall not be qualified as ISO's and shall be treated as
non-qualified stock options ("NQSO's"). Subject to Sections 4 and 5
hereof and the applicable stock option award agreement (i) 83,333 of
such Options shall vest and become exercisable on each of the first
and second anniversaries of the date thereof, and (ii) the remaining
83,334 Options shall vest and become exercisable, on the third
anniversary of the date hereof. The Options shall be subject to the
terms and conditions of the Plan and a definitive stock option
agreement to be negotiated and entered into by the parties."
9. Section 4.1 of the Original Agreement is hereby amended by deleting
clause (iv) in its entirety and renumbering clause (v) as clause (iv);
in addition, the cross reference to clause (v) in the last sentence of
Section 4.1 shall be amended to cross reference to clause (iv).
10. Section 4.2 of the Original Agreement is hereby amended by deleting
clause (iv) in its entirety and renumbering clauses (v) and (vi) as
clauses (iv) and (v) respectively; in addition, the cross reference to
clause (v) in the proviso of clause (v) (now (iv)) shall be amended to
cross reference to clause (iv).
11. Section 5.1(b) of the Original Agreement is hereby amended by deleting
clause (ii) in its entirety and renumbering clauses (iii), (iv) and
(v) as clauses (ii), (iii) and (iv) respectively.
12. Section 5.1(c) of the Original Agreement is hereby amended by deleting
clause (iii) in its entirety and replacing it with the following "all
Performance Units shall lapse and terminate immediately; and"
13. Section 5.2(b) of the Original Agreement is hereby amended by deleting
clause (v) in its entirety and renumbering clause (vi) as clause (v).
<PAGE>
14. Section 5.2(c) of the Original Agreement is hereby amended by deleting
clause (v) in its entirety and renumbering clause (vi) as clause (v).
15. Section 5.3(b) of the Original Agreement is hereby amended by deleting
clause (v) in its entirety and renumbering clause (vi) as clause (v).
16. Section 7.4(i) of the Original Agreement is hereby amended to delete
the address block for Rogers & Wells under the heading "with a copy
to" and to replace it with the following:
King & Spalding
1185 Avenue of the Americas
New York, New York 10036-4003
Attention: Richard A. Cirillo
17. The parties agree to enter into an Amended and Restated Employment
Agreement on the terms and conditions set forth in the Original
Agreement as modified by this Amendment. Upon execution and delivery,
the Amended and Restated Employment Agreement will replace and
supercede the Original Agreement and this Amendment.
18. Except as modified hereby, the Agreement shall remain unmodified and
in full force and effect.
19. 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/ Barry A. Posner
------------------------
Its: Vice President and General Counsel
------------------------
/s/ Richard H. Friedman
---------------------------
Executive
Exhibit 10.61
PERFORMANCE SHARES AGREEMENT
PERFORMANCE SHARES AGREEMENT (the "Agreement") made as of the _____ day
of _________, 1999 (the "Grant Date"), between MIM Corporation, a Delaware
corporation (the "Company"), and ____________________ (the "Awardee").
WHEREAS, the Company desires to afford the Awardee an opportunity to
own shares of the common stock, par value $.0001 per share, of the Company
("Common Shares"), as hereinafter provided, in accordance with the provisions of
the MIM Corporation 1996 Stock Incentive Plan, as amended and restated effective
December 1, 1998, a copy of which is attached (the "Plan").
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration the legal sufficiency of
which is hereby acknowledged, the parties hereto, intending to be legally bound
hereunder, agree as follows:
1. GRANT OF RESTRICTED SHARES. The Company hereby grants to the Awardee
an aggregate of _____________ Common Shares (the "Performance Shares"), the
effectiveness of which grant is contingent in all respects upon approval of the
Plan by the shareholders of the Company on or before December 31, 1999. The
grant is in all respects limited and conditioned as hereinafter provided, and is
subject to the terms and conditions of the Plan now in effect and as they may be
amended from time to time (which terms and conditions are and automatically
shall be incorporated herein by reference and made a part hereof and shall
control in the event of any conflict with any other terms of this Performance
Shares Agreement).
2. VESTING AND FORFEITURE. If the Awardee's Date of Termination does
not occur during the Restricted Period, then, at the end of the Restricted
Period, the Awardee shall become vested in all of the Performance Shares. If (a)
the Company meets the target Earnings Per Share for the year 2001 (as reflected
on Exhibit 1 attached hereto) and (b) the Awardee's Date of Termination does not
occur prior to December 31, 2001, then the Awardee shall become vested in all of
the Performance Shares upon closing of the Company's financial statements for
the year 2001 (the "Accelerated Vesting Date"). If the Awardee does not meet the
requirements for vesting contained in this paragraph, the Awardee shall
immediately forfeit all of the Performance Shares, except to the extent provided
as follows:
(a) If the Awardee's Date of Termination occurs by reason of the
Awardee's death, Disability or by reason of Termination without Cause or for
Good Reason, the Awardee shall become immediately vested, as of the Date of
Termination, in (i) 1/3 of the Performance Shares if the Date of Termination
occurs before the first anniversary of the Grant Date and the Company achieves
the target Earnings Per Share (as reflected on Exhibit 1) for the fiscal year in
which the Date of Termination occurs; (ii) 2/3 of the Performance Shares if the
Date of Termination occurs on or after the first anniversary but before the
second anniversary of the Grant Date and the Company achieves the target
Earnings Per Share (as reflected on Exhibit 1) for the fiscal year in which the
Date of
<PAGE>
Termination occurs; and, (iii) all of the Performance Shares if the Date of
Termination occurs on or after the second anniversary but before the day
following the third anniversary of the Grant Date and the Company achieves the
target Earnings Per Shares (as reflected on Exhibit 1) for the fiscal year in
which the Date of Termination occurs.
(b) The Awardee shall become vested in all of the Performance Shares as
of the Date of Termination if the Awardee's Employment is terminated within one
year following such Change in Control (provided such termination occurs prior to
the end of the Restricted Period and such termination is a Termination without
Cause or is a Termination for Good Reason).
If the Awardee is at any time Terminated for Cause or if the Awardee
resigns without Good Reason, the Awardee shall forfeit all Performance Shares
that have not previously vested.
3. DELIVERY OF RESTRICTED STOCK. As soon as practicable after the first
to occur of (a) the expiration of the Restricted Period, (b) the Awardee's Date
of Termination and (c) the date of a Change in Control, the Committee shall
certify in writing as to whether or not the performance objectives have been
satisfied. If the Committee certifies that the performance objectives have been
satisfied, or determines that Performance Shares otherwise have vested, the
restrictions applicable to such Performance Shares shall lapse and a certificate
for the number of Common Shares with respect to which the restrictions have
lapsed shall be delivered to the Awardee free and clear of all such
restrictions.
4. TRANSFERS. Performance Shares may not be sold, assigned,
transferred, pledged or otherwise encumbered until the Awardee is vested in the
shares and then only to the extent the Awardee is vested in the shares.
5. DIVIDENDS AND VOTING RIGHTS. The Awardee shall be entitled to
receive any regular cash dividends paid with respect to Performance Shares that
become payable during the Restricted Period; provided, however, that no such
dividends shall be payable to or for the benefit of the Awardee with respect to
record dates occurring prior to the Grant Date, or with respect to record dates
occurring on or after the date, if any, on which the Awardee has forfeited
Performance Shares; and provided further that all distributions made with
respect to the Performance Shares as a result of any split, distribution or
combination of Performance Shares or other similar transaction shall be deemed
to be Performance Shares subject to the provisions of this Agreement. The
Awardee shall be entitled to vote the Performance Shares during the Restricted
Period to the same extent as would have been applicable to the Awardee if the
Awardee was then vested in the shares; provided, however, that the Awardee shall
not be entitled to vote the shares with respect to record dates for such voting
rights arising prior to the Grant Date, or with respect to record dates
occurring on or after the date, if any, on which the Awardee has forfeited the
Performance Shares.
<PAGE>
6. DEPOSIT OF PERFORMANCE SHARES. Each certificate issued in respect of
Performance Shares granted under this Agreement shall be registered in the name
of the Awardee and shall be deposited with the Company. The grant of Performance
Shares is conditioned upon the Awardee endorsing in blank a stock power for the
Performance Shares and delivering such stock power to the depository designated
by the Committee contemporaneously with the issuance and deposit of the
Performance Shares with the Company.
7. DEFINITIONS. For purposes of this Agreement, the terms used in this
Agreement shall be defined as follows:
(a) DATE OF TERMINATION. The Awardee's "Date of Termination"
shall be the first day occurring on or after the Grant Date on which the
Awardee's Employment by the Company and its Subsidiaries and Affiliates is
terminated, regardless of the reason for the termination of Employment; provided
that a termination of Employment shall not be deemed to occur by reason of a
transfer of the Awardee between any of the Company and its Subsidiaries and
Affiliates; and further provided that the Awardee's employment shall not be
considered terminated while the Awardee is on a leave of absence from the
Company or a Subsidiary or Affiliate approved by the Awardee's employer.
(b) DESIGNATED BENEFICIARY. The term "Designated Beneficiary"
means the beneficiary or beneficiaries designated by the Awardee in a writing
filed with the Committee in such form and at such time as the Committee shall
require.
(c) DISABILITY. The term "Disability" shall have the meaning
provided in Section
22(e)(3) of the Code.
(d) RESTRICTED PERIOD. The term "Restricted Period" means the
period commencing on the Grant Date and ending on December 31, 2006.
(e) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. The term
"Termination without Cause or for Good Reason" shall mean the termination of the
Awardee's Employment by the Company and its Subsidiaries and Affiliates for
reasons other than "Cause" or by the Awardee for "Good Reason," as such quoted
terms are defined in the Employment Agreement (the "Employment Agreement") dated
as of March 1, 1999 between the Company and the Awardee.
(f) PLAN DEFINITIONS. Except where the context clearly implies
or indicates the contrary, a word, term, or phrase used in the Plan shall have
the same meaning where used in this Agreement.
8. SHARES ACQUIRED FOR INVESTMENT. The Awardee hereby represents that
the Performance Shares are being acquired for investment for the Awardee's own
account, not as a nominee or agent, and not with the view to, or for resale in
connection with, any distribution thereof. The Awardee understands that the
Performance Shares have not been, and will not be, registered under the
Securities Act of 1933, as amended (the "Securities Act"), or the securities
laws of any
<PAGE>
state by reason of exemptions from the registration provisions of the Securities
Act and such laws which depend upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Awardee's representations as
expressed herein.
9. WITHHOLDING OF TAXES. Any obligation of the Company to deliver
Common Shares pursuant to this Agreement shall be subject to applicable federal,
state and local withholding tax requirements. The Company shall have the right
to require recipients or their beneficiaries or legal representatives to remit
to the Company an amount sufficient to satisfy such withholding tax
requirements, or to deduct from all payments to be made hereunder amounts
sufficient to satisfy all such withholding tax requirements. The Committee may,
in its sole discretion, permit a recipient to satisfy his or her tax withholding
obligation either by (i) surrendering Common Shares owned by the recipient or
(ii) having the Company withhold from Common Shares otherwise deliverable to the
Awardee. Shares surrendered or withheld shall be valued at their Fair Market
Value as of the date on which income is required to be recognized for income tax
purposes. The Awardee hereby agrees that he will not make an election under
Section 83(b) of the Code with respect to any or all of the Performance Shares.
10. HEIRS AND SUCCESSORS. This Agreement shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business. If any
rights of the Awardee or benefits distributable to the Awardee under this
Agreement have not been exercised or distributed, respectively, at the time of
the Awardee's death, such rights shall be exercisable by the Designated
Beneficiary, and such benefits shall be distributed to the Designated
Beneficiary, in accordance with the provisions of this Agreement and the Plan.
If a deceased Awardee fails to designate a beneficiary, or if the Designated
Beneficiary does not survive the Awardee, any rights that would have been
exercisable by the Awardee and any benefits distributable to the Awardee shall
be exercised by or distributed to the legal representative of the estate of the
Awardee. If a deceased Awardee designates a beneficiary but the Designated
Beneficiary dies before the Designated Beneficiary's exercise of all rights
under this Agreement or before the complete distribution of benefits to the
Designated Beneficiary under this Agreement, then any rights that would have
been exercisable by the Designated Beneficiary shall be exercised by the legal
representative of the estate of the Designated Beneficiary, and any benefits
distributable to the Designated Beneficiary shall be distributed to the legal
representative of the estate of the Designated Beneficiary.
11. GOVERNING LAW. This Agreement shall be construed in accordance
with, and its interpretation shall be governed by applicable federal law, and
otherwise by the laws of the State of Delaware.
<PAGE>
12. ADMINISTRATION. The authority to manage and control the operation
and administration of this Agreement shall be vested in the Committee, and the
Committee shall have all powers with respect to this Agreement as it has with
respect to the Plan. Any interpretation of this Agreement by the Committee and
any decision made by it with respect to this Agreement is final and binding.
13. ENTIRE AGREEMENT. This Agreement and the Employment Agreement
contain the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior contracts and other agreements to the
extent of any discrepancies or conflicts between this Agreement and the
Employment Agreement, the terms of the Employment shall govern.
IN WITNESS WHEREOF, the Company has caused this Performance Shares
Agreement to be duly executed by its officers thereunto duly authorized, and the
Awardee has hereunto set his hand and seal, all on the day and year first above
written.
MIM CORPORATION
By
--------------------------
Name:
Title:
ACCEPTED AND AGREED TO:
------------------------------
Awardee
Exhibit 10.62
PERFORMANCE UNITS AGREEMENT
PERFORMANCE UNITS AGREEMENT (the "Agreement") made as of the _____ day
of _________, 1999 (the "Grant Date"), between MIM Corporation, a Delaware
corporation (the "Company"), and ____________________ (the "Awardee").
WHEREAS, the Company desires to afford the Awardee an opportunity to
participate in the growth of the Company as hereinafter provided, in accordance
with the provisions of the MIM Corporation 1996 Stock Incentive Plan, as amended
and restated effective December 1, 1998, a copy of which is attached (the
"Plan").
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration the legal sufficiency of
which is hereby acknowledged, the parties hereto, intending to be legally bound
hereunder, agree as follows:
1. GRANT OF PERFORMANCE UNITS. The Company hereby grants to the Awardee
as of the date hereof (the "Grant Date") an aggregate of _____________
Performance Units, the effectiveness of which grant shall be contingent in all
respects upon approval of the Plan by the shareholders of the Company on or
before December 31, 1999. The grant is in all respects limited and conditioned
as hereinafter provided, and is subject to the terms and conditions of the Plan
now in effect and as they may be amended from time to time (which terms and
conditions are and automatically shall be incorporated herein by reference and
made a part hereof and shall control in the event of any conflict with any other
terms of this Performance Units Agreement).
2. VESTING AND FORFEITURE. If the Awardee's Date of Termination does
not occur prior to December 31, 2001, the Performance Units shall vest as of
such date and shall be payable at the accrued value achieved for the year 2001
in accordance with the Performance Objective set forth in Exhibit 1, PROVIDED,
HOWEVER, that the accrued value of the Performance Units shall be zero if the
Company's Net After Tax Earnings are below the threshold amount for 2001. If the
Awardee's Date of Termination is prior to December 31, 2001, the Awardee shall
forfeit the Performance Units, except to the extent provided as follows:
(a) The Performance Units shall vest as of the Awardee's Date
of Termination if such termination occurs by reason of the Awardee's death,
Disability or Termination without Cause or for Good Reason and shall be payable
at the accrued value measured at the end of the fiscal year immediately
following such termination in accordance with Exhibit 1.
(b) The Performance Units shall vest as of the date of a
Change in Control if the Awardee's Employment is terminated within one year
following such Change in Control (provided such termination is a Termination
without Cause or for Good Reason). Such Performance Units shall be immediately
payable at the maximum target value set forth on Exhibit 1.
(c) If the Awardee is terminated at any time for Cause or if
the Awardee resigns at
<PAGE>
any time without Good Reason, the Awardee shall forfeit all Performance Units
(whether vested or not).
3. PAYMENT OF PERFORMANCE UNITS. As soon as practicable after the
earliest to occur of (a) the Awardee's Date of Termination and (b) the date of a
Change in Control, the Committee shall certify in writing as to whether or not
the Performance Objectives have been satisfied. If the Committee certifies that
the Performance Objectives have been satisfied, or determines that the
Performance Units otherwise have vested, the Company shall pay to the Awardee
the amount determined under Section 2 in two equal installments, the first of
which shall be payable as soon as practicable following such certification or
determination and the second of which shall be payable within 60 days before or
after the first anniversary of the date of the first such payment.
Notwithstanding anything contained in this Agreement to the contrary, however,
in no event shall an Awardee receive payment in excess of $1,000,000 in respect
of Performance Units for any given year. Any amount earned by an Awardee in
excess of $1,000,000 shall be deferred and paid as soon as possible in any
subsequent year subject to the limitations provided in the penultimate sentence
of this Section.
4. TRANSFERS. Performance Units may not be sold, assigned, transferred,
pledged or otherwise encumbered.
5. DEFINITIONS. For purposes of this Agreement, the terms used in this
Agreement shall be defined as follows and be subject to the following:
(a) DATE OF TERMINATION. The Awardee's "Date of Termination"
shall be the first day occurring on or after the Grant Date on which the
Awardee's employment by the Company and its Subsidiaries and Affiliates is
terminated, regardless of the reason for the termination of Employment; provided
that a termination of Employment shall not be deemed to occur by reason of a
transfer of the Awardee between any of the Company and its Subsidiaries and
Affiliates; and further provided that the Awardee's Employment shall not be
considered terminated while the Awardee is on a leave of absence from the
Company or any Subsidiary or Affiliate approved by the Awardee's employer.
(b) DESIGNATED BENEFICIARY. The term "Designated Beneficiary"
shall mean the beneficiary or beneficiaries designated by the Awardee in a
writing filed with the Committee in such form and at such time as the Committee
shall require.
(c) DISABILITY. The term "Disability" shall have the meaning
provided in Section 22(e)(3) ---------- of the Code.
(d) NET AFTER TAX EARNINGS. The term "Net After Tax Earnings"
with respect to a year shall mean the consolidated net earnings of the Company
and its Subsidiaries after taxes, as reflected in the audited financial
statements of the Company and its Subsidiaries for the year in question.
(e) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. The term
"Termination
<PAGE>
without Cause or for Good Reason" shall mean the termination of the Awardee's
Employment by the Company and its Subsidiaries and Affiliates for reasons other
than "Cause" or by the Awardee for "Good Reason," as such quoted terms are
defined in the Employment Agreement (the "Employment Agreement"), dated as of
March 1, 1999 between the Company and the Awardee
(f) PLAN DEFINITIONS. Except where the context clearly implies
or indicates the contrary, a word, term, or phrase used in the Plan shall have
the same meaning where used in this Agreement.
6. WITHHOLDING OF TAXES. Any obligation of the Company to make any
payment with respect to Performance Units shall be subject to applicable
federal, state and local withholding tax requirements. The Company shall have
the right to require recipients or their beneficiaries or legal representatives
to remit to the Company an amount sufficient to satisfy such withholding tax
requirements, or to deduct from all payments to be made hereunder amounts
sufficient to satisfy all such withholding tax requirements.
7. HEIRS AND SUCCESSORS. This Agreement shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business. If any
rights of the Awardee or benefits distributable to the Awardee under this
Agreement have not been distributed at the time of the Awardee's death, such
rights shall be distributed to the Designated Beneficiary, in accordance with
the provisions of this Agreement and the Plan. If a deceased Awardee fails to
designate a beneficiary, or if the Designated Beneficiary does not survive the
Awardee, any benefits distributable to the Awardee shall be distributed to the
legal representative of the estate of the Awardee. If a deceased Awardee
designates a beneficiary but the Designated Beneficiary dies before the complete
distribution of benefits to the Designated Beneficiary under this Agreement,
then any benefits distributable to the Designated Beneficiary shall be
distributed to the legal representative of the estate of the Designated
Beneficiary.
8. GOVERNING LAW. This Agreement shall be construed in accordance with,
and its interpretation shall be governed by applicable federal law, and
otherwise by the laws of the State of Delaware.
9. ADMINISTRATION. The authority to manage and control the operation
and administration of this Agreement shall be vested in the Committee, and the
Committee shall have all powers with respect to this Agreement as it has with
respect to the Plan. Any interpretation of this Agreement by the Committee and
any decision made by it with respect to this Agreement is final and binding.
10. ENTIRE AGREEMENT. This Agreement and the Employment Agreement
contain the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior contracts and other agreements to the
extent of any discrepancies or conflicts between this Agreement and the
Employment Agreement, the terms of the Employment shall govern.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officers thereunto duly authorized, and the Awardee has hereunto
set his hand and seal, all on the day and year first above written.
MIM CORPORATION
By
--------------------------
Name:
Title:
ACCEPTED AND AGREED TO:
------------------------------
Awardee
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 1
Performance Objectives
The performance threshold and goals shall be as follows:
BASE YEAR
THRESHOLD 1998 1999 2000 2001 2002
<S> <C> <C> <C> <C> <C>
Net After Tax Earnings $8,000,000 $8,000,000 $14,400,000 $21,600,000 $30,000,000
Performance Unit Value $0.00 $1.00 $4.00 $10.00 $10.00
Below threshold, no unit values are accrued or earned
TARGET 1998 1999 2000 2001 2002
Net After Tax Earnings $8,000,000 $10,000,000 $18,000,000 $27,000,000 $37,500,000
Performance Unit Value $0.00 $2.00 $8.00 $25.00 $25.00
MAXIMUM 1998 1999 2000 2001 2002
Net After Tax Earnings $8,000,000 $12,000,000 $21,600,000 $32,000,000 $45,000,000
Performance Unit Value $0.00 $3.00 $10.00 $40.00 $40.00
</TABLE>
Exhibit 10.63
NON-QUALIFIED STOCK OPTION AGREEMENT
NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") made as of the 2nd
day of December, 1998 (the "Grant Date"), between MIM Corporation, a Delaware
corporation (the "Company"), and ____________________ (the "Awardee").
WHEREAS the Company desires to afford the Awardee an opportunity to
purchase shares of the common stock, par value $0.0001 per share, of the Company
("Common Stock"), as hereinafter provided, in accordance with the provisions of
the MIM Corporation 1996 Stock Incentive Plan, as amended and restated effective
December 1, 1998, a copy of which is attached (the "Plan").
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration the legal sufficiency of
which is hereby acknowledged, the parties hereto, intending to be legally bound
hereunder, agree as follows:
1. GRANT OF OPTION. The Company hereby grants to the Awardee the right and
option (the "Option") to purchase all or any part of an aggregate of _________
shares of the Common Stock (the "Shares"). The Option is in all respects limited
and conditioned as hereinafter provided, and is subject to the terms and
conditions of the Plan now in effect and as they may be amended from time to
time (which terms and conditions are and automatically shall be incorporated
herein by reference and made a part hereof and shall control in the event of any
conflict with any other terms of this Option Agreement). It is intended that the
Option granted hereunder be a non-qualified stock option ("NQSO") and NOT an
incentive stock option ("ISO") as such term is defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. DEFINITIONS. For purposes of this Agreement, the terms used herein shall
be defined as follows:
(a) CAUSE. The term "Cause" shall mean any of the following:
(1) Commission by Awardee of criminal conduct which involves moral
turpitude;
(2) Acts which constitute fraud or self-dealing on the part of Awardee
against the Company, including, without limitation, misappropriation
or embezzlement;
(3) Willful engagement by Awardee in conduct which is materially
injurious to the Company; or
<PAGE>
(4) Gross misconduct by Awardee in the performance of duties as an
employee of the Company, including, without limitation, failure to
obey lawful written instructions of the Board of Directors, any
committee thereof or any executive officer of the Company or failure
to correct any conduct which constitutes a breach of any written
agreement between Awardee and the Company or of any written policy
promulgated by the Board of Directors, any committee thereof or any
executive officer of the Company, in either case after not less than
30 days' notice in writing to Awardee of the Company's intention to
terminate Awardee if such failure is not corrected within the
specified period (or after such shorter notice period if the Company
in good faith deems such shorter notice period to be necessary due to
the possibility of material injury to the Company).
(b) CHANGE OF CONTROL. The term "Change of Control" shall mean the
occurrence of one or more of the following: (i) a "person" or "group" within the
means the meaning of sections 13(d) and 14(d) of the Securities and Exchange Act
of 1934 (the "Exchange Act") becomes the "beneficial owner" (within the meaning
of Rule l3d-3 under the Exchange Act) of securities of the Company (including
options, warrants, rights and convertible and exchangeable securities)
representing 30% or more of the combined voting power of the Company's then
outstanding securities in any one or more transactions unless approved by at
least two-thirds of the Board of Directors then serving at that time; provided,
however, that purchases by employee benefit plans of the Company and by the
Company or its affiliates shall be disregarded; or (ii) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the operating assets of the
Company; or (iii) a merger or consolidation, or a transaction having a similar
effect, where (A) the Company is not the surviving corporation, (B) the majority
of the Common Stock of the Company is no longer held by the stockholders of the
Company immediately prior to the transaction, or (C) the Company's Common Stock
is converted into cash, securities or other property (other than the common
stock of a company into which the Company is merged), unless such merger,
consolidation or similar transaction is with a subsidiary of the Company or with
another company, a majority of whose outstanding capital stock is owned by the
same persons or entities who own a majority of the Company's Common Stock at
such time; or (iv) at any annual or special meeting of stockholders of the
Company at which a quorum is present (or any adjournments or postponements
thereof), or by written consent in lieu thereof, directors (each a "New
Director" and collectively the "New Directors") then constituting a majority of
the Company's Board of Directors shall be duly elected to serve as New Directors
and such New Directors shall have been elected by stockholders of the Company
who shall be an (I) "Adverse Person(s)"; (II) "Acquiring Person(s)"; or (III)
"40% Person(s)" (as each of the terms set forth in (I), (II), and (III) hereof
are defined in that certain Amended and Restated Rights Agreement, dated May 14,
1998, between the Company and American Stock Transfer & Trust Company, as Rights
Agent.
(c) DATE OF TERMINATION. The Awardee's "Date of Termination" shall be the
first day occurring on or after the Reference Date on which the Awardee's
Employment by the Company
<PAGE>
and its Subsidiaries and Affiliates is terminated, regardless of the reason for
the termination of Employment; provided that a termination of Employment shall
not be deemed to occur by reason of a transfer of the Awardee between any of the
Company and its Subsidiaries and Affiliates; and further provided that the
Awardee's employment shall not be considered terminated while the Awardee is on
a leave of absence from the Company or a Subsidiary or Affiliate approved by the
Awardee's employer.
(d) DISABILITY. The term "Disability" shall have the meaning provided in
Section 22(e)(3) of the Code.
(e) GOOD REASON. The term Good Reason shall mean any of the following:
(1) The Company fails to continue to employ Awardee in the same
capacity or a comparable or more senior executive capacity, with
substantially the same or more senior duties, responsibilities and
authority;
(2) The Company materially reduces the aggregate amount of
compensation and benefits payable to Awardee or fails to pay when due
any base salary, bonus or other compensation or amount payable to
Awardee, and such failure continues for a period of five (5) days
following the giving of written notice of such failure by Awardee; or
(3) The Company breaches any material provision of this Agreement, and
such breach continues for a period of thirty (30) days following the
giving of written notice of such breach by Awardee.
(f) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. The term "Termination
without Cause or for Good Reason" shall mean the termination of the Awardee's
Employment by the Company and its Subsidiaries and Affiliates for reasons other
than "Cause" or by the Awardee for "Good Reason."
(g) PLAN DEFINITIONS. Except where the context clearly implies or indicates
the contrary, a word, term, or phrase used in the Plan shall have the same
meaning where used in this Agreement.
3. PURCHASE PRICE. The purchase price per share of the Shares under the
Option shall be $ 4.50 (the "Option Price"), being equal to the Fair Market
Value of Common Stock on the Grant Date.
4. TERM. Unless earlier terminated pursuant to any provision of the Plan or
of this Option Agreement, this Option shall expire on the date (the "Expiration
Date") which is the tenth anniversary of June 1, 1999 (the "Reference Date").
This Option shall not be exercisable on or after the Expiration Date.
<PAGE>
5. EXERCISE OF OPTION. This Option shall vest and may be exercised as to
one-third of the Shares (rounded to the nearest whole share) on each of the
first three anniversaries of the Grant Date, so that the Option shall be
exercisable as to all Shares on the third such anniversary thereof, PROVIDED,
HOWEVER, that the Option shall be exercisable (i) as to all vested Shares (that
have not been previously forfeited) as of the Awardee's Date of Termination if
such termination occurs by reason of the Awardee's death or Disability or (ii)
as to all vested and unvested Shares (that have not been previously forfeited)
as of the date of a Change in Control if the Awardee's Employment is terminated
within one year following such Change in Control if such termination is without
Cause or if it is for Good Reason. Options that become exercisable in accordance
with the foregoing shall remain exercisable, subject to the provisions contained
in the Plan and in this Option Agreement, until the expiration of the term of
this Option as set forth in Paragraph 4 or until other termination of the
Option.
6. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of this
Option Agreement and the Plan, the Option may be exercised upon written notice
to the Company at its principal office, which is located at 100 Clearbrook Road,
Third Floor, Elmsford, New York 10523; Attention: Corporate Secretary. Such
notice (a suggested form of which is attached) shall state the election to
exercise the Option and the number of Shares with respect to which it is being
exercised; shall be signed by the person or persons so exercising the Option;
shall, if the Company so requests, be accompanied by the investment certificate
referred to in Paragraph 7 hereof and shall be accompanied by payment of the
full Option Price of such Shares. The Option Price shall be paid to the Company:
(a) In cash, or in its equivalent;
(b) In Common Stock previously acquired by the Awardee, provided that if
such shares of Common Stock were acquired through exercise of an ISO or NQSO or
of an option under a similar plan, such shares have been held by the Awardee for
a period of more than 12 months on the date of exercise; or
(c) In such other manner consistent with the Plan and applicable law as
from time to time may be authorized in writing by the Company with respect to
such "cashless" option exercise arrangements as the Company from time to time
may maintain with securities brokers. Any such arrangements and written
authorizations may be terminated at any time by the Company without notice to
the Awardee.
(d) In any combination of (a), (b) and (c) above.
In the event such Option Price is paid, in whole or in part, with shares of
Common Stock, the portion of the Option Price so paid shall be equal to the Fair
Market Value on the date of exercise of the Option of the Common Stock
surrendered in payment of such Option Price.
<PAGE>
Upon receipt of such notice and payment, the Company, as promptly as
practicable, shall deliver or cause to be delivered a certificate or
certificates representing the Shares with respect to which the Option is so
exercised. The certificate or certificates for the Shares as to which the Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising the Option (or, if the Option shall be exercised by the
Awardee and if the Awardee shall so request in the notice exercising the Option,
shall be registered in the name of the Awardee and the Awardee's spouse,
jointly, with right of survivorship) and shall be delivered as provided above to
or upon the written order of the person or persons exercising the Option. In the
event the Option shall be exercised by any person or persons after the legal
disability or death of the Awardee, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise the Option.
All Shares that shall be purchased upon the exercise of the Option as provided
herein shall be fully paid and non-assessable by the Company.
7. SHARES TO BE PURCHASED FOR INVESTMENT. Unless the Company has
theretofore notified the Awardee that a registration statement covering the
Shares to be acquired upon the exercise of the Option has become effective under
the Securities Act of 1933 and the Company has not thereafter notified the
Awardee that such registration is no longer effective, or unless counsel to the
Company shall be otherwise satisfied that the Awardee would be permitted under
applicable law to immediately resell Shares acquired upon the exercise of the
Option, it shall be a condition to any exercise of this Option that the Shares
acquired upon such exercise be acquired for investment and not with a view to
distribution, and the person effecting such exercise shall submit to the Company
a certificate of such investment intent, together with such other evidence
supporting the same as the Company may request. The Company shall be entitled to
restrict the transferability of the Shares issued upon any such exercise to the
extent necessary to avoid a risk of violation of the Securities Act of 1933 (or
of any rules or regulations promulgated thereunder) or of any state laws or
regulations. Such restrictions may, at the option of the Company, be noted or
set forth in full on the share certificates.
8. NON-TRANSFERABILITY OF OPTION. This Option is not assignable or
transferable, in whole or in part, by the Awardee otherwise than by the laws of
descent and distribution, and during the lifetime of the Awardee the Option
shall be exercisable only by the Awardee or by his guardian or legal
representative.
9. TERMINATION OF OPTION. (a) The unexercised portion of the Option
(whether vested or not) shall automatically terminate and shall become null and
void and be of no further force or effect upon the first to occur of the
following:
(i) The Expiration Date;
(ii) In the case of vested options, the expiration of 30 days from the
Date of Termination of Awardee other than as provided by clause (iii)
below;
<PAGE>
(iii) As to vested shares, the expiration of twelve months from the
Date of Termination of Awardee as a result of the Awardee's death,
Disability, Termination without Cause or for Good Reason;
(iv) As to vested and unvested shares, the expiration of twelve months
from the Date of Termination of Awardee if the Awardee's Employment is
terminated within one year following a Change in Control and such
termination is without Cause or if it is for Good Reason.
(v) Immediately if the Awardee ceases to be an employee of the Company
and its Subsidiaries if Awardee is terminated by the Company for
Cause.
10. WITHHOLDING OF TAXES. The obligation of the Company to deliver Shares
upon the exercise of the Option shall be subject to applicable federal, state
and local tax withholding requirements.
If the exercise of this Option is subject to the withholding requirements
of applicable federal tax laws, the Committee may permit the Awardee, subject to
the provisions of the Plan and such additional withholding rules (the
"Withholding Rules") as shall be adopted by the Committee, to satisfy the
minimum federal, state and local withholding tax, in whole or in part, by
electing to have the Company withhold (or by returning to the Company) shares of
Common Stock, which shares shall be valued, for this purpose, at their Fair
Market Value on the date of exercise of the Option (or, if later, the date on
which the Awardee recognizes ordinary income with respect to such exercise) (the
"Determination Date"). An election to use shares of Common Stock to satisfy tax
withholding requirements must be made in compliance with and subject to the
Withholding Rules, and the Committee may not withhold shares in excess of the
number necessary to satisfy the minimum federal, state and local income tax
withholding requirements. In the event shares of Common Stock acquired under the
exercise of an ISO are used to satisfy such withholding requirement, such shares
of Common Stock must have been held by the Awardee for a period of not less than
the holding period described in Section 422(a)(1) of the Code on the
Determination Date, or if such shares of Common Stock were acquired through
exercise of a non-qualified stock option or of an option under a similar plan,
such option was granted to the Awardee at least six months prior to the
Determination Date.
11. GOVERNING LAW. This Option Agreement shall be construed in accordance
with, and its interpretation shall be governed by applicable federal law, and
otherwise by the laws of the State of Delaware.
12. ADMINISTRATION. The authority to manage and control the operation and
administration of this Agreement shall be vested in the Committee, and the
Committee shall have all powers with respect to this Agreement as it has with
respect to the Plan. Any interpretation of this Agreement by the Committee and
any decision made by it with respect to this Agreement is final and binding.
<PAGE>
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
contracts and other agreements to the extent of any discrepancies contained
between this document and such other document.
IN WITNESS WHEREOF, the Company has caused this
Agreement to be duly executed by its officers thereunto duly authorized, and the
Awardee has hereunto set his hand and seal, all on the day and year first above
written.
MIM CORPORATION
By
--------------------------
Name:
Title:
ACCEPTED AND AGREED TO:
------------------------------
Awardee
<PAGE>
Notice of Exercise of Non-Qualified Stock Option
I hereby exercise the non-qualified stock option granted to me on
_______________________, 199__, by MIM Corporation, with respect to the
following number of shares of the $.0001 par value per share common stock of MIM
Corporation ("Shares") covered by said option:
Number of Shares to be purchased _______________
Option price per Share $______________
Total exercise price $______________
[Check one of the following to indicate method of payment:]
A. Enclosed is cash or its equivalent, in the amount of $_____________,
- ----- in full payment for such Shares.
B. Enclosed is/are ___________________ Share(s) with a total Fair
- ----- Market Value of $_______________ on the date hereof in full
payment for such Shares.
C. [Describe any other payment alternatives then available.]
D. Enclosed is cash or its equivalent in the amount of $_________,
- ----- and _____ Share(s) with a total Fair Market Value of $_________
on the date hereof, in [partial] [full] payment for such Shares.
Please have the certificate or certificates representing the purchased
Shares registered in the following name or names/1/
______________________________________________ and sent to
________________________________________________________________________.
DATED: _____________________, _________.
--------------------------------
Awardee's Signature
- ---------------------------
1 Certificates may be registered in the name of the Awardee alone or in the
names of the Awardee and his or her spouse, jointly, with right of survivorship.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 15,307
<SECURITIES> 5,037
<RECEIVABLES> 74,781
<ALLOWANCES> 1,984
<INVENTORY> 956
<CURRENT-ASSETS> 94,833
<PP&E> 10,539
<DEPRECIATION> 4,359
<TOTAL-ASSETS> 125,313
<CURRENT-LIABILITIES> 80,541
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 40,805
<TOTAL-LIABILITY-AND-EQUITY> 125,313
<SALES> 265,197
<TOTAL-REVENUES> 265,197
<CGS> 241,522
<TOTAL-COSTS> 241,522
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,387
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,867
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,867
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,867
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
