UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File No. 0-28740
MIM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 05-0489664
(State of incorporation) (IRS Employer Identification No.)
100 Clearbrook Road, Elmsford, New York 10523
(914) 460-1600
(Address and telephone number of Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value per share
(Title of class)
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, as amended ("Exchange Act") during the preceding twelve 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Annual Report on Form 10-K
("Annual Report") or any amendment to this Annual Report on Form 10-K. ___
The aggregate market value of the registrant's Common Stock, par value
$.0001 per share ("Common Stock") (its only voting stock), held by
non-affiliates of the registrant as of March 12, 1999 was approximately $29.0
million based on the closing sales price of the Common Stock on such day of
$2.50 per share. (Reference is made to the fourth paragraph of Part II, Item 5
herein for a statement of the assumptions upon which this calculation is based.)
On March 12, 1999, there were outstanding 18,742,689 shares of the
registrant's Common Stock.
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PART I
Item 1. Business
Overview
MIM Corporation (the "Company") is an independent pharmacy benefit
management ("PBM") and prescription mail order organization that offers a broad
range of pharmaceutical services to the health care industry. The Company
promotes the cost effective delivery of pharmacy benefits to plan members and
the public. The Company targets two types of plan sponsors: (1) sponsors of
public and private health plans, such as health maintenance organizations
("HMO's") and other managed care organizations ("MCO's"), and long-term care
facilities, such as nursing homes and assisted living facilities; and (2)
self-funded plans sponsored by employers. The Company provides flexible program
designs, pricing arrangements, formulary management, clinical expertise,
innovative technology and quality service designed to control pharmacy costs.
The Company promotes the clinically appropriate substitution of generic drugs
from equivalent but more expensive brand name drugs that are often prescribed.
The Company was incorporated in Delaware in March 1996 and completed its
initial public Offering ("Offering") in August 1996. Prior to the Offering, the
Company combined the businesses and operations of Pro-Mark Holdings, Inc.
("Pro-Mark") and MIM Strategic Marketing, LLC, which became 100% and 90% owned
subsidiaries, respectively, of the Company in May 1996. On August 24, 1998, the
Company acquired all of the outstanding capital stock of Continental Managed
Pharmacy Services, Inc. ("Continental"), complementing its core PBM business
with mail order pharmacy services.
At December 31, 1998, the Company provided PBM services to 127 plan
sponsors with approximately 1.9 million plan members, including six plan
sponsors with approximately 1.2 million members receiving mandated health care
benefits under Tennessee's TennCare(R) Medicaid waiver program ("TennCare"). As
of January 1, 1999, the Company's relationship with these TennCare plan sponsors
was restructured. See "The TennCare Program" below. Throughout this Annual
Report, all references to the number of members or lives managed by the Company
under the TennCare program excludes members or lives duplicatively covered under
an agreement between the Company and TennCare behavioral health plan sponsors.
In prior periodic reports under the Exchange Act and in previous press releases,
the Company has counted such members and lives twice when covered under more
than one agreement.
Since the Offering through mid-December 1997, the Company focused its
marketing efforts on large public health programs, particularly in states with
high Medicaid eligible populations, and on private health plans throughout the
United States. Beginning in 1998 and continuing with more emphasis into 1999,
the Company has focused its marketing efforts on small to mid- sized employer
groups, both directly through its sales and marketing force and indirectly
through commissioned brokers and agents, such as third party administrators. At
March 15, 1999, approximately 32% of the plan members for whom the Company
provides PBM services were covered through employer groups.
PBM Services
The Company's PBM services include formulary design and management with an
emphasis on providing clinically appropriate, cost effective pharmacy services,
point of sale ("POS") claims processing, clinical services, an established
pharmacy network, mail order pharmacy services, drug utilization review and
reporting ("DUR"), quality assurance polices and pharmacy data services and
reporting. The Company's benefit management programs include a number of design
features and structures that are tailored to a plan sponsor's particular benefit
program and cost requirements. The Company's fee structures include traditional
fee-for-service arrangements (e.g., billing for ingredient cost and pharmacist's
dispensing fee plus certain administrative fees), capitated arrangements (e.g.,
fixed price per plan participant), cost sharing arrangements (e.g., pricing
based on sharing with customers the financial benefits resulting from not
exceeding established per capita amounts), and profit sharing arrangements
(e.g., pricing which incentivizes the plan sponsors to support fully the
Company's cost control efforts).
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Formulary Design and Management. The Company offers flexible benefit and
formulary designs to meet the specific requirements of each plan sponsor.
Formulary design options include open, select, closed, tiered copayment or
custom. Open formularies generally cover all FDA approved drugs, except certain
classes of excluded pharmaceuticals (such as certain vitamins and cosmetic,
experimental, investigative and over-the-counter drugs). A select formulary
designates preferred products within each therapeutic drug class and may include
financial and other incentives (such as lower copayments) for a member to use
one or more preferred products. Closed formularies restrict the availability of
certain drugs within a given therapeutic class (except where it is determined to
be medically necessary) (see "Clinical Services" below) and are coupled with
comprehensive physician and member education initiatives. Closed formularies
require the Company's active involvement in Pharmacy and Therapeutics ("P&T")
Committees (consisting of local plan sponsors, physicians, pharmacists and other
health care professionals) to design and implement clinically appropriate
formularies designed to control costs through the use of therapeutically
equivalent lower cost pharmaceutical products. As a result of rising pharmacy
program costs, the Company believes that both public and private health plans
have become increasingly receptive to closed and tiered copayment formularies.
Tiered copayment formularies require members utilizing non-formulary medications
to pay higher copayments, thereby discouraging the use of non-formulary
medications, or in preferred generic programs, brand drugs. Custom formularies
are designed to accommodate the needs of a particular group (e.g., hospice, long
term care, the elderly, workers' compensation and behavioral health). All
formularies are subject to the final approval of the plan sponsor, directly or
through their respective P&T Committees.
Cost control and savings initiatives are realized through formulary designs
focusing on generic substitution and formulary selection of the most cost
effective agents within each therapeutic class, in each case, to the extent
consistent with accepted medical and pharmacy practice and applicable law.
Generic substitution programs promote the selection of bio-equivalent generic
drugs as a cost effective alternative to brand name drugs in accordance with a
plan sponsor's generic utilization goals. Formulary selection involves utilizing
lower cost brand name drugs within a therapeutic class and therapeutic
algorithms that promote appropriate selection of therapeutic agents. Selective
utilization within therapeutic classes enables the Company to negotiate and
obtain purchasing concessions and other financial incentives from both brand and
generic drug manufacturers which are often shared with plan sponsors. The
Company currently contracts with over forty pharmaceutical manufacturers to
provide such concessions and incentives for formulary products.
POS Claims Processing. Benefit designs and formulary parameters are managed
through the Company's point of service ("POS") claims processing system through
which real-time electronic messages are transmitted to pharmacists to ensure
compliance with specified benefit design and formulary parameters before
services are rendered. The POS claims processing system adjudicates claims at
the point-of-sale, verifying eligibility and reporting to the pharmacist the
appropriate pricing and copayment structure. In addition, the system performs a
series of on-line drug utilization review ("DUR") edits, as discussed below,
(see "Drug Utilization Review") to identify, before a medication is dispensed,
potential adverse drug interactions and other possible problems which may exist.
Clinical Services. The Company's formularies typically provide a selection
of covered drugs within each therapeutic class. Formulary agents are selected by
the plan sponsor working together with the Company's P&T Committee based upon
clinical and pharmacoeconomic information. However, when determined to be
clinically appropriate, non-formulary drugs (other than products within excluded
therapeutic classes) are also covered. Since non-formulary drugs are
automatically rejected by the POS claims processing system, the Company may
implement sponsor requested overrides, or prior authorization ("PA") and medical
necessity ("MN") override procedures for a specific patient and length of
therapy. A PA is required upon the failure of a therapeutic trial of formulary
alternatives or allergy/intolerance to formulary alternatives not requiring a
PA. A drug subject to MN review is not on a plan sponsor's formulary, but
coverage is granted upon a failed therapeutic trial of formulary and PA
alternatives and/or an allergy/intolerance to formulary alternatives and PA
alternatives. In addition, in a medical emergency as determined by a dispensing
pharmacist, the Company authorizes, without prior approval, short-term supplies
of non-formulary medications. Non-formulary PA and MN overrides are processed on
the basis of documented, clinically supported guidelines and typically are
granted or denied within 24 to 48 hours after request if accompanied by all
necessary supporting documentation. Requests for, and appeals of denials of PA
or
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MN overrides are handled by the Company's staff of trained pharmacists,
nationally certified pharmacy technicians and board certified pharmacotherapy
specialists, subject to the plan sponsor's ultimate decision making authority
over all such appeals.
Pharmacy Network Management. The Company's pharmacy network consists of
pharmacy chains and independent pharmacies, as well as pharmacy service
administrative organizations. Participating pharmacies may be included in the
Company's open, preferred, select or custom networks, which are designed to
ensure that members have the plan sponsor's desired level of access to quality
pharmacy services. The open network, consisting of both independent and chain
pharmacies, provides maximum access to pharmacy services. The preferred network
offers clients, on a negotiated basis, access to a limited subset of independent
and chain pharmacies within the Company's national network, allowing enhanced
discount opportunities for plan sponsors and their members. The select pharmacy
network offers clients maximum savings potential through an even more limited
subset of the Company's national network of chain and independent pharmacies
with respect to one or more of a sponsor's plans through the negotiation of
aggressive reimbursement discounts within such limited network, while
maintaining the plan sponsor's desired level of access for members. Custom
networks are developed when necessary to support specialty formularies and
disease state management protocols. The Company has an open network policy and
continually works to increase pharmacy participation in its existing network.
Aggressive solicitation of pharmacies occurs in areas that require network
penetration such as when the Company begins servicing a client in a geographic
area not previously serviced by the Company. Specific pharmacies may be added at
a client's or member's request.
The Company utilizes uniform industry as well as plan specific standards to
credential new participating pharmacy providers and individual pharmacists and
to recredential existing pharmacy providers every two years. In addition, the
Company encourages pharmacies and/or pharmacists to participate in various
educational, peer review and professional programs and to take other actions
designed to maintain and enhance the quality of services rendered by
participating pharmacies.
In the case of an emergency, members may use a non-participating pharmacy
to obtain their medication by paying the non-participating pharmacy for a
prescription and being subsequently reimbursed by the Company. Plan sponsors are
provided with direct member reimbursement ("DMR") forms to distribute to plan
members on which members may submit emergency out-of-network claims for
reimbursement. DMR claims submitted are processed by the Company through its
claim processing system, allowing for complete, integrated DUR and reporting.
Mail Order Services. The Company operates a national mail order pharmacy
providing savings to plan sponsors through the direct distribution of
pharmaceutical products to members. Dispensing pharmaceuticals through mail
service generates substantial savings and provides the convenience of home
delivery, automatic refills and the dispensing of larger authorized quantities
(up to 90 day supplies) than typically available through retail network
pharmacies, thereby reducing repetitive dispensing fees incurred in standard
30-day supply prescriptions dispensed in such retail pharmacies. Prescriptions
are dispensed from a centralized facility located in Cleveland, Ohio.
Prescriptions are received at the facility by mail, facsimile or telephone.
Prior to filling a prescription, the Company's pharmacist verifies the patient's
eligibility status, his or her physician's name, the prescription's strength,
quantity, pricing and directions for use. Prescriptions are dispensed and sent
to patients generally within 72 hours of receipt by United States Postal service
or a national delivery service.
The cost efficiency of the Company's mail service delivery system is
generated through the bulk purchase of pharmaceuticals on terms more favorable
than those of smaller orders, price concessions or financial incentives from
drug manufacturers on high volume purchases and the comparatively lower cost of
prescription fulfillment at the centralized facility. Most of the Company's
wholesale pharmaceutical purchases are made from a leading drug distributor
through an electronic ordering system, enabling the Company's mail order
facility to receive just-in-time delivery of pharmaceutical supplies.
Drug Utilization Review. The Company provides a comprehensive DUR program,
evaluating drug usage on a concurrent, prospective and retrospective basis. The
concurrent DUR program evaluates, before a medication is dispensed to a patient,
potential problems that may exist. The program is designed to assist the
dispensing pharmacist in performing their professional obligation to provide
patients with appropriate medication and
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counseling. Concurrent DUR identifies preventable prescribing problems before
the medications are dispensed and may be targeted for specific therapeutic
classes or individual drug products. Standard DUR edits implemented through the
POS claims processing system include early refill alerts, therapeutic
duplication, drug-drug interaction, drug-age conflict, drug-gender conflict,
pregnancy conflict, underutilization, maximum and minimum dose screening and
other customized alerts (at a client's request). An early refill alert is the
only DUR edit that results in an automatic on-line claim rejection. All other
DUR edits are implemented through a warning message communicated on-line to the
dispensing pharmacist, which enables the pharmacist to use his or her
professional judgment to intervene when appropriate.
The Company's retrospective DUR program is an ongoing process in which
select medication therapies are reviewed for appropriateness and cost
effectiveness from data collected when prescriptions are filled. The
retrospective DUR program is designed to identify and address adverse
prescribing habits and trends by educating physicians and sharing information
with pharmacists to impact prescribing, dispensing and overall drug utilization
practices. In addition, the program identifies changes in pharmacotherapy that
will improve member outcomes, cost effectiveness and quality of care and monitor
potential fraud and abuse by a prescriber, member or pharmacy. Educational
interventions are directed toward the dispensing pharmacy and the prescribing
physician to warn of potential adverse events.
Prospective DUR programs are designed to improve drug utilization prior to
prescribing. The programs include member education and disease state management
programs. Members receive standard communication packages as well as customized
educational materials designed to maximize drug therapy compliance and cost
savings. Disease state management ("DSM") programs are designed to assist plan
sponsors and network pharmacies in achieving therapy goals for certain targeted
diseases. DSM programs communicate the most cost effective disease treatments to
physicians utilizing current literature and national standards. The Company has
implemented DSM programs for asthma, diabetes and geriatric care. Patient and
physician surveys are distributed to determine acceptance of the DSM program and
the corresponding benefits.
Behavioral Health Pharmacy Services. Managed care organizations have
recently recognized the particular and specialized behavioral health needs of
certain patients within their memberships, which has resulted in MCO's
increasingly segregating the behavioral health population into a separate
management area. The Company provides services to the segregated behavioral
health entities created by MCO's and other behavioral health organizations
("BHO's") which encourage the clinically appropriate and cost effective
utilization of behavioral health medications. Through the development of
provider education programs, utilization protocols and prescription dispensing
evaluation tools, the Company is able to integrate pharmaceutical care with
other medical therapies to enhance patient compliance in the behavioral health
area, thereby minimizing unnecessary or suboptimal prescribing practices. These
services are integrated into a package of behavioral health care products for
marketing to private insurers, public managed care programs and other health
providers.
Quality Assurance. Quality is monitored through audit procedures and the
enforcement of disciplinary policies. The Company continually performs audit
procedures on claims data to detect improper claims or inappropriate costs
submitted, incorrect quantities dispensed, excessive claims volume and excessive
price per dispensed prescription. Claims audits which uncover unusual or
inappropriate items may prompt an on-site pharmacy audit. A full on-site audit
verifies randomly selected claims for authenticity and accuracy. The Company
attempts to recoup all identified overpayments and may take other disciplinary
action as appropriate. The Company's disciplinary action policy applies to all
pharmacies found in violation of the Company's pharmacy participation agreement
or its standard operating policies and procedures. The severity of disciplinary
action is dependent on the number and type of discrepancies found.
Pharmacy Data Services and Reporting. The Company utilizes claims data to
generate analysis reports for Company management and plan sponsor use. These
reports, available on tape, diskette, on-line or hard copy, provide summarized
and sorted historical data utilized by management and the plan sponsors to
evaluate trends. Standard management report packages provided to clients are
reviewed by the clinical pharmacy staff to track trends and recommend systems to
ensure cost effective, clinically appropriate pharmacy services.
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The Company has developed systems to provide plan sponsors with real-time,
on-line access to pharmacy claims data. This reporting is available through the
Company's Clinical Management System ("CMS"), a pharmacy intranet system that
provides timely, concise utilization data to help manage drug benefit programs.
CMS provides detail claims transactions, month-to-date data and a rolling
24-month history of the benefit plan. CMS allows the user the ability to
download data to other user applications (e.g., spreadsheet, word processing) so
that specific data can be stored and/or manipulated by the user.
Other Services
Individual Customers. For privately insured and uninsured individuals, the
Company's recently acquired subsidiary, Continental, historically has
administered a mail service program in conjunction with a retail pharmacy
prescription drug card program. Continental historically has solicited
individual patients covered by indemnity contracts with insurance companies
through several marketing programs, including an exclusive agency relationship
with an organization dedicated to individual insureds afflicted with diabetes
and a joint venture with an organization serving HIV positive patients covered
by these insurance arrangements. These organizations have provided Continental's
mail order business with a base of customers who require more frequent and more
costly prescription medications than the average patient.
Through these programs tailored to individual customers who use long-term
or "maintenance" prescription drugs, Continental historically has assisted
insured individuals with the financing and management of their prescription
medications. These members were not required to pay any up-front costs or
membership fees; however, these individuals were billed for copayment amounts or
deductibles required under their insurance plans, unless they were eligible for
financial hardship waivers. Upon dispensing a prescription, Continental would,
on behalf of that patient, submit a claim to his or her insurance company,
finance the purchase of the drug at no cost to the patient and await
reimbursement from the patient's insurance company.
The Company also offers similar services to those individuals without
insurance coverage. Unlike the Continental individual indemnity program,
however, members are required to pay an annual membership fee. The program
offers discounts of up to 40% off the national average prices on prescriptions
filled by the Company's mail order facility. In addition, members receive a
prescription drug card which may be used to obtain prescription medication at
discount prices at retail pharmacies participating in the Company's network.
The TennCare Program
RxCare of Tennessee, Inc. ("RxCare"), a pharmacy services administrative
organization owned by the Tennessee Pharmacists Association and representing
approximately 1,600 retail pharmacies, initially retained the Company in 1993 to
assist in obtaining contracts with MCO's applying to participate in the TennCare
program to provide PBM services to those MCO's and their TennCare eligible and
commercial recipients. In January 1994, the State of Tennessee instituted its
TennCare program by contracting with MCO's to provide mandated health services
to TennCare beneficiaries on a capitated basis. In turn, certain of these MCO's
contracted with RxCare to provide TennCare mandated pharmaceutical benefits to
their TennCare beneficiaries through RxCare's network of retail pharmacies, in
most cases on a corresponding capitated basis.
From January 1994 through December 31, 1998, the Company provided a broad
range of PBM services with respect to RxCare's TennCare, TennCare Partners, the
TennCare behavioral health program, and commercial PBM business under an
agreement with RxCare (the "RxCare Contract"). Under 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.
As of December 31, 1998, the Company serviced six TennCare plan sponsors
with approximately 1.2 million members under the RxCare Contract. The RxCare
Contract accounted for 72.2% of the Company's revenues for the year ended
December 31, 1998 and approximately 83.6% of the Company's revenues for the year
ended December 31, 1997. RxCare's contracts with Tennessee Managed Care Network,
Inc., Tennessee Behavioral
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Health, Inc., Premier Behavioral Systems of Tennessee and Phoenix Healthcare of
Tennessee accounted for approximately 16%, 11%, 16% and 12%, respectively, of
the Company's revenues in 1998.
The Company and RxCare did not renew the RxCare Contract which expired on
December 31, 1998. The negotiated termination of its relationship with RxCare,
among other things, allowed the Company to directly market its services to
Tennessee customers (including those then under contract with RxCare) prior to
the expiration of the RxCare Contract. 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. The Company's
marketing efforts during this period resulted in the Company executing
agreements effective as of January 1, 1999 to provide PBM services directly to
five of the six TennCare MCO's and 900,000 of the TennCare lives previously
managed under the RxCare Contract as well as substantially all third party
administrators ("TPA's") and employer groups previously managed under the RxCare
Contract. The Company anticipates that approximately 32% of its revenues for
fiscal 1999 will be derived from providing PBM services to these five TennCare
MCO's. To date, the Company has been unable to secure a contract with the two
TennCare BHO's to which it previously provided PBM services under the RxCare
Contract. For the year ended December 31, 1998, amounts paid to the Company by
these BHO's represented approximately 27% of the Company's revenues.
Other Matters
The Company's pharmaceutical claims costs historically have been subject to
significant increase over annual averages from October through February, which
the Company believes is due to increased medical requirements 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 32% of the Company's revenues while non-risk business
(including the provision of mail order services) represented approximately 68%
of the Company's revenues for the year ended December 31, 1998. Non-risk
arrangements mitigate the adverse effect on profitability of higher
pharmaceutical costs incurred under risk-based contracts. The Company presently
anticipates that approximately 28% 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
for prices to continue to increase which could have an adverse effect on the
Company's gross profit. To the extent such cost increases adversely effect the
Company's gross profit, the Company may be required to increase contract rates
on new contracts and upon renewal of existing contracts. However, there can be
no assurance that the Company will be successful in obtaining these rate
increases. The higher level of non-risk contracts with the Company's customers
in 1998 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.
Competition
The PBM business is highly competitive, and certain of the Company's
current and potential competitors have considerably greater financial,
technical, marketing and other resources than the Company. The PBM business
includes a number of large, well capitalized companies with nationwide
operations and many smaller organizations typically operating on a local or
regional basis. Among larger companies offering pharmacy benefit management
services are Medco Containment Services, Inc. (a subsidiary of Merck & Co.,
Inc.), PCS, Inc., Express Scripts, Inc., Advance ParadigM, Inc. and Diversified
Pharmaceutical Services, Inc. Numerous insurance and Blue Cross and Blue Shield
plans, managed care organizations and retail drug chains also have their own
pharmacy benefit management capabilities.
Competition in the PBM business to a large extent is based upon price,
although other factors, including quality, technology and breadth of services
and products, are also important. The Company believes that its ability and
willingness, where appropriate, to assume or share its customers' financial
risks and its emphasis on clinical management services represent distinct
competitive advantages in the PBM industry.
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Government Regulation
The Company believes that it is in substantial compliance with all legal
requirements material to its operations. Among the various Federal and state
laws and regulations which may govern or impact the Company's current and
planned operations are the following:
Anti-Kickback Laws. Subject to certain statutory and regulatory exceptions
(including exceptions relating to certain managed care, discount, group
purchasing and personal services arrangements), Federal law prohibits the
payment or receipt of remuneration to induce, arrange for or recommend the
purchase of health care items or services paid for in whole or in part by the
Medicare or state health care programs (including Medicaid and TennCare), and
certain state laws may extend the prohibition to items or services that are paid
for by private insurance and self-pay patients. The Company's arrangements with
pharmacy service administration organizations, drug manufacturers, marketing
agents, brokers, health plan sponsors, pharmacies and others parties routinely
involve payments to or from persons who provide or purchase, or recommend or
arrange for the purchase of, goods or services paid in part by the TennCare
program, the U.S. HealthCare Finance Administration ("HCFA") on behalf of
Medicaid or by other programs covered by such laws. Management carefully
considers the import of such "anti-kickback" laws when structuring its
operations, and believes the Company is in compliance therewith. However, the
laws in this area are subject to rapid change and often are uncertain in their
application, and there can be no assurance that one or more of such arrangements
will not be challenged or found to violate such laws. Violation of the Federal
anti-kickback statute could subject the Company to substantial criminal and
civil penalties, including exclusion from the Medicare and Medicaid (including
TennCare) programs. There are a number of states in which the Company does
business which have laws analogous to Federal anti-kickback laws and regulations
which likewise govern or impact the Company's current and planned operations.
Antitrust Laws. Numerous lawsuits have been filed throughout the United
States by retail pharmacies against drug manufacturers challenging certain brand
drug pricing practices under various state and Federal antitrust laws. A
settlement in one such suit would require defendant drug manufacturers to
provide the same types of discounts on pharmaceuticals to retail pharmacies and
buying groups as are provided to managed care entities to the extent that their
respective abilities to affect market share are comparable, a practice which, if
generally followed in the industry, could increase competition from pharmacy
chains and buying groups and reduce or eliminate the availability to the Company
of certain discounts, rebates and fees currently received in connection with its
drug purchasing and formulary administration programs. In addition, to the
extent that the Company or an associated business appears to have actual or
potential market power in a relevant market, business arrangements and practices
may be subject to heightened scrutiny from an anti-competitive perspective and
possible challenge by state or Federal regulators or private parties. To date,
enforcement of antitrust laws have not had any material adverse effect on the
Company's business.
Other State Laws. Many states have statutes and regulations that do or may
impact the Company's business operations. In some states, pharmacy benefit
managers may be subject to regulation under insurance laws or laws licensing
HMOs and other MCO's, in which event requirements could include satisfying
statutorily imposed performance obligations, the posting of bonds, maintenance
of reserves, required filings with regulatory agencies, and compliance with
disclosure requirements and other regulation of the Company's operations. State
insurance laws also may affect the structuring of certain risk-sharing programs
offered by the Company. A number of states have laws designed to restrict the
ability of PBM's to impose limitations on the consumer's choice of pharmacies,
or requiring that the benefits of discounts negotiated by managed care
organizations be passed along to consumers in proportionate reductions of
copayments. Some states require that pharmacies be permitted to participate in
provider networks if they are willing to comply with network requirements
(including price), while other states require PBM's to follow certain prescribed
procedures in establishing a network and admitting and terminating its members.
Many states require that Medicaid obtain the lowest prices from a pharmacy,
which may limit the Company's ability to reduce the prices it pays for drugs
below Medicaid prices. There are extensive state and federal laws applicable to
the dispensing of prescription drugs. Severe sanctions may be imposed for
violations of these laws. States have a variety of laws regulating pharmacists'
ability to switch prescribed drugs or to split fees and certain state laws have
been the basis for investigations and multi-state settlements requiring the
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discontinuance of certain financial incentives provided by manufacturers to
retail pharmacies to promote the sale of the manufacturers' drugs.
While management believes that the Company is in substantial compliance
with all existing laws and regulations material to the operation of its
business, such laws and regulations are subject to rapid change and often are
uncertain in their application. As controversies continue to arise in the health
care industry (for example, regarding the efforts of plan sponsors and pharmacy
benefit managers to limit formularies, alter drug choice and establish limited
networks of participating pharmacies), Federal and state regulation and
enforcement priorities in this area can be expected to increase, the impact of
which on the Company cannot be predicted. There can be no assurance that the
Company will not be subject to scrutiny or challenge under one or more of these
laws or that any such challenge would not be successful. Any such challenge,
whether or not successful, could have a material adverse effect upon the
Company's business and results of operations. Further, there can be no assurance
that the Company will be able to obtain or maintain any of the regulatory
approvals that may be required to operate its business, and the failure to do so
could have a material adverse effect on the Company's business and results of
operations.
Employees
At March 15, 1999, the Company employed approximately 275 persons including
33 licensed pharmacists. The Company's employees are not represented by any
union and, in the opinion of management, the Company's relations with its
employees are satisfactory.
Item 2. Properties
The Company's corporate headquarters is located in approximately 11,000
square feet of leased space in Elmsford, New York. This lease expires on
September 1, 2008. The Company's operating facilities are located in Wakefield,
Rhode Island and Cleveland, Ohio. In the Rhode Island location, the Company
leases space of approximately 27,000 square feet in several different facilities
under several leases with various lease expirations from May 2000 through
November 2004. In the Ohio location, the Company leases space of approximately
19,500 square feet, which lease expires in June 2001. The Company also leases
approximately 2,000 square feet in Nashville, TN for a regional sales
administration facility. This lease expires on April 30, 1999. The Company
believes that its leases provide for lease payments that reasonably approximate
market rates and that its facilities are adequate and suitable for its
requirements.
Item 3. Legal Proceedings
On March 5, 1996, Pro-Mark Holdings, Inc. ("Pro-Mark"), a subsidiary of MIM
Corporation, was added as a third-party defendant in a proceeding in the
Superior Court of the State of Rhode Island, and on September 16, 1996 the
third-party complaint was amended to add MIM Corporation as a third-party
defendant. The third-party complaint alleged that the Company interfered with
certain contractual relationships and misappropriated certain confidential
information. The third-party complaint sought to enjoin the Company from using
the allegedly misappropriated confidential information and sought an unspecified
amount of compensatory and consequential damages, interest and attorneys' fees.
On November 20, 1998, this action was settled pursuant to a settlement and
release agreement among the parties to the action. Under the terms of the
settlement, the Company was not required to make payment to any party and no
non-monetary restrictions or limitations were otherwise imposed against the
Company or any subsidiary or any of their respective officers, directors or
employees.
In February 1999, the Company reached an agreement in principle with
respect to a civil settlement of a Federal and State of Tennessee investigation
focusing mainly on the conduct of two former officers (one of which is a former
director and still principal stockholder of the Company) of a subsidiary prior
to the Company's Offering. Based upon the agreement in principle, the
investigation, as it relates to the Company, would be fully resolved through the
payment of a $2.2 million civil settlement and an agreement to implement a
corporate integrity program in conjunction with the Office of the Inspector
General of the U.S. Department of Health and Human Services. In that connection,
the Company recorded a non-recurring charge of $2.2 million against fourth
quarter 1998 earnings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in
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<PAGE>
Item 7 in Part II of this Annual Report. This settlement is subject to several
conditions, including the execution of a definitive agreement. The Company
anticipates that it will have no continued involvement in the governments' joint
investigation other than continuing to cooperate with the governments in their
efforts.
On March 29, 1999, Xantus Healthplan of Tennessee, Inc. ("Xantus"), one of
the TennCare MCO's to which the Company provides PBM services, filed a complaint
in the Chancery Court for Davidson County, Tennessee. Xantus alleged that the
Company advised Xantus in writing that it would cease providing PBM services on
Monday, March 29, 1999 to Xantus and its members in the event that Xantus failed
to pay approximately $3.3 million representing past due amounts in connection
with PBM services rendered by the Company in 1999. The complaint further alleged
that the Company does not have the right to cease providing services under the
agreement between Xantus and the Company. Additionally, Xantus applied for a
temporary restraining order as well as temporary injunction to prevent the
Company from ceasing to provide such PBM services. The hearing on the motion for
the temporary injunction was scheduled to be heard on Thursday, April 1, 1999.
However, on March 31, 1999, the State of Tennessee and Xantus entered into a
consent decree whereby, among other things, the Commissioner of Commerce and
Insurance for the State of Tennessee was appointed receiver of Xantus for
purposes of rehabilitation. Due to the fact that the receiver was appointed at
the time of the filing of this Annual Report, the Company is unable to predict
the consequences of this appointment on the Company's ability to retain Xantus's
business or its ability to collect monies owed to it by Xantus. As of March 31,
1999, Xantus owes the Company $9.8 million relating to PBM services rendered by
the Company in 1999. The failure of the Company to collect all or a substantial
portion of the monies owed to it by Xantus would have a material adverse effect
on the Company's financial condition and results of operations.
From time to time, the Company may be a party to legal proceedings arising
in the ordinary course of the Company's business. Management does not presently
believe that any current matters would have a material adverse effect on the
consolidated financial position or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1998.
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock began trading on The Nasdaq National Market Tier
of The Nasdaq Stock Market ("Nasdaq") on August 15, 1996 under the symbol
"MIMS". The following table represents the high and low sales prices for the
Company's Common Stock for the periods shown. Such prices are interdealer
prices, without retail markup, markdown or commissions, and may not necessarily
represent actual transactions.
MIM Common Stock
------------------------------
High Low
------- -------
1997:
First Quarter ................ $10.375 $4.75
Second Quarter ............... $16.75 $5.75
Third Quarter ................ $17.375 $9.062
Fourth Quarter ............... $9.875 $3.625
1998:
First Quarter ................ $6.50 $3.688
Second Quarter ............... $6.438 $4.00
Third Quarter ................ $6.438 $2.50
Fourth Quarter ............... $5.00 $2.281
The Company has never paid cash dividends on its Common Stock and does not
anticipate doing so in the foreseeable future.
As of March 12, 1999, there were 117 stockholders of record in addition to
approximately 2,000 stockholders whose shares were held in nominee name.
For purposes of calculating the aggregate market value of the shares of
Common Stock held by non-affiliates, as shown on the cover page of this Annual
Report, it has been assumed that all outstanding shares were held by
non-affiliates, except for shares held by directors and executive officers of
the Company and stockholders owning 5% or more of the outstanding Common Stock
based upon public filings made with the Securities and Exchange Commission
("Commission"). However, this should not be deemed to constitute an admission
that such persons are, in fact, affiliates of the Company, or that there are not
other persons who may be deemed to be affiliates of the Company. Further
information concerning ownership of Common Stock by executive officers,
directors and principal stockholders of the Company is included in Item 12 in
Part III of this Annual Report.
Except for the performance units and restricted shares of Common Stock
issued to certain executive officers of the Company on December 2, 1998, which
were issued in reliance on Section 4(2) of the Securities Act, during the three
months ended December 31, 1998, the Company did not sell any securities without
registration under the Securities Act of 1933, as amended (the "Securities
Act"). See Long-Term Incentive Plan - Awards in Last Fiscal Year in Item 11 in
Part III of this Annual Report.
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<PAGE>
From August 14, 1996 through December 31, 1998, the $46,788,000 net
proceeds from the Company's Offering of its Common Stock, affected pursuant to a
Registration Statement assigned file number 333-05327 by the Commission and
declared effective by the Commission on August 14, 1996, have been applied in
the following approximate amounts:
Construction of plant, building and facilities .......... $ -
Purchase and installation of machinery and equipment .... $ 3,345,000
Purchases of real estate ................................ $ -
Acquisition of other businesses ......................... $ 2,325,000
Repayment of indebtedness ............................... $ -
Working capital ......................................... $ 24,929,000
Temporary investments:
Marketable securities .......................... $ 11,694,000
Overnight cash deposits......................... $ 4,495,000
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 continued growth of its PBM and mail
order business.
Item 6. Selected Consolidated Financial Data
The selected consolidated financial data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" set forth in Item 7 of this Annual Report and with
the Company's Consolidated Financial Statements and Notes thereto appearing in
Item 8 of this Annual Report.
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<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
Statement of Operations Data 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenue ............................................... $451,070 $242,291 $283,159 $213,929 $109,326
Non-recurring charges ................................. $3,700(1) -- $26,640(2) -- --
Net income (loss) ..................................... $4,271 ($13,497) ($31,754) ($6,772) ($2,456)
Net income (loss) per basic share ..................... $0.28 ($1.07) ($3.32) ($1.43) ($0.55)
Net income (loss) per diluted share (3) ............... $0.26 ($1.07) ($3.32) ($1.43) $(0.55)
Weighted average shares outstanding
used in computing net income per basic share ........ 15,115 12,620 9,557 4,732 4,500
Weighted average shares outstanding used
in computing net income per diluted share ........... 16,324 12,620 9,557 4,732 4,500
<CAPTION>
December 31,
Balance Sheet Data 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ............................. $ 4,495 $ 9,593 $ 1,834 $ 1,804 $ 2,933
Investment securities ................................. 11,694 22,636 37,038 -- --
Working capital (deficit) ............................. 19,823 9,333 19,569 (12,080) (5,087)
Total assets .......................................... 110,106 62,727 61,800 18,924 15,260
Capital lease obligations, net of
current portion ..................................... 598 756 375 110 239
Long-term debt, net of current portion ................ 6,185(4) -- -- -- --
Stockholders' equity (deficit) ........................ $ 39,054 $ 16,810 $ 30,143 $(11,524) $ (3,693)
</TABLE>
(1) In 1998, the Company recorded $1.5 million and $2.2 million non-recurring
charges, respectively, against earnings in connection with the negotiated
termination of the RxCare relationship and amounts paid in settlement of
the Federal and State of Tennessee investigation relating to the conduct of
two former officers of the Company prior to the Offering, respectively. See
"Business - The TennCare Program" in Item 1 and Item 3, Legal Proceedings,
of Part I of this Annual Report. Excluding these items, net income for 1998
would have been $8.0 million, or $0.48 per diluted share.
(2) In 1996, the Company recorded a $26.6 million non-recurring, non-cash stock
option charge in connection with the grant by the Company's then majority
stockholder of certain options to then unaffiliated third parties, who
later became officers of the Company. See Note 9 to the Consolidated
Financial Statements. Excluding this item, the net loss for 1996 would have
been $5.1 million, or $0.54 per share.
(3) The historical diluted loss per common share for the years 1997 through
1994 excludes the effect of common stock equivalents, as their inclusion
would be antidilutive.
(4) This amount represents long-term debt assumed by the Company in connection
with its acquisition of Continental.
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Annual Report contains statements that may be considered forward
looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, including statements regarding the Company's
and its management's expectations, hopes, intentions or strategies regarding the
future, as well as other statements which are not historical facts. Forward
looking statements may include statements relating to the Company's and its
management's business development activities, sales and marketing efforts, the
status of material contractual arrangements, including the negotiation,
continuation, renewal or re-negotiation of such arrangements, future capital
expenditures, the effects of government regulation and competition on the
Company's business, future operating performance of the Company, the results,
benefits and risks associated with the integration of acquired companies, the
effect of year 2000 problems on the Company's operations (see "Year 2000
disclosure" below), and/or effect of legal proceedings or investigations and/or
the resolution or settlement thereof. Investors are cautioned that any such
forward looking statements are not guarantees of future performance and involve
risks and uncertainties that may cause actual results to differ materially from
those in the forward looking statements as a result of various factors. These
factors include, among other things, risks associated with "capitated" contracts
or other risk-sharing arrangements, 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, the existence of complex laws and regulations relating to
the Company's business and risks associated with the Company's reliance on the
TennCare MCO's for substantial percentages of its revenues and gross profit and
its need to maintain favorable relations with these clients. This Annual Report,
together with the Company's other filings with the Commission under the Exchange
Act and Securities Act, contains information regarding other important factors
that could also 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
A majority of the Company's revenues to date have been derived from
operations in the State of Tennessee under the RxCare Contract. The Company
assisted RxCare in defining and marketing PBM services to private health plan
sponsors on a consulting basis in 1993, but did not commence substantial
operations through the provision of PBM services to such plan sponsors until
January 1994 when the Company, through the RxCare Contract, began servicing
several of the health plan sponsors involved in the then newly instituted
TennCare health care benefits program. See "Business - The TennCare Program" in
Item 1 in Part I of this Annual Report.
At December 31, 1998, the Company provided PBM services to a total of 127
plan sponsors with an aggregate of approximately 1.9 million plan members. As of
December 31, 1998, under the RxCare Contract, the Company serviced six TennCare
plan sponsors with approximately 1.2 million plan members. The RxCare Contract
accounted for 72.2% of the Company's revenues for the year ended December 31,
1998 and 83.6% of the Company's revenues for the year ended December 31, 1997.
Throughout this Annual Report, all references to the number of members or lives
managed by the Company under the TennCare program excludes members or lives
duplicatively covered under an agreement between the Company and TennCare
behavioral health plan sponsors. In prior periodic reports under the Exchange
Act and in previous press releases, the Company has counted such members and
lives twice when covered under more than one agreement.
The Company and RxCare did not renew the RxCare Contract which expired on
December 31, 1998. The negotiated termination of its relationship with RxCare,
among other things, allowed the Company to directly market its services to
Tennessee customers (including those then under contract with RxCare) prior to
the expiration of the RxCare Contract. 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. The Company's
marketing efforts during this period resulted in the Company executing
agreements effective as of January 1, 1999 to provide PBM services directly to
five of the six TennCare MCO's and 900,000 of the TennCare lives previously
managed under the RxCare Contract as well as substantially all TPA's and
employer groups previously managed under the RxCare Contract. The Company
anticipates that approximately 32% of its revenues for fiscal 1999 will be
derived from providing PBM services to these five TennCare MCO's. To date, the
Company has been unable to secure a contract with the two TennCare BHO's to
which it previously provided PBM services
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<PAGE>
under the RxCare Contract. For the year ended December 31, 1998, amounts paid to
the Company by these BHO's represented approximately 27% of the Company's
revenues. The Company has made operational adjustments determined to be
necessary due to the BHO and MCO contract losses.
1998 Acquisition
On August 24, 1998, the Company completed its acquisition of 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 3,912,448 shares of Common Stock as
consideration for the purchase. The aggregate purchase price, including
acquisition costs of approximately $1.0 million, approximated $19.0 million. The
fair value of assets acquired approximated $11.3 million and liabilities assumed
approximated $12.0 million, resulting in approximately $18.4 million of goodwill
and $1.3 million of other intangible assets which will be amortized over their
estimated useful lives (25 years and 6.5 years, respectively). The Consolidated
Financial Statements of the Company included in Item 8 of this Annual Report for
the year ended December 31, 1998 include the results of operations and financial
position of Continental from and after the date of acquisition.
Results of Operations
Year ended December 31, 1998 compared to year ended December 31, 1997
For the year ended December 31, 1998, the Company recorded revenue of
$451.1 million, an increase of $208.8 million over the prior year. Approximately
$62.6 million of the increase in revenues resulted from increased commercial
business, including $19.4 million from a Nevada based managed care organization
(the "Nevada Plans"). The acquisition of Continental resulted in increased
revenues of $23.1 million, including $13.6 million attributable to mail order
pharmacy services. The Company anticipates that mail order pharmacy services
will generate approximately 8% of the Company's revenues in fiscal 1999. The
increase in commercial revenues resulted from managing an additional 91 plans
covering an additional 207,000 lives under new and existing commercial plans.
Revenue from TennCare contracts increased approximately $123.1 million as a
result of two new contracts entered into in the fourth quarter of 1997 ($85.1
million) and contract renewals on more favorable terms and increased enrollment
in the TennCare plans ($63.0 million), partially offset by a decrease in
revenues of $25.0 million resulting from the restructuring of a major TennCare
contract in April 1997.
For the year ended December 31, 1998, approximately 32% of the Company's
revenues were generated from capitated or other risk-based contracts, compared
to 53% for the year ended December 31, 1997. Effective January 1, 1999, the
Company began providing PBM services directly to five of the six TennCare MCO's
previously managed under the RxCare Contract. The Company will be compensated on
a capitated basis under three of the five TennCare contracts, thereby increasing
the Company's financial risk in 1999 as compared to 1998. Based upon its present
contracted arrangements, the Company anticipates that approximately 28% of its
revenues in 1999 will be derived from capitated or other risk-based contracts.
Cost of revenue for the year ended December 31, 1998 increased $182.4
million to $421.4 million compared to the prior year. New commercial contracts
together with increased enrollment in existing commercial plans accounted for
$54.0 million of the increase in cost of revenue, including $20.2 million
relating to the Nevada Plans. Costs attributable to the acquisition of
Continental accounted for $18.4 million of the increase in cost of revenue.
Costs related to TennCare contracts increased cost of revenue $110.0 million.
Costs relating to the two new TennCare contracts accounted for $80.3 million of
such increase, while increased enrollment in existing TennCare plans increased
cost of revenue $58.7 million. These cost increases were offset by the
restructuring of a major TennCare contract in April 1997, which resulted in a
decrease in cost of revenue of $25.5 million. As a percentage of revenue, cost
of revenue decreased to 93.4% for the year ended December 31, 1998 from 98.6%
for the year ended December 31, 1997 primarily as a result of contract renewals
on more favorable terms.
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 to
restrict formularies to the extent contemplated by the Company at the time a
contract is entered into, thereby resulting in
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<PAGE>
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. After analyzing those factors described
above, the Company recorded a $4.1 million reserve in December 1997 with respect
to the Nevada Plans. The arrangements with the Nevada Plans were terminated in
August 1998. The reserve established was adequate to absorb the actual losses.
Management does not believe that there is an overall trend towards losses on its
existing capitated contracts.
Selling, general and administrative expenses were $23.1 million for the
year ended December 31, 1998, an increase of $4.0 million as compared to $19.1
million for the year ended December 31, 1997. The acquisition of Continental
accounted for $3.8 million of the increase. The remaining $0.2 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 additional operational and clinical personnel and
information systems to support new and existing customers, partially offset by
lower legal costs. As a percentage of revenue, selling, general and
administrative expenses decreased to 5.1% for the year ended December 31, 1998
from 7.9% for the year ended December 31, 1997 as revenue increases did not
result in proportional increases in expenditures.
The Company recorded a non-recurring charge against earnings of $1.5
million in connection with its negotiated termination of its relationship with
RxCare ("RxCare Settlement"). See "Overview." In addition, the Company recorded
a non-recurring charge against earnings of $2.2 million in connection with the
conclusion of an agreement in principle with respect to a civil settlement of
the Federal and State of Tennessee investigation ("Tennessee Settlement")
relating to the conduct of two former officers (one of which is a former
director and still principal stockholder of the Company) of a subsidiary prior
to the Company's Offering. The Tennessee Settlement is subject to several
conditions, including the execution of a definitive agreement. The Company
anticipates that the investigation will be fully resolved with this Settlement.
See Item 3, Legal Proceedings, in Part I of this Annual Report.
For the year ended December 31, 1998, the Company recorded amortization of
goodwill and other intangibles of $0.3 million in connection with its
acquisition of Continental. The Continental acquisition resulted in the
recording of approximately $18.4 million of goodwill and $1.3 million of other
intangible assets, which will be amortized over their estimated useful lives (25
years and 6.5 years, respectively). The Company anticipates that its annual
amortization of goodwill and other intangibles will be approximately $0.9
million in fiscal 1999.
For the year ended December 31, 1998, the Company recorded interest income,
net of interest expense, of $1.7 million. Interest income was $1.8 million, a
decrease of $0.5 million from a year ago, resulting from a reduced level of
invested capital due to the additional working capital needs of the Company. See
"Liquidity and Capital Resources."
For the year ended December 31, 1998, the Company recorded net income of
$8.0 million, or $.48 per diluted share, before recording the $1.5 million and
$2.2 million non-recurring charges for the RxCare Settlement and Tennessee
Settlement, respectively. Net income for the year ended December 31, 1998, after
recording the non-recurring charges, was $4.3 million, or $.26 per diluted
share. For the year ended December 31, 1997, the Company recorded a net loss of
$13.5 million, or $(1.07) per share.
For the year ended December 31, 1998, accounts receivable increased $41.0
million to $64.7 million from $23.7 million for the prior year. The increase
resulted primarily from a proportionate increase in PBM business during the
period. In addition, the Company's acquisition of Continental accounted for
approximately $10.4 million of the increase in accounts receivable and delays in
the receipt of payments from certain fee-for-service PBM clients and drug
manufacturers accounted for approximately $13.6 million of the increase in
accounts receivable. Because a substantial majority of these payments were
collected by the Company in the first quarter of 1999, the Company does not
believe that this increase in accounts receivable in 1998 due to delayed
payments reflects a trend or that the Company's liquidity has been or will be
materially adversely affected.
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<PAGE>
Year ended December 31, 1997 compared to year ended December 31, 1996
For the year ended December 31, 1997, the Company recorded revenues of
$242.3 million compared with 1996 revenues of $283.2 million, a decrease of
$40.9 million, or 14%. In an effort to stem future losses and increase
profitability, the Company through RxCare, terminated the capitated contract
with Blue Cross/Blue Shield of Tennessee, Inc. ("BCBS") effective March 31,
1997. Although this contract previously had been renegotiated and extended, high
utilization rates continued to hamper the Company's ability to gain
profitability under the contract even though the Company was able to lower
average cost of each prescription. Subsequent to the termination of the original
BCBS contract, the Company had negotiated a contract directly (rather than
through RxCare) with an affiliate of BCBS to begin pharmacy benefit management
services on April 1, 1997. Although the Company continued to provide essentially
the same services under such restructured contract as it did before the
restructuring, the new contract eliminated capitation risk to the Company and
provides for payment of certain administrative and clinical consulting services
on a fee-for-service basis. The restructuring in April 1997 of the BCBS contract
decreased revenue for the year ended December 31, 1997 compared to December 31,
1996 by $107.0 million. This decrease in revenues was offset by an increase of
$34.8 million in other TennCare business resulting from increased enrollment and
several favorable contract restructurings. Further revenue increases of $31.3
million resulted from increased enrollment in existing commercial plans as well
as the servicing of 11 new commercial plans covering approximately 418,000 new
members throughout the United States.
Cost of revenue for 1997 decreased to $239.0 million from $278.1 million
for 1996, a decrease of $39.1 million. The above-described restructuring of the
BCBS contract resulted in a decrease in cost of revenue of $111.6 million. Costs
relating to the remaining TennCare contracts increased by $34.2 million due to
eligibility increases, increased drug prices and increased utilization of
prescription drugs. Increased enrollment in existing commercial plans together
with several new commercial contracts resulted in a $38.3 million increase in
cost of revenue. Included in cost of revenues for commercial business is a $4.1
million reserve established to cover anticipated future losses under certain of
the Nevada Plans. As a percentage of revenue, cost of revenue increased to 98.6%
in 1997 from 98.2% in 1996.
For the year ended December 31, 1997, gross profit decreased $1.8 million
to $3.3 million, after recording the $4.1 million reserve previously described,
from $5.1 million at December 31, 1996. Gross profit increases of $5.0 million
in TennCare business resulted from favorable contract renegotiations as well as
increased eligibility, offset by decreases of $6.8 million in commercial
business resulting primarily from the Nevada Plans. The Nevada Plans generated
$7.3 million in gross losses in the fourth quarter of 1997 (including a $4.1
million reserve for anticipated future losses). The Company believed this
reserve to be a reasonable estimate of its exposure.
Selling, general and administrative expenses increased $7.5 million to
$19.1 million in 1997 from $11.6 million in 1996, an increase of 65.0%. The $7.5
million increase was attributable to expenses associated with an expanded
national sales effort, additional headquarter personnel and operations support
needed to service new business and increases in legal and consulting fees. As a
percentage of revenue, general and administrative expenses increased to 7.9% in
1997 from 4.1% in 1996.
For the year ended December 31, 1997, the Company recorded interest income
of $2.3 million compared to $1.4 million for the year ended December 31, 1996,
an increase of $0.9 million. The increase resulted from funds invested from the
Company's Offering being invested for the entire year in 1997 as opposed to only
five months in 1996.
For the year ended December 31, 1997, the Company recorded a net loss of
$13.5 million, or $1.07 per share. This compares with a net loss of $5.1
million, or $0.54 per share for the year ended December 31, 1996 before
recording a $26.6 million nonrecurring, non-cash stock option charge. The charge
in 1996 represented the difference between the exercise price and the deemed
fair market value of the Common Stock granted by the Company's then principal
stockholder to certain then unaffiliated third parties who later become
executive officers and directors of the Company. This increase in net loss is
the result of the above-described changes in revenue, cost of revenue and
expenses.
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<PAGE>
Liquidity and Capital Resources
The Company utilizes both funds generated from operations, if any, and
funds raised in the Offering for capital expenditures and working capital needs.
For the year ended December 31, 1998, net cash used by the Company for operating
activities totaled $16.4 million, primarily due to an increase in accounts
receivable of $41.0 million. The increase in accounts receivable resulted from
increased PBM business, the acquisition of Continental's accounts receivable
($10.4 million) and certain changes in payment patterns primarily attributable
to certain delays in payments ($13.6 million). Because a substantial majority of
the delayed payments were collected by the Company in the first quarter of 1999,
the Company does not believe that this increase in accounts receivable in 1998
due to delayed payments reflects a trend or that the Company's liquidity has
been or will be materially adversely affected. Such uses were offset by a $5.3
million increase in claims payable, a $5.7 million increase in payables to plan
sponsors and others and an increase in accrued expenses of $1.9 million. The
increases in claims payable and payables to plan sponsors and others increased
primarily due to increases in PBM business, partially offset by reductions in
the percentage of drug manufacturer rebates owed by the Company to certain
clients under rebate sharing arrangements. Accrued expenses increased due to the
accrual of $2.2 million in connection with the Tennessee Settlement.
Investing activities generated $7.8 million in cash from proceeds of
maturities of investment securities of $39.8 million, offset by the purchase of
investment securities of approximately $28.9 million. The Company purchased $2.2
million of equipment primarily to upgrade and enhance information systems
necessary to strengthen and support the Company's ability to manage its
customer's pharmacy benefit programs and to be competitive in the PBM industry.
Financing activities generated $3.5 million of cash primarily from an increase
in debt of $3.6 million.
At December 31, 1998, the Company had working capital of $19.8 million,
including $11.7 million in investment securities, compared to $9.3 million at
December 31, 1997. Cash and cash equivalents decreased to $4.5 million at
December 31, 1998 compared with $9.6 million at December 31, 1997. The Company
had investment securities held to maturity of $11.7 million and $22.6 million at
December 31, 1998 and 1997, respectively. The decrease in cash and 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. ("WHIS"), the Company's investments are
primarily corporate debt securities rated AA or higher and government
securities. In June 1997, the Company's invested $2.3 million in the preferred
stock of WHIS, a company engaged in the development, sales and marketing of
PC-based information systems for physicians and their staff, using image-based
technology.
As discussed above, effective January 1, 1999, the Company began to provide
PBM services directly to five of the six TennCare MCO's and 900,000 of the
TennCare lives previously managed under the RxCare Contract. To date, however,
the Company has been unable to secure a contract with the sixth TennCare MCO or
with either of the two TennCare BHO's for which it previously provided PBM
services under the RxCare Contract. The Company does not believe that the loss
of these contracts will have a material adverse effect on its liquidity in
fiscal 1999.
On March 31, 1999, the State of Tennessee and Xantus entered into a consent
decree whereby, among other things, the Commissioner of Commerce and Insurance
for the State of Tennessee was appointed receiver of Xantus for purposes of
rehabilitation. Due to the fact that the receiver was appointed at the time of
the filing of this Annual Report, the Company is unable to predict the
consequences of this appointment on the Company's ability to retain Xantus's
business or its ability to collect monies owed to it by Xantus. As of March 31,
1999, Xantus owes the Company $9.8 million relating to PBM services rendered by
the Company in 1999. The failure of the Company to collect all or a substantial
portion of the monies owed to it by Xantus would have a material adverse effect
on the Company's financial condition and results of operations.
Under Section 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 (one of which is a former director
and still principal stockholder of the Company) of a subsidiary who are the
subject of the Federal and State of Tennessee investigation described above,
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 or for any other reason
consistent with Section 145 or the By-Laws. In addition, until the Board makes
such a determination, the Company is obligated under Section 145 and its By-Laws
to advance the costs of defense to such persons; however, if the Board
determines that either or both of these former officer 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 advancement of defense costs or to estimate
the total amount that it may have to pay in connection with such obligations or
the time period over which such amounts may 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.
From time to time, the Company may be a party to legal proceedings or
involved in related investigations, inquiries or discussions, in each case,
arising in the ordinary course of the Company's business. Although no assurance
can be given, management does not presently believe that any current matters
would have a material adverse effect on the liquidity, financial position or
results of operations of the Company.
At December 31, 1998, the Company had, for tax purposes, unused net
operating loss carry forwards of approximately $47 million which will begin
expiring in 2008. As it is uncertain whether the Company will realize the full
benefit from these carryforwards, the Company has recorded a valuation allowance
equal to the deferred tax asset generated by the carryforwards. The Company
assesses the need for a valuation allowance at each balance sheet date. The
Company has undergone a "change in control" as defined by the Internal Revenue
Code of 1986, as amended ("Code"), and the rules and regulations promulgated
thereunder. The amount of net operating loss carryforwards that may be utilized
in any given year will be subject to a limitation as a result of this change.
-17-
<PAGE>
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 continues to grow, it anticipates that its working capital
needs will also continue to increase. The Company expects to spend approximately
$1.7 million on capital expenditures during fiscal 1999 primarily for expansion
and 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 12 months.
The Company also may pursue joint venture arrangements, business
acquisitions and other transactions designed to expand its PBM business, which
the Company would expect to fund from cash on hand or future indebtedness or, if
appropriate, the sale or exchange of equity securities of the Company.
Other Matters
The Company's pharmaceutical claims costs historically have been subject to
significant increase over annual averages from October through February, which
the Company believes is due to increased medical requirements 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 32% of the Company's revenues while non-risk business
(including the provision of mail order services) represented approximately 68%
of the Company's revenues for the year ended December 31, 1998. Non-risk
arrangements mitigate the adverse effect on profitability of higher
pharmaceutical costs incurred under risk-based contracts. The Company presently
anticipates that approximately 28% 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
for prices to continue to increase which could have an adverse effect on the
Company's gross profit. To the extent such cost increases adversely effect the
Company's gross profit, the Company may be required to increase contract rates
on new contracts and upon renewal of existing contracts. However, there can be
no assurance that the Company will be successful in obtaining these rate
increases. The higher level of non-risk contracts with the Company's customers
in 1998 and 1999 compared to prior years mitigates the adverse effects of price
increases, although no assurance can be given that the recent trend towards
no-risk arrangements will continue.
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 committed substantial resources
(approximately $2.4 million) over the past two years to improve its information
systems ("IS project"). The Company has used this IS project as an opportunity
to evaluate its state of readiness, estimate expected costs and identify and
quantify risks associated with any potential year 2000 issues.
State of Readiness:
In evaluating the Company's exposure to the year 2000 problem, management
first identified those systems that were critical to the ongoing business of the
Company and that would require significant manual intervention should those
systems be unable to process dates correctly following December 31, 1999. Those
systems were the Company's claims adjudication and processing system and the
internal accounting system (which includes pharmacy reimbursement). Once those
systems were identified, the following steps were identified as those that would
be required to be taken to ascertain the Company's state of readiness:
I. Obtaining letters from software and hardware vendors concerning the ability
of their products to properly process dates after December 31, 1999;
II. Testing the operating systems of all hardware used in the identified
information systems to determine if dates after December 31, 1999 can be
processed correctly;
-18-
<PAGE>
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 is currently in the process
of implementing Step II. The Company has begun testing its operating systems,
and where appropriate software patches have been acquired. Any software or
hardware determined to be non-compliant will be modified, repaired or replaced.
Installation of patches and full operating systems testing is anticipated to be
completed during the second quarter of 1999. The Company cannot estimate the
costs of such modifications, repairs and replacements at this time, but does not
believe that the costs of such modifications, repairs or replacements will be
material. The Company will disclose the results of its testing and attempt to
further quantify this estimate in future periodic reports following its
completion of Step II.
With respect to Step III above, the Company has engaged in discussions with
the third party vendors that transmit data from member pharmacies and based upon
such discussions it believes that such third party vendors' systems will be able
to properly recognize and process dates after December 31, 1999. The Company is
in the process of surveying member pharmacies in its network as to their ability
to transmit data correctly to such third party vendors and anticipates
completing this survey during the second quarter of 1999. Once this survey is
complete, the Company will evaluate any additional steps required to allow
member pharmacies to transmit data after December 31, 1999 and will disclose
such additional steps, if any, and their related costs in future periodic
reports.
With respect to Step IV above, the Company intends to perform a
comprehensive year 2000 compliance test of the claims adjudication and
processing systems as part of the next regularly scheduled disaster recovery
drill, which is currently planned for June 1999. This date has been postponed
from the previously scheduled March 1999 test in order to incorporate software
upgrades during the second quarter of 1999. The Company's internal accounting
and other administrative systems 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 fully expects that these systems will be able to properly recognize
and process dates after December 31, 1999. The Company intends to test these
systems for year 2000 compliance as part of the disaster recovery drill
described above.
Continental's computer systems related to the delivery of medications
through mail order were upgraded in the fourth quarter of 1998 to become year
2000 compliant. The Company will disclose its ongoing assessment of
Continental's state of readiness in future periodic reports.
Costs:
As noted above, the Company spent approximately $2.4 million over the past
two years to improve its information systems. In addition, the Company
anticipates that it will spend approximately $1.7 million over the next 12
months to further improve its information systems. These improvements were not
specifically instituted to address the year 2000 issue, but rather to address
other business issues. Nonetheless, the IS project provided the Company with a
platform from which to address any year 2000 issues. Management does not believe
that the amount of funds expended in connection with the IS project would have
differed materially in the absence of the year 2000 problem. The Company's cash
on hand as a result of the Offering has provided all of the funds expended to
date on the IS project and is expected to provide substantially all of the funds
expected to be spent in the next 12 months on the IS project.
Risks:
On July 29, 1998, the Commission issued Release No. 33-7558 (the "Release")
in an effort to provide further guidance to reporting companies concerning
disclosure of the year 2000 problem. In this Release the Commission
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<PAGE>
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, if the Company's assessment of Continental
uncovers significant problems (which is not presently expected to occur) or if
compliance testing is delayed or necessary remediation efforts are not
accomplished in accordance with the Company's plans described above, the Company
anticipates that its "most reasonably likely worst case scenario" (as required
to be described by the Release) is that some percentage of the Company's claims
would need to be processed manually for some limited period of time. At this
point in time, the Company cannot reasonably estimate the number of pharmacies
or the level of claims involved or the costs that would be incurred if the
Company were required to hire temporary staff and incur other expenses to
manually process such claims. The Company expects to be better able to quantify
the number of pharmacies and level of claims involved as well as the related
costs following its completion of the survey of member pharmacies in the second
quarter of 1999 and presently intends to disclose such estimates in future
periodic reports. In addition, the Company anticipates that all businesses
(regardless of their state of readiness), including the Company, will encounter
some minimal level of disruption in its business (e.g., phone and fax systems,
alarm systems, etc.) as a result of the year 2000 problem. However, the Company
does not believe that it will incur any material expenses or suffer any material
loss of revenues in connection with such minimal disruptions.
Contingency Plans:
As discussed above, in the event of the occurrence of the "most reasonably
likely worst case scenario" the Company would hire an appropriate level of
temporary staff to manually process the pharmacy claims submitted on paper. As
discussed above, at this time the Company cannot reasonably estimate the number
of pharmacies or level of claims involved or the costs that would be incurred if
the Company were required to hire temporary staff and incur other expenses to
manually process such claims. While some level of manual processing is common in
the industry and while manual processing increases the time it takes the Company
to pay the member pharmacies and invoice the related payors, the Company does
not foresee any material lost revenues or other material expenses in connection
with this scenario. However, an extended delay in processing claims, making
payments to pharmacies and billing the Company's customers could 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 Company and the pharmacies. Such adverse relations
could cause certain pharmacies to drop out of the Company's networks which in
turn could cause the Company to be in breach under service area provisions under
certain of its services agreements with its customers. The Company does not
believe that any material relationship with any pharmacy will be so affected or
that any material number of pharmacies would withdraw from the Company's
networks or that it will breach any such service area provision of any contract
with its customers. Notwithstanding the foregoing, based upon past experience,
the Company believes that it could quickly replace any such withdrawing pharmacy
so as to prevent any breach of any such provision. The Company cannot presently
reasonably estimate the possible impact in terms of lost revenues, additional
expenses or litigation damages or expenses that could result from such events.
Forward Looking Statements:
Certain information set forth above regarding the year 2000 problem and the
Company's plans to address those problems are forward looking statements under
the Securities Act and the Exchange Act. See the 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
-20-
<PAGE>
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 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk represents the only market risk exposure applicable to
the Company. The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investments in marketable securities. All of
these instruments are classified as held-to-maturity on the Company's
consolidated balance sheet and were entered into by the Company solely for
investment purposes and not for trading purposes. The Company does not invest in
or otherwise use derivative financial instruments. The Company's investments
consist primarily of corporate debt securities, corporate preferred stock and
State and local governmental obligations, each rated AA or higher. The table
below presents principal cash flow amounts and related weighted average
effective interest rates by expected (contractual) maturity dates for the
Company's financial instruments subject to interest rate risk:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Short-term investments
Fixed rate investments ........ 11,650 -- -- -- -- --
Weighted average rate ......... 6.41% -- -- -- -- --
Long-term investments:
Fixed rate investments ........ -- -- -- -- -- --
Weighted average rate ......... -- -- -- -- -- --
Long-term debt:
Variable rate instruments ...... 208 312 5,873 -- -- --
Weighted average rate ....... 9.00% 9.00% 7.76% -- -- --
</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 December 31, 1998 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 December 31, 1998, 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.
Item 8. Financial Statements and Supplementary Data
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MIM Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of MIM
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1998
and 1997 and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 1998. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MIM
Corporation and Subsidiaries as of December 31, 1998 and 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements, and in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 12, 1999 (except with respect to the
matter described in Note 7
as to which the date is March
31, 1999.)
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<PAGE>
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(In thousands of dollars, except for share amounts)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ..................................................................... $ 4,495 $ 9,593
Investment securities ......................................................................... 11,694 19,235
Receivables, less allowance for doubtful accounts of $1,307 and $1,386, respectively .......... 64,747 23,666
Inventory ..................................................................................... 1,187 --
Prepaid expenses and other current assets ..................................................... 857 888
--------- ---------
Total current assets ....................................................................... 82,980 53,382
Investment securities, net of current portion ...................................................... -- 3,401
Other investments .................................................................................. 2,311 2,300
Property and equipment, net ........................................................................ 4,823 3,499
Due from affiliates, less allowance for doubtful accounts of $403 and $2,360, respectively ......... 34 --
Other assets, net .................................................................................. 293 145
Deferred income taxes .............................................................................. 270 --
Goodwill and other intangible assets, net .......................................................... 19,395 --
--------- ---------
Total assets ............................................................................... $ 110,106 $ 62,727
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations .................................................. $ 277 $ 222
Current portion of long-term debt ............................................................. 208 --
Accounts payable .............................................................................. 6,926 931
Deferred revenue .............................................................................. -- 2,799
Claims payable ................................................................................ 32,855 26,979
Payables to plan sponsors and others .......................................................... 16,490 10,839
Accrued expenses .............................................................................. 6,401 2,279
--------- ---------
Total current liabilities .................................................................. 63,157 44,049
Capital lease obligations, net of current portion .................................................. 598 756
Long-term debt, net of current portion ............................................................. 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, 18,090,748 and
13,335,150 shares issued and outstanding, respectively ...................................... 2 1
Additional paid-in capital ........................................................................ 91,603 73,585
Accumulated deficit ............................................................................... (50,790) (55,061)
Stockholder notes receivable ...................................................................... (1,761) (1,715)
--------- ---------
Total stockholders' equity ................................................................ 39,054 16,810
--------- ---------
Total liabilities and stockholders' equity ................................................ $ 110,106 $ 62,727
========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-23-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
(In thousands of dollars, except for per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenue ...................................................................... $ 451,070 $ 242,291 $ 283,159
Cost of revenue .............................................................. 421,374 239,002 278,068
--------- --------- ---------
Gross profit ............................................................. 29,696 3,289 5,091
General and administrative expenses .......................................... 23,092 19,098 11,619
Amortization of goodwill and other intangibles .............................. 330 -- --
Non-recurring charges ........................................................ 3,700 -- --
Executive stock option compensation expense .................................. -- -- 26,640
--------- --------- ---------
Income (loss) from operations ............................................ 2,574 (15,809) (33,168)
Interest income, net ......................................................... 1,712 2,295 1,393
Other ........................................................................ (15) 17 21
--------- --------- ---------
Net income (loss) ........................................................ $ 4,271 $ (13,497) $ (31,754)
========= ========= =========
Basic income (loss) per common share ......................................... $ .28 $ (1.07) $ (3.32)
========= ========= =========
Diluted income (loss) per common share ....................................... $ .26 $ (1.07) $ (3.32)
========= ========= =========
Weighted average common shares used in computing basic income
(loss) per share ............................................................. 15,115 12,620 9,557
========= ========= =========
Weighted average common shares used in computing diluted income
(loss) per share ............................................................. 16,324 12,620 9,557
========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-24-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands of dollars)
<TABLE>
<CAPTION>
Total
Additional Stockholder Stockholders'
Common Paid-In Accumulated Notes Equity
Stock Capital Deficit Receivable (Deficit)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ..................................... $ 1 $ -- $ (9,188) $ (2,337) $(11,524)
Stockholder loans, net .................................... -- -- -- (22) (22)
Stockholder distribution .................................. -- -- (622) 622 --
Net proceeds from initial public offering ................. -- 46,786 -- -- 46,786
Non-cash stock option charge .............................. -- 26,640 -- -- 26,640
Non-employee stock option compensation
expense ............................................... -- 17 -- -- 17
Net loss .................................................. -- -- (31,754) -- (31,754)
-------- -------- -------- -------- --------
Balance, December 31, 1996 ..................................... 1 73,443 (41,564) (1,737) 30,143
Stockholder loans, net .................................... -- -- -- 22 22
Exercise of stock options ................................. -- 113 -- -- 113
Non-employee stock option compensation
expense ............................................... -- 29 -- -- 29
Net loss .................................................. -- -- (13,497) -- (13,497)
-------- -------- -------- -------- --------
Balance, December 31, 1997 ...................................... 1 73,585 (55,061) (1,715) 16,810
Stockholder loans, net .................................... -- -- -- (46) (46)
Shares issued in connection with the acquisition
of Continental ....................................... 1 17,997 -- -- 17,998
Exercise of stock options ................................. -- 5 -- -- 5
Non-employee stock option compensation
expense ................................................. -- 16 -- -- 16
Net income ................................................ -- -- 4,271 -- 4,271
-------- -------- -------- -------- --------
Balance, December 31, 1998 ..................................... $ 2 $ 91,603 $(50,790) $ (1,761) $ 39,054
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-25-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(In thousands of dollars, except for share data)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................................... $ 4,271 $(13,497) $(31,754)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation, amortization and other ........................................... 1,693 1,074 760
Stock option charges ........................................................... 16 29 26,657
Provision for losses on receivables and due from affiliates .................... 58 501 928
Changes in assets and liabilities, net of effect from purchase of Continental:
Receivables .................................................................... (31,864) (5,318) (4,551)
Inventory ...................................................................... (365) -- --
Prepaid expenses and other current assets ...................................... 142 241 (648)
Accounts payable ............................................................... (339) (631) 491
Deferred revenue ............................................................... (2,799) 2,799 --
Claims payable ................................................................. 5,274 9,701 (2,016)
Payables to plan sponsors and others ........................................... 5,651 665 1,738
Accrued expenses ............................................................... 1,885 1,353 755
-------- -------- --------
Net cash used in operating activities ....................................... (16,377) (3,083) (7,640)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment ................................................ (2,173) (1,575) (870)
Purchase of investment securities .................................................. (28,871) (27,507) (37,038)
Maturities of investment securities ................................................ 39,814 41,909 --
Cost of acquisition, net of cash acquired .......................................... (750) -- --
Purchase of other investments ...................................................... (25) (2,300) --
Stockholder notes receivable, net .................................................. (46) 22 (22)
Due from affiliates, net ........................................................... (34) 425 (828)
Decrease in other assets ........................................................... (121) (48) (93)
-------- -------- --------
Net cash provided by (used in) investing activities ......................... 7,794 10,926 (38,851)
-------- -------- --------
Cash flows from financing activities:
Principal payments on capital lease obligations .................................... (132) (197) (265)
Increase in debt ................................................................... 3,612 -- --
Proceeds from initial public offering .............................................. -- -- 46,786
Proceeds from exercise of stock options ............................................ 5 113 --
-------- -------- --------
Net cash provided by (used in) financing activities ........................ 3,485 (84) 46,521
-------- -------- --------
Net (decrease) increase in cash and cash equivalents .................................. (5,098) 7,759 30
Cash and cash equivalents--beginning of period ........................................ 9,593 1,834 1,804
-------- -------- --------
Cash and cash equivalents--end of period .............................................. $ 4,495 $ 9,593 $ 1,834
======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-26-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-CONTINUED
Years Ended December 31,
(In thousands of dollars, except for share data)
Supplemental Disclosures:
The Company issued 3,912,448 shares of Common Stock to acquire Continental
Managed Pharmacy Services, Inc. in August 1998. The aggregate value of shares
issued approximated $18,000.
The Company paid $186, $41 and $55 for interest for each of the years ended
December 31, 1998, 1997 and 1996, respectively.
Capital lease obligations of $40, $587 and $527 were incurred for each of the
years ended December 31, 1998, 1997 and 1996, respectively.
The Company distributed $622 to a stockholder through the cancellation of
stockholder notes receivable at December 31, 1996.
The accompanying notes are an integral part of
these consolidated financial statements.
-27-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except for share and per share amounts)
NOTE 1--NATURE OF BUSINESS
Corporate Organization
MIM Corporation (the "Company") was incorporated in Delaware in March 1996
for the purpose of combining (the "Formation") the businesses and operations of
Pro-Mark Holdings, Inc., a Delaware corporation ("Pro-Mark"), and MIM Strategic
Marketing, LLC, a Rhode Island limited liability company ("MIM Strategic"). The
Formation was effected in May 1996. Pro-Mark is a wholly owned subsidiary of MIM
Corporation, and MIM Strategic is 90% owned by MIM Corporation. On August 24,
1998, the Company acquired Continental Managed Pharmacy Services, Inc.
("Continental"), complementing its core PBM business with mail order pharmacy
services. As used in these notes, the "Company" refers to MIM Corporation and
its subsidiaries and predecessors.
Business
The Company operates in a single business segment and derives its revenues
primarily from agreements to provide pharmacy benefit management ("PBM")
services to various health plan sponsors in the United States. From 1994 through
December 31, 1998, a majority of the services provided by the Company were to
plan sponsors of Tennessee-based plans who had entered into PBM contracts with
RxCare of Tennessee, Inc. ("RxCare"), a subsidiary of the Tennessee Pharmacists
Association. Pursuant to these contracts ("TennCare contracts"), RxCare provided
mandated pharmaceutical services to formerly Medicaid eligible and uninsured and
uninsurable Tennessee residents under the State's TennCare Medicaid waiver
program ("TennCare").
Under an agreement with RxCare formalized in March 1994 and thereafter
amended (the "RxCare Contract"), the Company had been responsible for operating
and managing RxCare's TennCare contracts. The RxCare Contract entitled the
Company to receive all plan sponsor payments due RxCare and all rebates
negotiated with pharmaceutical manufacturers in connection with RxCare programs.
In return, the Company implemented and enforced the drug benefit programs, bore
all program costs including payments to dispensing pharmacies and certain
payments to RxCare and sponsors, and shared with RxCare the remaining profit, if
any.
The Company and RxCare did not renew the RxCare Contract which expired on
December 31, 1998. The negotiated termination of its relationship with RxCare,
among other things, allowed the Company to directly market its services to
Tennessee customers (including those then under contract with RxCare) prior to
the expiration of the RxCare Contract. 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. The Company's
marketing efforts during this period resulted in the Company executing
agreements effective as of January 1, 1999 to provide PBM services directly to
five of the six TennCare managed care organizations ("MCO's") and 900,000 of the
TennCare lives previously managed under the RxCare Contract as well as
substantially all third party administrators ("TPA's") and employer groups
previously managed under the RxCare Contract. To date, the Company has been
unable to secure a contract with the two TennCare behavioral health
organizations ("BHO's") to which it previously provided PBM services under the
RxCare Contract. For the year ended December 31, 1998, amounts paid to the
Company by these BHO's represented approximately 27% of the Company's revenues.
On August 24, 1998, the Company completed its acquisition of Continental.
The acquisition was treated as a purchase for financial reporting purposes. The
Company issued 3,912,448 shares of Common Stock as consideration for the
purchase. The aggregate purchase price, including costs of acquisition of
approximately $1.0 million, approximated $19.0 million. The fair value of assets
acquired approximated $11.3 million (including approximately $.5 million of
property and equipment) and liabilities assumed approximated $12.0 million
(including approximately $2.8 million of assumed debt (see Note 6)), resulting
in approximately $18.4 million of goodwill and $1.3 million of other intangible
assets, which will be amortized over their estimated useful lives (25 years and
6.5 years, respectively). The consolidated financial statements of the Company
for the year ended December 31, 1998 include the results of operations and
financial position of Continental from and after the date of acquisition.
28
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
The following unaudited consolidated pro forma financial information has
been prepared assuming Continental was acquired as of January 1, 1997, with pro
forma adjustments for amortization of goodwill and other intangible assets and
income taxes. The pro forma financial information is presented for informational
purposes only and is not indicative of the results that would have been realized
had the acquisition been made on January 1, 1997. In addition, this pro forma
financial information is not intended to be a projection of future operating
results.
Year ended December 31,
---------------------------
1998 1997
-------- --------
Revenues ................................. $491,716 $289,571
======== ========
Net income (loss) ........................ $ 4,783 $(12,979)
======== ========
Basic earnings (loss) per share .......... $ .27 $ (.79)
======== ========
Diluted earnings (loss) per share ........ $ .25 $ (.79)
======== ========
The amounts above include $65,958 and $ 47,280 of revenues from the
operations of Continental for the years ended December 31, 1998 and December 31,
1997, respectively.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of MIM
Corporation and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits, overnight investments
and money market accounts.
Receivables
Receivables include amounts due from plan sponsors under the Company's PBM
contracts, amounts due from pharmaceutical manufacturers for rebates and service
fees resulting from the distribution of certain drugs through retail pharmacies
and amounts due from certain third party payors.
Inventory
Inventory is stated at the lower of cost or market. The cost of the
inventory is determined using the first-in, first-out (FIFO) method.
-29-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method over the
estimated useful lives of assets. The estimated useful lives of the Company's
assets is as follows:
Asset Useful Life
----- -----------
Computer and office equipment .................... 3-5 years
Furniture and fixtures ........................... 5-7 years
Leasehold improvements and leased assets are amortized using straight-line
basis over the related lease term or estimated useful life of the assets,
whichever is less. The cost and related accumulated depreciation of assets sold
or retired are removed from the accounts with the gain or loss, if applicable,
recorded in the statement of operations. Maintenance and repairs are expensed as
incurred.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets represent the cost in excess of the
fair market value of the tangible net assets acquired in connection with the
acquisition of Continental. Amortization expense for the year ended December 31,
1998 was $330.
Long-Lived Assets
The Company reviews its long-lived assets and certain related intangibles
and other investments for impairment whenever changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. The Company
does not believe that any such changes have occurred.
Deferred Revenue
Deferred revenue represents fees received in advance from certain plan
sponsors and are recognized as revenue in the month these fees are earned.
Claims Payable
The Company is responsible for all covered prescriptions provided to plan
sponsor members during the contract period. At December 31, 1998 and 1997,
certain prescriptions were dispensed to members for which the related claims had
not yet been presented to the Company for payment. Estimates of $2,523 and
$1,858 at December 31, 1998 and 1997, respectively, have been accrued for these
claims in the accompanying consolidated balance sheets. Unpaid claims incurred
and reported amounted to $29,360 and $20,786 at December 31, 1998 and 1997,
respectively.
Payables to Plan Sponsors and Others
Certain pharmacy benefit management contracts provide for an income or loss
share with the plan sponsor. The income or loss share is calculated by deducting
all related costs and expenses from revenues earned under the contract. To the
extent revenues exceed costs, the Company records a payable representing the
plan sponsor's share of the profit attributable to that contract, and to the
extent costs and expenses exceed revenues the Company records a receivable.
Certain plan sponsor contracts also provide for the sharing of pharmaceutical
manufacturers' rebates with the plan sponsors.
-30-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
Revenue Recognition
Capitated Agreements. The Company's capitated contracts with plan sponsors
require the Company to provide covered pharmacy services to plan sponsor members
in return for a fixed fee per member per month paid by the plan sponsor.
Capitated agreements generally have a one-year term or, if longer, provide for
adjustment of the capitated rate each year. These contracts are subject to rate
adjustment or termination upon the occurrence of certain events.
Capitation payments under risk-based contracts are based upon the latest
eligible member data provided to the Company by the plan sponsor. On a monthly
basis, the Company receives payments (and recognizes revenue) for those members
eligible for the current month, plus or minus capitation amounts for those
members determined to be retroactively eligible or ineligible for prior months
under the contract. The amount accrued for future net retroactive eligibility
capitation payments is based upon management's estimates. Revenue under
capitated arrangements for the years ended December 31, 1998, 1997 and 1996 was
approximately $142,960, $127,477 and $232,395, respectively.
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 to
restrict formularies, 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.
Fee-for-Service Agreements. Under its fee-for-service PBM contracts, the
Company provides covered pharmacy services to plan sponsor members and is
reimbursed by the plan sponsor for the actual ingredient cost and pharmacist's
dispensing fee of a prescription, plus certain administrative fees. Revenue on
these contracts is recognized when pharmacy claims are submitted to the Company.
Fee-for-service revenue for the years ended December 31, 1998, 1997 and 1996 was
$294,484, $114,814 and $50,764, respectively.
Mail Order Services. The Company's mail order services are available to
plan sponsor members as well as the general public. The Company's mail order
facility dispenses the prescribed medication and bills the sponsor, the patient
and/or the patient's health insurance company. Revenue is recorded when the
prescription is shipped. Revenue from mail order services for the year ended
December 31, 1998 was $13,626, including $7,300 with respect to members of
clients managed under PBM contracts. Because the Company acquired Continental in
1998, the Company did not provide any mail order services in prior years.
Cost of Revenue
Cost of revenue includes pharmacy claims, fees paid to pharmacists and
other direct costs associated with pharmacy management, claims processing
operations and mail order services, offset by volume rebates received from
pharmaceutical manufacturers. For the years ended December 31, 1998, 1997 and
1996, rebates earned net of rebate sharing arrangements on pharmacy benefit
management contracts were $21,996, $13,290 and $7,738, respectively.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 utilizes the liability method, and deferred taxes are determined
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities at currently enacted tax laws
and rates.
-31-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
Earnings per Share
Basic income (loss) per share is based on the average number of shares
outstanding and diluted income (loss) per share is based on the average number
of shares outstanding including common stock equivalents. For the years ended
December 31, 1997 and 1996, diluted loss per share is the same as basic loss per
share because the inclusion of common stock equivalents would be antidilutive.
Common shares outstanding and per share amounts reflect the Formation (see Note
1) and are considered outstanding from the date each entity was formed.
Years Ended December 31,
1998 1997 1996
-------- -------- --------
Numerator:
Net income .......................... $ 4,271 $(13,497) $(31,754)
Denominator - Basic:
Weighted average number of
common shares outstanding ........ 15,115 12,620 9,557
Basic income (loss) per share ....... $ .28 $ (1.07) $ (3.32)
Denominator - Diluted:
Weighted average number of
common shares outstanding ........ 15,115 12,620 9,557
Common share equivalents
of outstanding stock options ..... 1,209 -- --
-------- -------- --------
Total shares outstanding ................. 16,324 12,620 9,557
Diluted income (loss) per share .......... $ .26 $ (1.07) $ (3.32)
Disclosure of Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, investment securities (see Note 3), accounts receivable, accounts
payable and long term debt (see Note 6). The carrying amounts of cash and cash
equivalents, accounts receivable and accounts payable approximate fair value due
to their short-term nature.
Accounting for Stock-Based Compensation
The Company accounts for employee stock based compensation plans and
non-employee director stock incentive plans in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). Stock options granted
to non-employees and non-employee directors are accounted for in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") (see Note 9).
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year financial statement presentation.
-32-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
NOTE 3 - INVESTMENT SECURITIES AND OTHER INVESTMENTS
Investment Securities
The Company's marketable investment securities are classified as
held-to-maturity and are carried at amortized cost on the accompanying balance
sheets as of December 31, 1998 and 1997. Management believes that it has the
intent and ability to hold such securities to maturity. Amortized cost (which
approximates fair value) of these securities as of December 31, 1998 and 1997 is
as follows:
1998 1997
------- -------
Held-to-maturity securities:
U.S. government .................................... $ -- $ 3,600
States and political subdivision ................... 1,353 295
Corporate securities ............................... 10,341 18,741
------- -------
Total investment securities ........................... $11,694 $22,636
======= =======
The contractual maturities of all held-to-maturity securities at December
31, 1998 are as follows:
Amortized Cost
--------------
Due in one year or less ............................... $11,694
Due after one year through five years ................. --
-------
Total investment securities ........................... $11,694
=======
Other Investments
On June 23, 1997, the Company acquired an 8% interest in Wang Healthcare
Information Systems ("WHIS"), which markets PC-based clinical information
systems to physicians utilizing patented image-based technology. The Company
purchased 1,150,000 shares of the Series B Convertible Preferred Stock, par
value $0.01 per share, of WHIS, representing a minority 8% interest, for an
aggregate purchase price equal to $2,300. The preferred stock is not registered
on a securities exchange and, therefore, the fair value of these securities is
not readily determinable.
NOTE 4--RELATED PARTY TRANSACTIONS
During 1995, the Company advanced RxCare approximately $1,957 to fund
losses RxCare incurred in connection with one of its PBM contracts, which was
previously fully reserved for. Through December 1998, the advance was offset by
profit sharing amounts due under the RxCare Contract.
On October 1, 1998, the Company and RxCare amended the RxCare Contract. The
amendment reflected the parties' mutual decision to terminate their relationship
effective December 31, 1998 and permitted both parties to independently pursue
business opportunities with current RxCare plan sponsors to become effective
from and after January 1, 1999. The Company agreed to pay RxCare $1,500 and
waive RxCare's payment obligations with respect to the remaining outstanding
advances of $800 at December 31, 1998. The $1,500 was paid in November 1998 and
is included in the statement of operations as a non-recurring charge. No amount
was due RxCare for the years ended December 31, 1998 or 1997.
In March 1997, RxCare repaid in full an advance of approximately $349 the
Company had made in 1996 directly to individual pharmacies in Tennessee on
behalf of RxCare.
-33-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
The Company entered into two three-year contracts with Zenith Goldline in
December 1995. Pursuant to these contracts, the Company is entitled to receive
fees based on a percentage of the growth in Zenith Goldline's gross margins from
related sales. Included in due from affiliates at December 31, 1998 and 1997 is
management's estimate of revenues earned under these agreements. At December 31,
1998, the collectibility of the amounts is uncertain and a full reserve has been
recorded against the revenues earned.
During 1996, the Company advanced to MIM Holdings $99. MIM Holdings is
controlled by a former executive officer and director of the Company. MIM
Holdings had repaid $13 through December 31, 1996. The remaining $86 principal
amount owed by MIM Holdings and accrued interest from September 1996 was paid in
full at December 31, 1997.
Other Activities
Pursuant to the RxCare Contract, which expired on December 31, 1998, the
Company made monthly payments to RxCare to defray the cost of office space and
equipment provided by RxCare on behalf of the Company and to provide RxCare with
cash flow to meet its operating expenses. Expenses under this arrangement were
$240 for each of the years ended December 31, 1998, 1997 and 1996, respectively.
In addition, from November 1995 through October 1996, the Company paid RxCare
$6.5 monthly to cover expenses associated with a regional cost containment
initiative.
The Company leases one of its facilities from Alchemie Properties, LLC
("Alchemie") pursuant to a ten-year agreement. Alchemie is controlled by a
former officer and director of the Company. Rent expense was approximately $56
for each of the years ended December 31, 1998 and 1997, respectively, and $52
for the year ended December 31, 1996. The Company has incurred an aggregate of
approximately $513 for alterations and improvements to this space through
December 31, 1998, which upon termination of the lease will revert to the
lessor. The future minimum rental payments under this agreement are included in
Note 7.
Consulting and Service Agreements
In January 1994, the Company entered into a consulting agreement with an
officer of RxCare which provided for payments by the Company of $5.5 per month,
and additional compensation as agreed by the parties for special projects,
through December 1996. The Company made no payments in 1998 and 1997 and paid
$66 in 1996. In December 1996, the Company was reimbursed $225 for amounts paid
in 1994 for the special projects, which were recorded as a reduction of general
and administrative expenses.
In September 1995, the Company entered into a contract with MIM Holdings to
receive management consulting services in return for monthly payments to MIM
Holdings of $75. Consulting expenses under this contract amounted to $225 for
the year ended December 31, 1996. The contract was terminated on March 31, 1996.
A professional service agreement was entered into on January 1, 1996
between MIM Holdings and the Company. Under this agreement, MIM Holdings
provided the Company certain professional services, for which the Company paid
MIM Holdings $150 for the year ended December 31, 1996. The agreement was
terminated in May 1996.
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<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
Stockholder Notes Receivable
In June 1994, the Company advanced to a former executive officer and
director approximately $979 for purposes of acquiring a principal residence,
$975 of which is secured by a first mortgage on a personal residence. In
exchange for the funds, the Company received a promissory note, the aggregate
outstanding principal balance of which was $979 at December 31, 1998 and 1997.
The original note required repayment by June 15, 1997 with interest of 5.42% per
annum payable monthly. The note was amended making the principal balance due and
payable on June 15, 2000 with interest of 7.125% payable monthly. Interest
income on the notes for each of the years ended December 31, 1998, 1997 and 1996
was $70, $60 and $52, respectively.
In August 1994, the Company advanced Alchemie $299 for the purposes of
acquiring a building leased by the Company. The balance remaining on the advance
was approximately $280 at December 31, 1998 and 1997. The note bears interest at
a rate of 10% per annum with principal due and payable on December 1, 2004.
Interest income was $29 for each of the years ended December 31, 1998, 1997 and
1996, respectively. The note is secured by a lien on Alchemie's rental income.
During 1995, the Company advanced to MIM Holdings $800 for certain
consulting services to be performed for the Company in 1996 and paid $278 for
certain expenses on behalf of MIM Holdings including $150 for consulting
services to MIM Holdings by an officer of RxCare. These amounts, totaling
$1,078, were recorded as a stockholder note receivable. $622 of such amount was
recorded as a stockholder distribution during 1996 and the remaining balance of
$456 bears interest at 10% per annum, payable quarterly in arrears, with
principal due on March 31, 2001. The note is guaranteed by a former officer and
director of the Company and further secured by the assignment to the Company of
a note due to MIM Holdings in the aggregate principal amount of $100. The
outstanding balance at December 31, 1998 and 1997 was $502 and $456,
respectively. Interest income on the note for each of the years ended December
31, 1998, 1997 and 1996, respectively was $46.
Indemnification
Under certain circumstances, the Company may be obligated to indemnify and
advance defense costs to two former officers (one of which is a former director
and still principal stockholder of the Company) of a subsidiary of the Company
in connection with their involvement in the Federal and State of Tennessee
investigation of which they are the subject (see Note 7). 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 advancement of
defense costs or to estimate the total amount that it may have to pay in
connection with such obligations or the time period over which such amounts may
have to be advanced.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following at December 31:
1998 1997
------- -------
Computer and office equipment, including
equipment under capital leases ........... $6,603 $4,227
Furniture and fixtures .......................... 546 442
Leasehold improvements .......................... 613 540
------ ------
7,762 5,209
Less: Accumulated depreciation .................. (2,939) (1,710)
------ ------
Property and equipment, net ................... $4,823 $3,499
====== ======
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<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
NOTE 6--LONG TERM DEBT
The Company's long term debt consists of a Revolving Note Agreement (the
"Agreement") through May 2001 and two installment notes ("Installment Notes I
and II") with a bank (the "Bank"), which were assumed by the Company in
connection with the Continental acquisition. The Company may borrow up to $6,500
under the Agreement. Advances under the Agreement are limited to 85% of eligible
receivables (as defined in the Agreement) and outstanding amounts bear interest
at the Bank's prime rate (7.75% at December 31, 1998). At December 31, 1998,
$670 was available for borrowing under the Agreement. Installment Note I bears
interest at the Bank's prime rate plus 1.25% (9.0% at December 31, 1998) with
payments due in monthly installments of $9 plus interest and with final payment
due February 1, 2000. Installment Note II bears interest at the same rate as
Installment Note I with payments due in monthly installments of $14 plus
interest and with final payment due February 28, 1999.
The Agreement and Installment Notes I and II are secured by all of the
accounts receivable and furniture and equipment of Continental and Continental's
obligations thereunder are guaranteed by the Company. Continental has also
granted a security interest in its inventory, accounts receivable and furniture
and equipment to a pharmaceutical vendor (the "Supplier"). Under the terms of an
Inter-Creditor Agreement between Continental, the Bank and the Supplier, the
Supplier will not exercise any right or remedy it may have with respect to the
same collateral as covered by the Bank's security interest, until the amounts
owed to the Bank are fully paid and satisfied and the Bank's interest has been
terminated in writing. The Inter-Creditor Agreement does not preclude the
Supplier from taking such action to enforce payment of indebtedness to the
Supplier not involving the same collateral as covered by the Bank's security
interest.
Under the terms of the Agreement and Installment Notes I and II,
Continental is required to comply with certain financial covenants which, among
other things require Continental to maintain a specified level of net worth.
The Company has notes payable outstanding to an employee, also assumed in
connection with the Continental acquisition. The notes bear interest at the
greater of 9% or prime plus 1% (9.0% at December 31, 1998) and are payable in
monthly installments of principal and interest of $7 through July 31, 2001.
The Company had no long-term debt outstanding during 1997 or prior periods.
Long-term debt consists of the following at December 31, 1998:
Revolving Note ......................................... $5,830
Variable rate Installment Notes I and II ............... 367
Notes payable - employee ............................... 196
------
$6,393
Less: current portion .................................. 208
------
$6,185
======
Future maturities of long-term debt for the next five years are as follows:
1999 .............................. $ 208
2000 .............................. 312
2001 .............................. 5,873
2002 .............................. --
2003 .............................. --
------
Total ............................. $6,393
======
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<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
NOTE 7--COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company was a third-party defendant in a proceeding in the Superior
Court of the State of Rhode Island. The third-party complaint alleged that the
Company interfered with certain contractual relationships and misappropriated
certain confidential information. The third-party complaint sought to enjoin the
Company from using the allegedly misappropriated confidential information and
sought an unspecified amount of compensatory and consequential damages, interest
and attorneys' fees. On November 20, 1998, this action was settled pursuant to a
settlement and release agreement among the parties to the action. Under the
terms of the settlement, the Company was not required to make payment to any
party and no non-monetary restrictions or limitations were otherwise imposed
against the Company or any subsidiary or any of their respective officers,
directors or employees.
In February 1999, the Company reached an agreement in principle with
respect to a civil settlement of a Federal and State of Tennessee investigation
focusing mainly on the conduct of two former officers (one of which is a former
officer and still principal stockholder of the Company) of a subsidiary prior to
the Company's initial public offering (see Note 9). Based upon the agreement in
principle, the investigation, as it relates to the Company, would be fully
resolved through the payment of a $2.2 million civil settlement and an agreement
to implement a corporate integrity program in conjunction with the Office of the
Inspector General of the U.S. Department of Health and Human Services. In that
connection, the Company recorded a non-recurring charge of $2.2 million against
fourth quarter 1998 earnings. This settlement is subject to several conditions,
including the execution of a definitive agreement. The Company anticipates that
it will have no continued involvement in the governments' joint investigation
other than continuing to cooperate with the governments in their efforts.
On March 29, 1999, Xantus Healthplan of Tennessee, Inc. ("Xantus"), one of
the TennCare MCO's to which the Company provides PBM services, filed a complaint
in the Chancery Court for Davidson County, Tennessee. Xantus alleged that the
Company advised Xantus in writing that it would cease providing PBM services on
Monday, March 29, 1999 to Xantus and its members in the event that Xantus failed
to pay approximately $3.3 million representing past due amounts in connection
with PBM services rendered by the Company in 1999. The complaint further alleged
that the Company does not have the right to cease providing services under the
agreement between Xantus and the Company. Additionally, Xantus applied for a
temporary restraining order as well as temporary injunction to prevent the
Company from ceasing to provide such PBM services. The hearing on the motion for
the temporary injunction was scheduled to be heard on Thursday, April 1, 1999.
However, on March 31, 1999, the State of Tennessee and Xantus entered into a
consent decree whereby, among other things, the Commissioner of Commerce and
Insurance for the State of Tennessee was appointed receiver of Xantus for
purposes of rehabilitation. Due to the fact that the receiver was appointed at
the time of the filing of this Annual Report, the Company is unable to predict
the consequences of this appointment on the Company's ability to retain Xantus's
business or its ability to collect monies owed to it by Xantus. As of March 31,
1999, Xantus owes the Company $9.8 million relating to PBM services rendered by
the Company in 1999. The failure of the Company to collect all or a substantial
portion of the monies owed to it by Xantus would have a material adverse effect
on the Company's financial condition and results of operations.
From time to time, the Company may be a party to legal proceedings arising
in the ordinary course of the Company's business. Management does not presently
believe that any current matters would have a material adverse effect on the
consolidated financial position or results of operations of the Company.
Government Regulation
Various Federal and state laws and regulations affecting the healthcare
industry do or may impact the Company's current and planned operations,
including, without limitation, Federal and state laws prohibiting kickbacks in
government health programs (including TennCare), Federal and state antitrust and
drug distribution laws, and a wide variety of consumer protection, insurance and
other state laws and regulations. While management believes that the Company is
in substantial compliance with all existing laws and regulations material to the
operation of its business, such laws and regulations are subject to rapid change
and often are uncertain in their application. As controversies continue to arise
in the healthcare industry (for example, regarding the efforts of plan sponsors
and pharmacy benefit managers to limit formularies, alter drug choice and
establish limited networks of participating pharmacies), Federal and state
regulation and enforcement priorities in this area can be expected to increase,
the impact of which on the Company cannot be predicted. There can be no
assurance that the Company will not be subject to scrutiny or challenge under
one or more of these laws or that any such challenge would not be successful.
Any such challenge, whether or not successful, could have a material adverse
effect upon the Company's financial position and results of operations.
Violation of the Federal anti-kickback statute, for example, may result in
substantial criminal penalties, as well as exclusion from the Medicare and
Medicaid (including TennCare) programs. Further, there can be no assurance that
the Company will be able to obtain or maintain any of the regulatory approvals
that may be required to operate its business, and the failure to do so could
have a material adverse effect on the Company's financial position and results
of operations.
-37-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
Employment Agreements
The Company has entered into employment agreements with certain key
employees which expire at various dates through December 2003. Total minimum
commitments under these agreements are approximately as follows:
1999 ..................................... $1,019
2000 ..................................... 780
2001 ..................................... 555
2002 ..................................... 443
2003 ..................................... 406
------
$3,203
======
Other Agreements
As discussed in Note 4, the Company rents one of its facilities from
Alchemie. Rent expense for non-related party leased facilities and equipment was
approximately $809, $477 and $208 for the years ended December 31, 1998, 1997
and 1996, respectively.
Operating Leases
The Company leases its facilities and certain equipment under various
operating leases. The future minimum lease payments under these operating leases
at December 31 of the identified years are as follows:
1999 ................................ $1,204
2000 ................................ 1,058
2001 ................................ 825
2002 ................................ 352
2003 ................................ 331
Thereafter .......................... 1,434
------
$5,204
======
Capital Leases
The Company leases certain equipment under various capital leases. Future
minimum lease payments under the capital lease agreements at December 31 of the
identified years are as follows:
1999 ....................................... $342
2000 ....................................... 342
2001 ....................................... 303
----
Total minimum lease payments ............... 987
Less: amount representing interest ......... 112
----
Obligations under leases ................... 875
Less: current portion of lease obligation .. 277
----
$598
====
-38-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
NOTE 8--INCOME TAXES
The Company accounts for income taxes in accordance with SFAS 109. Under
SFAS 109, deferred tax assets or liabilities are computed based on the
differences between the financial statement and income tax bases of assets and
liabilities as measured by currently enacted tax laws and rates. Deferred income
tax expenses and benefits are based on changes in the deferred assets and
liabilities from period to period.
The effect of temporary differences which give rise to a significant
portion of deferred taxes is as follows as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Reserves and accruals not yet deductible for tax purposes ........ $ 1,433 $ 3,040
Net operating loss carryforward .................................. 19,176 13,950
Property basis differences ....................................... 82 --
-------- --------
Subtotal ................................................ 20,691 16,990
Less: valuation allowance ........................................ (20,421) (16,921)
-------- --------
Total deferred tax assets .............................................. 270 (69)
-------- --------
Deferred tax liabilities:
Property basis differences ....................................... 0 69
-------- --------
Total deferred tax liability ........................................... 0 69
-------- --------
Net deferred taxes ..................................................... $ 270 $ --
======== ========
</TABLE>
It is uncertain whether the Company will realize the full benefit from its
deferred tax assets, and it has therefore recorded a valuation allowance. The
Company will assess the need for the valuation allowance at each balance sheet
date.
There is no provision (benefit) for income taxes for the years ended
December 31, 1998 and 1997. A reconciliation to the tax provision (benefit) at
the Federal statutory rate is presented below:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Tax provision (benefit) at statutory rate .............................. $ 1,452 $(4,589)
State tax provision (benefit), net of federal benefit .................. 282 (891)
Change in valuation allowance .......................................... (1,886) 5,460
Amortization of goodwill and other intangibles ......................... 134 --
Other .................................................................. 18 20
-------- --------
Recorded income taxes .................................................. $ -- $ --
======== ========
</TABLE>
At December 31, 1998, the Company had, for tax purposes, unused net
operating loss 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 carryforwards, the Company has recorded a valuation allowance
equal to the deferred tax asset generated by the carryforwards. The Company
assesses the need for a valuation allowance at each balance sheet date. The
Company has undergone a "change in control" as defined by the Internal Revenue
Code of
-39-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
1986, as amended, and the rules and regulations promulgated thereunder. The
amount of net operating loss carryforwards that may be utilized in any given
year will be subject to a limitation as a result of this change. The annual
limitation approximates $2.7 million. Actual utilization in any year will vary
based on the Company's tax position in that year.
NOTE 9--STOCKHOLDERS' EQUITY
Public Offering
On August 14, 1996, the Company completed its initial public offering, and
sold 4,000,000 shares of Common Stock at a public offering price of $13.00 per
share. Net proceeds amounted to $46,788 after offering costs of $1,574.
Stock Option Plans
In May 1996, the Company adopted the MIM Corporation 1996 Stock Incentive
Plan (the "Plan"). The Plan provides for the granting of incentive stock options
(ISOs) and non-qualified stock options to employees and key contractors of the
Company. Options granted under the Plan generally vest over a three-year period,
but vest in full upon a change in control of the Company or at the discretion of
the Company's compensation committee, and generally are exercisable for from 10
to 15 years after the date of grant subject, in some cases, to earlier
termination in certain circumstances. The exercise price of ISOs granted under
the Plan will not be less than 100% of the fair market value on the date of
grant (110% for ISOs granted to more than a 10% shareholder). If non-qualified
stock options are granted at an exercise price less than fair market value on
the grant date, the amount by which fair market value exceeds the exercise price
will be charged to compensation expense over the period the options vest.
4,375,000 shares are authorized for issuance under the Plan. At December 31,
1998, 116,491 shares remained available for grant under the amended Plan.
As of December 31, 1998 and 1997, the exercisable portion of outstanding
options was 1,353,267 and 1,516,445, respectively. Stock option activity under
the amended Plan through December 31, 1998 is as follows:
Average
Options Price
--------- --------
Balance, December 31, 1995 .......................... 3,021,900 $0.0067
Granted ......................................... 1,124,902 $ 11.26
Canceled ........................................ (46,421)
Exercised ....................................... (16,800)
----------
Balance, December 31, 1996 .......................... 4,083,581 $ 2.99
Granted ......................................... 85,000 $ 9.49
Canceled ........................................ (178,750)
Exercised ....................................... (1,294,550)
----------
Balance, December 31, 1997 .......................... 2,695,281 $ 4.21
Granted ......................................... 935,110 $ 4.28
Canceled ........................................ (683,229)
Exercised ....................................... (843,150)
----------
Balance, December 31, 1998 .......................... 2,104,012 $ 4.73
==========
-40-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
On December 2, 1998, the Company granted Richard H. Friedman an option to
purchase 800,000 shares of Common Stock at $4.50 per share (then-current market
price) under his employment agreement as the Company's Chairman and Chief
Executive Officer. This option was not granted under the Plan. Under the
agreement, the options vest in three equal installments on the first three
anniversaries of the date of grant. In addition, on December 2, 1998, the
Company granted Mr. Friedman 200,000 performance units and 300,000 restricted
shares. The performance units and the restricted shares are also not covered by
the Plan. The performance units vest and become payable in two equal
installments in fiscal 2002 and 2003 upon the Company's achievement of certain
specified levels of after-tax net income in fiscal 2001. The restrictions to
which the restricted shares are subject lapse in December 2006, but may be
accelerated in the event that the Company achieves certain specified levels of
earnings per share in fiscal 2001. The grants of options, performance units and
restricted shares to Mr. Friedman are subject to stockholder approval.
On April 17, 1998, the Company granted Scott R. Yablon an option to
purchase 1,000,000 shares of Common Stock at $4.50 per share (then-current
market price) in connection with his employment agreement to become the
Company's President, Chief Operating Officer and Chief Financial Officer. This
option was not granted under the Plan. Under this agreement, options with
respect to 500,000 shares vested immediately upon his commencement of employment
with the Company and the options covering the remaining 500,000 shares vest in
two equal installments on the first two anniversary dates of the date of grant.
These options expire 10 years from the date of grant. As of December 31, 1998,
the exercisable portion of outstanding options was 500,000 shares.
Effective July 6, 1998, each then current employee of the Company holding
options under the Plan was offered an opportunity to reprice the exercise price
of not less than all options granted at a particular exercise price to an
exercise price of $6.50 per share. The average of the high and low sales price
of the Common Stock on July 6, 1998 was $4.75 per share. In consideration of
receiving repriced options, each employee agreed that all such repriced options,
including those already vested, would become unvested and exercisable in three
equal installments on the first three anniversaries of the date of the
repricing. In connection with the repricing, an aggregate of approximately
473,000 shares were repriced to $6.50 per share.
In July 1996, the Company adopted the MIM Corporation 1996 Non-Employee
Directors Stock Incentive Plan (the "Directors Plan"). The purpose of the
Directors Plan is to attract and retain qualified individuals to serve as
non-employee directors of the Company ("Outside Directors"), to provide
incentives and rewards to such directors and to associate more closely the
interests of such directors with those of the Company's stockholders. The
Directors Plan provides for the automatic granting of non-qualified stock
options to Outside Directors joining the Company since the adoption of the
Directors Plan. Each such Outside Director receives an option to purchase 20,000
shares of Common Stock upon his or her initial appointment or election to the
Board of Directors. The exercise price of such options is equal to the fair
market value of the Common Stock on the date of grant. Options granted under the
Directors Plan generally vest over three years. A total of 100,000 shares of
Common Stock are authorized for issuance under the Directors Plan. At December
31, 1998, options to purchase 40,000 shares at an exercise price of $13.00,
options to purchase 40,000 shares at an exercise price of $4.6875 and options to
purchase 20,000 shares at an exercise price of $4.35 were outstanding under the
Directors Plan, 26,667 of which were exercisable.
Accounting for Stock-Based Compensation
In May 1996, the majority stockholder of the Company granted to three
individuals who were then unaffiliated with the Company (each of whom later
became a director of the Company and two of whom also became officers of the
Company), options to purchase an aggregate of 3,600,000 shares of Common Stock
owned by him at $0.10 per share. These options were immediately exercisable and
have a term of ten years, subject to earlier termination upon a change in
control of the Company, as defined. In connection with these options, for the
year ended December 31, 1996, the Company recorded a nonrecurring, non-cash
stock option charge (and a corresponding credit to additional paid-in capital)
of $26,640, representing the difference between the exercise price and the
deemed fair
-41-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
market value of the Common Stock at the date of grant. In January 1998, two of
these individuals, who were at that time officers of the Company, exercised
3,300,000 of these options.
In July 1996, the majority stockholder also granted to one of these
individuals an additional option ("additional option") to purchase 1,860,000
shares of Common Stock owned by him at $13 per share. The additional option has
a term of ten years, subject to earlier termination upon a change in control of
the Company, as defined, or within certain specified periods following the
grantee's death, disability or termination of employment for any reason. The
additional option vests in installments of 620,000 shares each on December 31,
1996, 1997 and 1998, and is immediately exercisable upon the approval of a
change in control of the Company, as defined, by the Company's Board of
Directors and, if required, stockholders. The unvested portion of the additional
option, 620,000 shares, terminated in 1998 due to the grantee's termination of
employment with the Company and the unexercised vested portion of the additional
options, 1,240,000 shares, terminated 60 days following grantee's termination.
Had compensation cost for the Company's stock option plans for employees
and directors been determined based on the fair value method in accordance with
SFAS 123, the Company's results would have been as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ----------------------- -----------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) ........... $4,271 $2,742 $(13,497) $(14,416) $(31,754) $(32,131)
====== ====== ======== ======== ======== ========
Basic income (loss) per
common share ............... $ .28 $ .18 $ (1.07) $ (1.14) $ (3.32) $ (3.36)
====== ====== ======== ======== ======== ========
Diluted income (loss) per
common share ............... $ .26 $ .17 $ (1.07) $ (1.14) $ (3.32) $ (3.36)
====== ====== ======== ======== ======== ========
</TABLE>
Because the fair value method prescribed by SFAS No. 123 has not been
applied to options granted prior to January 1, 1995 (as permitted by SFAS No.
123), the resulting pro forma compensation expense may not be representative of
the amount of compensation expense to be recorded in future years. Pro forma
compensation expense for options granted is reflected over the vesting period,
therefore future pro forma compensation expense may be greater as additional
options are granted.
The fair value of each option grant was estimated on the grant date using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
1998 1997 1996
---- ---- ----
Volatility ................... 98% 60% 60%
Risk-free interest rate ...... 5% 5% 5%
Expected life of options ..... 4 years 4 years 4 years
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the
-42-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
NOTE 10--CONCENTRATION OF CREDIT RISK
Through December 31, 1998 the majority of the Company's revenues were
derived from TennCare contracts managed by the Company pursuant to the RxCare
Contract. The following table outlines contracts with plan sponsors having
revenues and/or accounts receivable which individually exceeded 10% of the
Company's total revenues and/or accounts receivable during the applicable time
period:
<TABLE>
<CAPTION>
Plan Sponsor
---------------------------------------------
A B C D E F
- - - - - -
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996
% of total revenue............................ 18% 47% 11% - - -
% of total accounts receivable at period end.. * 13% 14% - - -
Year ended December 31, 1997
% of total revenue............................ 21% 10% 13% 10% - -
% of total accounts receivable at period end.. * * * * - -
Year ended December 31, 1998
% of total revenue............................ 16% - - 11% 16% 12%
% of total accounts receivable at period end.. * - - * * 12%
</TABLE>
- - ------------
* Less than 10%.
There were no other contracts representing 10% or more of the Company's
total revenues and/or accounts receivable for the years ended December 31, 1998,
1997 and 1996. The RxCare Contract expired as of December 31, 1998 and effective
January 1, 1999, the Company began providing PBM services to five of the six
TennCare MCO's previously managed under the RxCare Contract. It is possible that
the State of Tennessee or the Federal government could terminate or require
modifications to the TennCare program. The Company is unable to predict the
effect of any such future changes to the TennCare program.
NOTE 11--PROFIT SHARING PLAN
The Company maintains a deferred compensation plan under Section 401(k) of
the Internal Revenue Code. Under the plan, employees may elect to defer up to
15% of their salary, subject to Internal Revenue Service limits. The Company may
make a discretionary matching contribution. The Company recorded a $50 matching
contribution for 1998. The Company made no matching contributions for the years
ended December 31, 1997 and 1996.
NOTE 12--NON-RECURRING CHARGES
The Company recorded a $1,500 non-recurring charge against earnings in
connection with its negotiated termination of its relationship with RxCare. The
negotiated termination, among other things, allowed the Company to directly
market its services to Tennessee customers (including those then under contract
with RxCare) prior to the expiration of the RxCare Contract. 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.
The Company's marketing efforts during this period resulted in the Company
executing agreements effective as of January 1, 1999 to provide PBM services
directly to five of the six TennCare MCO's and 900,000 of the TennCare lives
previously managed under the RxCare Contract as well as substantially all third
party administrators and
-43-
<PAGE>
MIM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands of dollars, except for share and per share amounts)
employer groups previously managed under the RxCare Contract. In addition, the
Company recorded a $2,200 non-recurring charge against earnings in connection
with the conclusion of an agreement in principle with respect to a civil
settlement of the Federal and State of Tennessee investigation in connection
with the conduct of two former officers of a subsidiary prior to the Company's
initial public offering. This settlement is subject to several conditions,
including the execution of a definitive agreement. The Company anticipates that
the investigation will be fully resolved with this settlement.
NOTE 13--SUBSEQUENT EVENTS
On February 9, 1999, the Company entered into an agreement with a principal
stockholder of the Company to purchase, in a private transaction not reported on
Nasdaq, 100,000 shares of Common Stock from such stockholder at $3.375 per
share. The last price of the Common Stock on February 9, 1999 was $3.50 per
share.
-44-
<PAGE>
MIM Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the years ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Balance at Charges Charged to Balance at
Beginning To Costs and Other End
of Period Receivables Expenses Charges of Period
------- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Accounts receivable .................... $ 360 -- $ 728 -- $ 1,088
Accounts receivable, other ............. $ 1,957 -- $ 200 -- $ 2,157
======= ======= ======= ===== =======
Year ended December 31, 1997
Accounts receivable .................... $ 1,088 $(1,755) $ 1,348 $ 705 $ 1,386
Accounts receivable, other ............. $ 2,157 -- $ 203 -- $ 2,360
======= ======= ======= ===== =======
Year ended December 31, 1998
Accounts receivable .................... $ 1,386 (137) $ 58 -- $ 1,307
Accounts receivable, other ............. $ 2,360 $(1,957) -- $ -- $ 403
======= ======= ======= ===== =======
</TABLE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
-45-
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
Name Age Position
- - ---- --- --------
Richard H. Friedman.... 48 Chairman of the Board and Chief Executive Officer
Scott R. Yablon........ 47 President, Chief Operating Officer and Director
Louis A. Luzzi, Ph.D... 66 Director
Richard A. Cirillo..... 48 Director
Louis DiFazio, Ph.D.... 61 Director
Michael Kooper......... 63 Director
Barry A. Posner........ 35 Vice President, Secretary and General Counsel
Edward J. Sitar........ 38 Chief Financial Officer
Richard H. Friedman is currently the Chairman and Chief Executive Officer
of the Company. He joined the Company in April 1996 and was elected a director
of the Company and appointed Chief Financial Officer and Chief Operating Officer
in May 1996. Mr. Friedman also served as the Company's Treasurer from April 1996
until February 1998. From February 1992 to December 1994, Mr. Friedman served as
Chief Financial Officer and Vice President of Finance of Zenith Laboratories
Inc. ("Zenith"). In December 1994, Zenith was acquired by IVAX Corporation, an
international health care company and a major multi-source generic
pharmaceutical manufacturer and marketer. From January 1995 to January 1996, he
was Vice President of Administration of IVAX Corporation's North American
Multi-Source Pharmaceutical Group and each of its operating companies, including
Zenith and Zenith Goldline.
Scott R. Yablon joined the Company on May 1, 1998 as an employee and,
effective May 15, 1998, served as its President, Chief Financial Officer, Chief
Operating Officer and Treasurer. He relinquished the positions of Chief
Financial Officer and Treasurer on March 22, 1999, upon the promotion of Mr.
Edward J. Sitar to those positions at that time. Mr. Yablon has served as a
director of the Company since July 1996. Prior to joining the Company, he held
the position of Vice President - Finance and Administration at Forbes, Inc.. He
also served as a member of the Investment Committee of Forbes Inc., Vice
President, Treasurer and Secretary of Forbes Investors Advisory Institute and
Vice President and Treasurer of Forbes Trinchera, Sangre de Cristo Ranches, Fiji
Forbes and Forbes Europe.
Louis A. Luzzi, Ph.D. has served as a director of the Company since July
1996. Dr. Luzzi is the Dean of Pharmacy and Provost for Health Science Affairs
of the University of Rhode Island College of Pharmacy. He has been a Professor
of Pharmacy at the University of Rhode Island since 1981. Dr. Luzzi participates
in several university, industry and government committees and has published
numerous articles.
Richard A. Cirillo has served as a director of the Company since April
1998. Mr. Cirillo is a member of the law firm Rogers and Wells LLP, which he has
been associated with since 1975. Rogers and Wells LLP has served as outside
general counsel to the Company since March 1997.
-46-
<PAGE>
Louis DiFazio, Ph.D., has served as a director of the Company since May
1998. From 1990 through March 1997, Dr. DiFazio served as President of Technical
Operations for the Pharmaceutical Group of Bristol-Myers Squibb and from March
1997 until his retirement in June 1998 served as Group Senior Vice President.
Dr. DiFazio also serves as a member of the Board of Trustees of Rutgers
University and the University of Rhode Island. Dr. DiFazio received his B.S. in
Pharmacy at Rutgers University and his Ph.D. in Pharmaceutical Chemistry from
the University of Rhode Island.
Martin ("Michael") Kooper has served as a director of the Company since
April 1998. Mr. Kooper has served as the President of the Kooper Group since
December 1997, a successor to Michael Kooper Enterprises, an insurance and risk
management consulting firm. From 1980 through December 1997, Mr. Kooper served
as President of Michael Kooper Enterprises.
Barry A. Posner joined the Company in March 1997 as General Counsel and was
appointed as the Company's Secretary at that time. On April 16, 1998, Mr. Posner
was appointed Vice President of the Company. From September 1990 through March
1997, Mr. Posner was associated with the Stamford, Connecticut law firm of Finn
Dixon & Herling LLP, where he practiced corporate law, specializing in the areas
of mergers and acquisitions and securities law, and commercial real estate law.
Edward J. Sitar joined the Company in August 1998 as Vice President of
Finance. On March 22, 1999, Mr. Sitar was appointed Chief Financial Officer and
Treasurer, relinquishing the position of Vice President of Finance. From May
1996 to August 1998, Mr. Sitar was the Vice President of Finance for Vital
Signs, Inc., a publicly traded manufacturer and distributor of single use
medical products. From June 1993 to April 1996, Mr. Sitar was the Controller of
Zenith.
Executive officers are appointed by, and serve at the pleasure of, the
Board of Directors, subject to the terms of their respective employment
agreements with the Company, which among other things, provide for each of them
to serve in the executive position(s) listed above.
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors and officers of the
Company and persons, or "groups" of persons, who own more than 10% of a
registered class of the Company's equity securities (collectively, "Covered
Persons") to file with the Commission and Nasdaq within specified time periods,
initial reports of beneficial ownership, and subsequent reports of changes in
ownership, of certain equity securities of the Company. Based solely on its
review of copies of such reports furnished to it and upon written
representations of Covered Persons that no other reports were required, other
than as described below, the Company believes that all such filing requirements
applicable to Covered Persons with respect to all reporting periods through the
end of fiscal 1998 have been complied with on a timely basis. Mr. Posner failed
to file timely one Statement of Changes of Beneficial Ownership on Form 4
reporting one transaction. Mr. Larry Edelson-Kayne, a former officer, failed to
file timely an Initial Statement of Beneficial Ownership on Form 3. Mr. Michael
Erlenbach, a 10% beneficial owner, failed to file timely one Statement of
Changes of Beneficial Ownership on Form 4 reporting four transactions. Mr. E.
David Corvese, a director of the Company until August 1998 and a 10% beneficial
owner, failed to file timely four Statements of Changes of Beneficial Ownership
on Form 4 reporting 107 transactions.
Item 11. Executive Compensation
The following table sets forth certain information concerning the annual,
long-term and other compensation of the two Chief Executive Officers who held
that title during 1998 and the four other most highly compensated executive
officers of the Company (the "Named Executive Officers") for services rendered
in all capacities to the Company and its subsidiaries during each of the years
ended December 31, 1998, 1997 and 1996, respectively:
-47-
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Annual ------------
Compensation Other Securities
------------------------ Annual Underlying All Other
Name and Principal Position Year Salary (1) Bonus Compensation (2) Options Compensation
- - ---------------------------- ---- ---------- ----- ---------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Friedman............ 1998 $333,462 $212,500 $ 33,134 800,000 $ 5,217 (4)
Chief Executive Officer 1997 $275,000 -- $ 12,000 -- $ 4,710 (4)
1996 $187,977 -- $ 7,000 1,500,000 (3) $ 3,657 (4)
John H. Klein.................. 1998 $125,000 -- $ 5,000 -- $205,217 (5)
Former Chief Executive 1997 $325,000 -- $ 12,000 -- $ 4,710 (4)
Officer 1996 $220,192 -- $ 7,000 3,660,000 (3) --
Scott R. Yablon................. 1998 $207,500 (6) $162,500 $ 6,678 1,000,000 (7) $ 4,605 (4)
President and 1997 -- -- -- -- --
Chief Operating Officer 1996 -- -- -- -- --
Barry A. Posner................ 1998 $191,346 (8) $100,000 $ 10,828 50,000 (9) $ 5,890 (4)
Vice President, General 1997 $127,366 -- $ 4,166 150,000 (7) $ 4,710 (4)
Counsel and Secretary 1996 -- -- -- -- --
E. Paul Larrat (10)............ 1998 $191,346 $ 10,000 $ 7,400 60,000 (9) $ 5,890 (4)
Executive Vice President 1997 $155,000 -- $ 3,600 -- $ 4,113 (4)
Pro-Mark Holdings, Inc. 1996 $135,556 -- $ 3,600 137,500 (11) $ 7,549 (4)
Eric Pallokat (12)............. 1998 $138,904 $ 82,500 $ 6,000 25,000 (7) --
Vice President of Sales 25,000 (9)
and Marketing 1997 $115,000 -- $ 6,000 -- --
1996 $ 53,077 -- $ 2,887 25,000 (7) --
</TABLE>
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<PAGE>
- - ----------------------
(1) The annualized base salaries of the Named Executive Officers for 1998 were
as follows: Mr. Friedman ($325,000; $425,000 effective December 1998), Mr.
Klein ($325,000), Mr. Yablon ($325,000), Mr. Posner ($200,000), Mr. Larrat
(175,000) and Mr. Pallokat (130,000).
(2) Represents automobile allowances, and for Messrs. Friedman, Yablon and
Posner in 1998, reimbursement for club membership and related fees and
expenses of $21,135, $3,678 and $3,428, respectively.
(3) Represents options to purchase shares of the Company's Common Stock from E.
David Corvese. See "Common Stock Ownership by Certain Beneficial Owners and
Management" below.
(4) Represents life insurance premiums paid by the Named Executive Officer and
reimbursed by the Company.
(5) Represents reimbursement of life insurance premiums in the amount of $5,217
and payment of severance of $200,000. Mr. Klein resigned as Chairman and
Chief Executive Officer of the Company effective May 15, 1998. Pursuant to
a separation agreement, the Company agreed to pay Mr. Klein severance equal
to his annual salary through May 1999.
(6) Mr. Yablon joined the Company as President and Chief Operating Officer in
May 1998.
(7) Represents options to purchase shares of the Company Common Stock from the
Company at market price on the date of grant.
(8) The annualized base salary for Mr. Posner was increased from $175,000 to
$200,000 effective in April 1998.
(9) Represents options with respect to which the exercise price was repriced to
$6.50 per share on July 6, 1998. See "Option Grants in Last Fiscal Year"
and "10-Year Option Repricing" tables below.
(10) $55,000 of Mr. Larrat's base salary is paid to him indirectly by the
Company to the University of Rhode Island College of Pharmacy through a
time sharing arrangement. In turn, the University pays such amounts to Mr.
Larrat. The balance of his salary is paid directly to him by the Company.
Mr. Larrat resigned all of his positions with the Company and its
subsidiaries effective March 1999.
(11) Represents options to purchase 77,500 shares of Common Stock at $0.0067 per
share and 60,000 shares at $6.50 per share.
(12) Mr. Pallokat resigned all of his positions with the Company and its
subsidiaries effective February 1999.
The following table sets forth information concerning stock option grants
made during fiscal 1998 to the Named Executive Officers. These grants are also
reflected in the Summary Compensation Table. In accordance with the rules and
regulations of the Commission, the hypothetical gains or "option spreads" for
each option grant are shown assuming compound annual rates of stock price
appreciation of 5% and 10% from the grant date to the expiration date. The
assumed rates of growth are prescribed by the Commission and are for
illustrative purposes only; they are not intended to predict the future stock
prices, which will depend upon market conditions and the Company's future
performance, among other things.
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<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants (1) Value at
-------------------------------------------------------------- Assumed Annual
Number of % of Total Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise Option Term
Options Employees Price Expiration --------------------------
Name Granted in 1998 ($/share) Date 5% 10%
- - ---- ------- ------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Friedman ... 800,000 27.7% $ 4.50 12/2/08 $2,264,021 $3,387,473
John H. Klein.......... - - - - - -
Scott R. Yablon........ 1,000,000 (1) 34.7% $ 4.50 4/17/08 $2,830,026 $4,234,341
Barry A. Posner........ 50,000 (2) 1.7% $4.6875 5/27/08 $ 147,397 $ 236,033
50,000 (3) 1.7% $ 6.50 7/6/08 $ 204,391 $ 471,091
100,000 3.5% $ 4.50 12/2/08 $ 283,003 $ 423,434
E. Paul Larrat ........ 60,000 (3) 2.0% $ 6.50 7/6/08 $ 245,269 $ 565,310
Eric Pallokat ......... 25,000 (4) 0.8% $4.6875 5/27/08 $ 73,699 $ 118,017
25,000 (3) 0.8% $ 6.50 7/6/08 $ 102,195 $ 235,546
</TABLE>
(1) Options representing 500,000 shares were immediately vested and exercisable
and the remaining 500,000 shares become exercisable in equal installments
on April 17, 1999 and 2000.
(2) Such options become exercisable in three equal installments on May 27,
1999, 2000 and 2001.
(3) Represents options with respect to which the exercise price was repriced to
$6.50 per share on July 6, 1998. See "10-year Option Repricing" table
below.
(4) All such options expired upon Mr. Pallokat's resignation in February 1999.
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<PAGE>
The following table sets forth for each Named Executive Officer the number
of shares covered by both exercisable and unexercisable stock options held as of
December 31, 1998. Also reported are the values for "in-the-money" options,
which represent the difference between the respective exercise prices of such
stock options and $3.375, the per share closing price of the Common Stock on
December 31, 1998.
Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Value Options at Fiscal Year-End Fiscal Year-End (1)
Acquired On Realized ---------------------------- ---------------------------
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- - ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Friedman (2) ........ 1,500,000 $7,350,000 -- 800,000 -- --
John H. Klein (2) .............. 1,800,000 $8,820,000 -- -- -- --
Scott R. Yablon (3) ............ -- -- 500,000 500,000 -- --
Barry A. Posner (3) ............ -- -- -- 200,000 -- --
E. Paul Larrat (3) ............. -- -- 77,500 60,000 $ 261,043 --
Eric Pallokat (3) .............. -- -- -- 50,000 (4) -- --
</TABLE>
(1) Except as indicated, none of the options were "in-the-money".
(2) Indicated options represented shares of Common Stock purchased from E.
David Corvese (see "Common Stock Ownership by Certain Beneficial Owners and
Management" below). In January 1998, Messrs. Friedman and Klein exercised
these options for a total of 1,500,000 and 1,800,000 shares, respectively.
(3) Indicated options are to purchase shares of Common Stock from the Company.
(4) All such options expired upon Mr. Pallokat's resignation in February 1999.
The following table sets forth for each Named Executive Officer the number
of performance units and restricted shares of Common Stock granted by the
Company during the year ended December 31, 1998. In addition, for each award,
the table also sets forth the related maturation period and future payments
expected to be made under varying circumstances.
Long-Term Incentive Plan -
Awards In Last Fiscal Year
<TABLE>
<CAPTION>
Performance Estimated Future Payments Under
Number of Or Period Non-Stock Price-Based Plans
Shares, Units Until Maturation ----------------------------------------------
Name Or Rights Or Payment Threshold Target Maximum
- - ---- --------- ---------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Richard H. Friedman ...................... 200,000 (1) 4/1/02 $2,000,000 $5,000,000 $8,000,000
300,000 (2) 12/2/06 $1,350,000 $1,350,000 $1,350,000
John H. Klein ............................ -- -- -- -- --
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Scott R. Yablon .......................... -- -- -- -- --
Barry A. Posner .......................... 10,000 (1) 4/1/02 $ 100,000 $ 250,000 $ 400,000
20,000 (2) 12/2/06 $ 450,000 $ 450,000 $ 450,000
E. Paul Larrat ........................... -- -- -- -- --
Eric Pallokat ............................ -- -- -- -- --
</TABLE>
- - -------------------
(1) Represents performance units granted to the indicated individual on
December 2, 1998. The performance units vest and become payable upon the
achievement by the Company of certain specified levels of after-tax net
income in fiscal 2001. Upon vesting, the performance units are payable in
two equal installments in April 2002 and 2003 as follows: (a) $10 per unit
upon the Company's achievement of a threshold level of after-tax net income
in fiscal 2001; (b) $25 per unit upon the Company's achievement of a target
level of after-tax net income in fiscal 2001; and (c) $40 per unit upon the
Company's achievement of a maximum level of after-tax net income in fiscal
2001.
(2) Represents restricted shares of Common Stock issued by the Company to the
indicated individual on December 2, 1998. The restricted shares are subject
to restrictions on transfer and encumbrance through December 2, 2006 and
are automatically forfeited to the Company upon termination of the
grantee's employment with the Company prior to December 2, 2006. The
restrictions to which the restricted shares are subject may lapse prior to
December 2, 2006 in the event that the Company achieves certain specified
levels of earnings per share in fiscal 2001 or 2002. The indicated
individual possesses voting rights with respect to the restricted shares,
but is not entitled to receive dividend or other distributions, if any,
paid with respect to the restricted shares. The values shown in the table
reflect the value of shares based on the last sale price of the Common
Stock on the date of grant ($4.50). The last sale price of the Common Stock
on December 31, 1998 was $3.375 per share.
The following table sets forth certain information with respect to shares
repriced by the Company in favor of any executive officers of the Company during
the last ten years:
10-Year Option Repricings(1)(2)
<TABLE>
<CAPTION>
Number of Length (months)
Securities Market Price Exercise Price of Original
Underlying at at New Option Term
Repriced Time of Time of Exercise Remaining at
Name Date Options (#) Repricing ($) Repricing ($) Price($) Time of Repricing
- - ---- ---- ----------- ------------- ------------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Barry A. Posner ............... 7/6/98 50,000 $ 4.75 $ 7.4375 $ 6.50 105
E. Paul Larrat ................ 7/6/98 60,000 $ 4.75 $ 13.00 $ 6.50 95
Eric Pallokat ................. 7/6/98 25,000 $ 4.75 $ 13.00 $ 6.50 98
</TABLE>
- - ---------------------
(1) Other than the July 1998 repricing, the Company has not repriced the
exercise price of any options held by any executive officers during the
last 10 years.
(2) See "Compensation Committee Report on Executive Compensation" below for a
description of the factors that the Compensation Committee considered in
connection with its approval of these repricings.
Compensation of Directors
Directors who are not officers of the Company ("Outside Directors") receive
fees of $1,500 per month and $500 per meeting of the Board and any committee
thereof and are reimbursed for expenses incurred in connection with attending
such meetings. In addition, each Outside Director joining the Company since the
adoption of the Company's 1996 Non-Employee Directors Stock Incentive Plan (the
"Directors Plan") receives options to purchase 20,000 shares of the Common Stock
under that Plan. Directors who are also officers of the Company are not paid any
director fees.
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<PAGE>
The Directors Plan was adopted in July 1996 to attract and retain qualified
individuals to serve as non-employee directors of the Company, to provide
incentives and rewards to such directors and to associate more closely the
interests of such directors with those of the Company's stockholders. The
Directors Plan provides for the automatic grant of non-qualified stock options
to purchase 20,000 shares of Common Stock to non-employee directors joining the
Company since the adoption of the Directors Plan. The exercise price of such
options is equal to the fair market value of Common Stock on the date of grant.
Options granted under the Directors Plan generally vest over three years. A
reserve of 100,000 shares of the Company Common Stock has been established for
issuance under the Directors Plan. Through March 15, 1999, options to purchase
20,000 shares have been granted under the Directors Plan to each of Messrs.
Luzzi and Yablon at an exercise price of $13 per share, options to purchase
20,000 shares have been granted to Mr. Cirillo at an exercise price of $4.35 per
share and options to purchase 20,000 shares have been granted to each of Messrs.
Kooper and DiFazio at an exercise price of $4.6875 per share.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Company's Board administers the Company's
stock incentive plans and makes recommendations to the Company's Board regarding
executive officer compensation matters, including policies regarding the
relationship of corporate performance and other factors to executive
compensation. During 1998, the following persons served as members of the
Compensation Committee: Messrs. Friedman, Yablon, Luzzi, Cirillo, and DiFazio.
Only Messrs. Friedman and Yablon, each of whom resigned from the Committee
during 1998, were officers of the Company during 1998. The Company's
Compensation Committee presently consists of Messrs. Cirillo, Luzzi and DiFazio,
none of whom is or ever has been an officer of the Company.
As disclosed above, in 1998, the Company paid $55,000 to the University of
Rhode Island College of Pharmacy ("URI College of Pharmacy") in connection with
a time sharing arrangement with respect to Mr. Larrat. URI College of Pharmacy
paid these funds to Mr. Larrat as salary. In addition, in 1998, the Company paid
an additional $10,000 in charitable contributions to URI College of Pharmacy.
Dr. Luzzi is the Dean of URI College of Pharmacy.
Compensation Committee Report On Executive Compensation
The Company believes that a strong link should exist between executive
compensation and management's success in maximizing shareholder value. This
belief was adhered to in 1998 by developing and formalizing both short-term and
long-term incentive executive compensation programs which provide competitive
compensation, strong incentives for the executives to stay with the Company and
deliver superior financial results, and significant potential rewards if the
Company achieves aggressive financial goals. The Compensation Committee's role
and responsibilities involve the development and administration of executive
compensation policies and programs that are consistent with, linked to, and
supportive of the basic strategic objective of maximizing shareholder value,
while taking into consideration the activities and responsibilities of
management.
Early in 1998, the executive organization of the Company underwent dramatic
change with the departure of the Company's Vice-Chairman and of the Chairman and
CEO, the appointment of Mr. Friedman as the new Chairman and CEO, the
recruitment of a new President, and the necessary restructuring of the business
to poise the Company for the future. It became a high priority of the entire
Board to pursue two major objectives simultaneously: (1) to secure a long-term
agreement with the new CEO, and (2) to develop an aggressive executive and key
employee compensation program for the remainder of the senior management.
The Board engaged the professional services of an outside consultant to
review the existing compensation programs and to assist in developing the
desired program. The consultant found that while some of the executive salaries
were within a competitive range, the executive bonus opportunities were below
the level that would be considered appropriate. The consultant further reported
that the long-term compensation portion of the program should be a more balanced
combination of performance units, performance shares and stock options instead
of the sole reliance on stock options for long term incentive that the Company
had used in the past.
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<PAGE>
The Board directed its Compensation Committee, consisting of Messrs. Cirillo,
DiFazio and Luzzi (none of whom is an officer or employee of the Company), to
work with the consultant and to develop and adopt a Total Compensation Program
focused on maximizing shareholder value. At its meeting in December 1998, the
Compensation Committee adopted the substantive compensation provisions of a new
five year employment agreement to be entered into with Mr. Friedman as well as
the new 1998 Total Compensation Program for Key Employees for other senior
management. These actions were based on the recommendation of the outside
consultant and an internal review of the CEO's recommendations regarding
participation and appropriate grants of units, shares and options.
A proposal requesting stockholder approval of the employment agreement with
Mr. Friedman will be included in the Company's Proxy Statement with respect to
its 1999 Annual Meeting of Stockholders. In addition, the Total Compensation
Program will require certain changes to, and additional authorized shares under,
the Company's 1996 Amended and Restated Stock Incentive Plan ("Plan"). A
proposal requesting stockholder approval of a further Amended and Restated Stock
Incentive Plan will also be included in the Company's Proxy Statement with
respect to its 1999 Annual Meeting of Stockholders.
Compensation Philosophy and Elements
The Compensation Committee adheres to four principles in discharging its
responsibilities, which have been applied through its adoption in December 1998
of the 1998 Total Compensation Program for Key Employees ("Program"). First, the
majority of the annual bonus and long-term compensation for management and key
employees should be in large part at risk, with actual compensation levels
corresponding to the Company's actual financial performance. Second, over time,
incentive compensation of the Company's executives should focus more heavily on
long-term rather than short-term accomplishments and results. Third,
equity-based compensation and equity ownership expectations should be used on an
increasing basis to provide management with clear and distinct links to
shareholder interests. Fourth, the overall compensation programs should be
structured to ensure the Company's ability to attract, retain, motivate, and
reward those individuals who are best suited to achieving the desired
performance results, both long and short-term, while taking into account the
duties and responsibilities of the individual.
The Program provides the Compensation Committee with the discretion to pay
cash bonuses and grant (i) performance units payable in cash upon achievement of
certain performance criteria established by the Compensation Committee, (ii)
performance shares which are subject to restrictions on transfer and encumbrance
for a specified period of time, but which restrictions may lapse early upon
achievement of certain performance criteria established by the Compensation
Committee and (iii) both non-qualified and incentive stock options.
The Program provides management and employees with the opportunity for
significant cash bonuses and long term rewards if the corporate and individual
objectives are achieved. Specifically, the key executives, other than the CEO
and COO, may receive significant bonuses IF the company's aggressive annual
financial profit plan and individual objectives are achieved. The maximum amount
payable to any one individual under the cash bonus and performance unit portions
of the Program is $1,000,000. The CEO and COO have higher bonus opportunities,
but their potential payouts from both bonus and performance units in any one
year is no more than $5,000,000. These outside limits are not expected awards
but are set pursuant to regulations concerning "performance-based" compensation
plans in Code Section 162(m) to enable the Compensation Committee "negative
discretion" in determining the actual bonus or performance unit awards.
Compensation of the Chief Executive Officer
In considering the appropriate salary, bonus opportunity, and long-term
incentive for the new CEO, the Compensation Committee considered his unique role
during 1998 and his expected role over the next five years. The Compensation
Committee determined that in a very real sense, the Company would have faced
extreme difficulty in 1998 were it not for the fact that Mr. Friedman accepted
the challenge to replace both the former Vice-Chairman and the former Chairman
and CEO and give the investment community and the Company's stockholders
reassurance that the Company would overcome the problems it faced in its primary
market. The
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<PAGE>
Board further determined that Mr. Friedman's demonstrated commitment through the
purchase of a large block of stock, his active and effective involvement in
restructuring the business, and his recruitment and leadership of an aggressive
team were assets that should be protected. The Committee's bonus award to Mr.
Friedman and its negotiation of a new, performance-driven, five year agreement
were based on this recognition of his key role in maximizing future shareholder
value.
New employment agreements have also been entered into with the Vice
President and General Counsel and Chief Financial Officer reflecting their
participation in the new Program. The President and Chief Operating Officer was
recruited in May 1998 and his employment agreement was negotiated at that time
and is described in "Employment Agreements" below.
Code Section 162(m)
The CEO's total compensation package under his new employment agreement is
believed to qualify as "performance-based" compensation with the meaning of Code
Section 162(m). The Total Compensation Program was adopted by a Compensation
Committee composed entirely of outside directors and Mr. Friedman's agreement
was approved by the entire Board of Directors. In order to qualify for favorable
treatment under Code Section 162(m), Mr. Friedman's agreement must be approved
by the Company's stockholders. None of the other executives covered by the Total
Compensation Program will receive cash compensation in excess of $1,000,000 in
any one year under the cash bonus portion of the Program. The performance units,
performance shares and stock options for all persons other than Mr. Friedman
were granted from shares authorized under the Plan, but the form of the awards
require certain amendments to the Plan and authorization of additional shares,
which will be submitted for stockholder approval at the 1999 Annual Meeting of
Stockholders.
Report on Repricing of Options
Effective July 6, 1998, each then current employee of the Company,
including the Named Executive Officers, holding options under the Plan was
offered the opportunity to reprice the exercise price of not less than all
options granted at a particular exercise price to an exercise price of $6.50 per
share. The average of the high and low sales price of the Common Stock on July
2, 1998 was $4.75. In consideration of receiving repriced options, each employee
agreed that all such repriced options, including those already vested, would
become unvested and exercisable in three equal installments on the first three
anniversaries of the date of repricing. In connection with the repricing,
approximately 473,000 shares were repriced to $6.50 per share.
The Compensation Committee and the Board of Directors approved the
repricing in July 1998 in an effort to incentivize adequately and fairly the
Company's employees to perform their duties to the fullest extent of their
respective abilities and to promote better morale in the workplace. The
Compensation Committee and the Board of Directors concluded in July 1998 that
the options granted to employees at or around the time of the Offering (with
exercise prices of or about $13.00) represented an excessive premium over then
recent ranges of the market price of the Common Stock so as to prevent the
proper incentivizing of the Company's employees. The Compensation Committee and
the Board of Directors determined that the Common Stock was undervalued due to
many factors, including the significant holdings of prior officers and directors
of the Company and that these factors and the consequent undervaluation of the
Common Stock were not likely to be alleviated in the short term. In addition,
the repricing program was adopted partly in response to departures from the
Company of certain management and key non-management personnel in an effort to
prevent the loss of additional valued employees. Furthermore, in connection with
the Formation, certain employees had been granted options to purchase Common
Stock at $0.0067 in exchange and conversion of their options in a subsidiary of
the Company As a result, as a matter of fairness and equality to many other
employees who had received $13.00 options at the time of the Offering, the
Compensation Committee and the Board of Directors authorized the repricing.
MIM CORPORATION COMPENSATION COMMITTEE
Richard A. Cirillo
Louis DiFazio, Ph.D.
Louis A. Luzzi, Ph.D.
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<PAGE>
Employment Agreements
In December 1998, Mr. Friedman entered in to an employment agreement with
the Company which provides for his employment as the Chairman and Chief
Executive Officer for a term of employment through November 30, 2003 (unless
earlier terminated) at an initial base annual salary of $425,000. The employment
agreement is subject to stockholder approval at the Company's 1999 Annual
Meeting of Stockholders. Under the agreement, Mr. Friedman is entitled to
receive certain fringe benefits, including an automobile allowance, and is also
eligible to participate in the Company's executive bonus program. Under the
agreement, Mr. Friedman was granted options to purchase 800,000 shares of Common
Stock at an exercise price of $4.50 per share (the market price on December 2,
1998, the date of grant). The options vest in three equal installments on the
first three anniversaries of the date of grant. In addition, Mr. Friedman was
granted 200,000 performance units and 300,000 restricted shares. See "Long Term
Incentive Plan - Awards in Last Fiscal Year" above for a description of the
terms and conditions applicable to the performance units and restricted shares.
These grants to Mr. Friedman of options, performance units and restricted shares
are subject to stockholder approval at the Company's 1999 Annual Meeting of
Stockholders.
If Mr. Friedman's employment is terminated early due to his death or
disability, (i) all vested options may be exercised by his estate for one year
following termination, (ii) all performance units shall vest and become
immediately payable at the accrued value measured at the end of the fiscal year
following his termination and (iii) any restricted shares to which Mr. Friedman
would have been entitled at the end of the fiscal year following his termination
shall vest and become immediately transferable without restriction; provided,
however, that should Mr. Friedman remain disabled for six months following his
termination for disability, he shall also be entitled to receive for a period of
two years following termination, his annual salary at the time of termination
and continuing coverage under all benefit plans and programs to which he was
previously entitled. If Mr. Friedman's employment is terminated early by the
Company without cause, (i) Mr. Friedman shall be entitled to receive, for the
longer of two years following termination or the period remaining in his term of
employment under the agreement, his annual salary at the time of termination
(less the net proceeds of any long term disability or workers' compensation
benefits) and continuing coverage under all benefit plans and programs to which
he was previously entitled, (ii) all unvested options shall become vested and
immediately exercisable in accordance with the terms of the options and Mr.
Friedman shall become vested in any other pension or deferred compensation
plans, (iii) any performance units to which he would have been entitled at the
time of his termination shall become vested and immediately payable at the then
applicable target rate, (iv) any restricted shares to which Mr. Friedman would
have been entitled at the end of the fiscal year following his termination shall
vest and become immediately transferable without restriction. If the Company
terminates Mr. Friedman for cause, he shall be entitled to receive only salary,
bonus and other benefits earned and accrued through the date of termination and
to retain any performance shares previously vested. If Mr. Friedman's terminates
his employment for good reason, (i) Mr. Friedman shall be entitled to receive,
for a period of two years following termination, his annual salary at the time
of termination and continuing coverage under all benefit plans and programs to
which he was previously entitled, (ii) all unvested options shall become vested
and immediately exercisable in accordance with the terms of the options and Mr.
Friedman shall become vested in any other pension or deferred compensation
plans, (iii) all performance units granted to Mr. Friedman shall become vested
and immediately payable at the then applicable maximum rate, (iv) all restricted
shares issued to Mr. Friedman shall vest and become immediately transferable
without restriction. Upon the Company undergoing certain specified changes of
control which result in his termination by the Company or a material reduction
in his duties, (i) Mr. Friedman shall be entitled to receive, for the longer of
three years following termination or the period remaining in his term of
employment under the agreement, his annual salary at the time of termination and
continuing coverage under all benefit plans and programs to which he was
previously entitled, (ii) all unvested options shall become vested and
immediately exercisable in accordance with the terms of
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<PAGE>
the options and Mr. Friedman shall become vested in any other pension or
deferred compensation plans, (iii) all performance units granted to Mr. Friedman
shall become vested and immediately payable at the then applicable maximum rate,
(iv) all restricted shares issued to Mr. Friedman shall vest and become
immediately transferable without restriction.
During the term of his employment and for one year following the later of
his termination or his receipt of severance payments, Mr. Friedman may not
directly or indirectly (other than with the Company) participate in the United
States in any pharmacy benefit management business or other business which is at
any time a material part of the Company's overall business. Similarly, for a
period of two years following termination, Mr. Friedman may not solicit or
otherwise interfere with the Company's relationship with any present or former
employee or customer of the Company.
In April 1998, Mr. Yablon entered in to an employment agreement with the
Company which provides for his employment as the Company's President and Chief
Operating Officer for term of employment through April 30, 2001 (unless earlier
terminated) at an initial base annual salary of $325,000. Under the agreement,
Mr. Yablon is entitled to receive certain fringe benefits, including automobile
and life insurance allowances and is also eligible to participate in the
Company's executive bonus program. Under the agreement, Mr. Yablon was granted
options to purchase 1,000,000 shares of Common Stock at an exercise price of
$4.50 (the market price on the date of grant). Options with respect to 500,000
shares vested immediately and the remaining options vest in two equal
installments on the first two anniversary dates of the date of grant. If Mr.
Yablon's employment is terminated early due to disability, or by the Company
without cause, or by Mr. Yablon with cause, the Company is obligated to continue
to pay his salary and fringe benefits for one year following such termination.
During the term of employment and for one year after the later of the
termination of employment or severance payments, Mr. Yablon is subject to
substantially the same restrictions on competition as described above with
respect to Mr. Friedman.
In March 1999, Mr. Posner entered in to an employment agreement with the
Company which provides for his employment as Vice President and General Counsel
for a term of employment through February 28, 2004 (unless earlier terminated)
at an initial base annual salary of $230,000. Under the agreement, Mr. Posner is
entitled to receive certain fringe benefits, including an automobile allowance,
and is also eligible to participate in the Company's executive bonus program.
Under the agreement, Mr. Posner was granted options to purchase 100,000 shares
of Common Stock at an exercise price of $4.50 per share (the market price on
December 2,1 998, the date of grant). The options vest in three equal
installments on the first three anniversaries of the date of grant. See "Long
Term Incentive Plan - Awards in Last Fiscal Year" above for a description of
certain grants of performance units and restricted shares to Mr. Posner in
December 1998 and a summary of the terms and conditions applicable to the
performance units and restricted shares. Under the agreement, upon termination,
Mr. Posner is entitled to substantially the same entitlements as described above
with respect to Mr. Friedman. In addition. Mr. Posner is subject to the same
restrictions on competition and non-interference as described above with respect
to Mr. Friedman.
In March 1999, Mr. Sitar entered in to an employment agreement with the
Company which provides for his employment as Chief Financial Officer for a term
of employment through February 28, 2004 (unless earlier terminated) at an
initial base annual salary of $180,000. Under the agreement, Mr. Sitar is
entitled to receive certain fringe benefits, including an automobile allowance,
and is also eligible to participate in the Company's executive bonus program.
Under the agreement, Mr. Sitar was granted options to purchase 50,000 shares of
Common Stock at an exercise price of $4.50 per share (the market price on the
date of grant). The options vest in three equal installments on the first three
anniversaries of the date of grant. See "Long Term Incentive Plan - Awards in
Last Fiscal Year" above for a description of certain grants of performance units
and restricted shares to Mr. Sitar in December 1998 and a summary of the terms
and conditions applicable to the performance units and restricted shares. Under
the agreement, upon termination, Mr. Sitar is entitled to substantially the same
entitlements as described above with respect to Mr. Friedman. In addition. Mr.
Sitar is subject to the same restrictions on competition and non-interference as
described above with respect to Mr. Friedman.
-57-
<PAGE>
Stockholder Return Performance Graph
The Company's Common Stock first commenced trading on the Nasdaq on August
15, 1996 in connection with the Company's Offering. The graph set forth below
compares, for the period of August 15, 1996 through December 31, 1998, the total
cumulative return to holders of the Company's Common Stock with the cumulative
total return of the Nasdaq Stock Market (U.S.) Index and the NASDAQ Health
Services Index.
Comparison of Cumulative Total Return Among MIM Corporation,
the Nasdaq Stock Market (U.S.) Index and the Nasdaq Health Services Index*
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Cumulative Total Return
-------------------------------------------------------------------------------------------------
8/15/96 9/96 12/96 3/97 6/97 9/97 12/97 3/98 6/98 9/98 12/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MIM CORPORATION 100 112 38 49 111 75 37 31 37 24 26
NASDAQ STOCK MARKET (U.S) 100 108 114 107 127 148 139 163 167 151 196
NASDAQ HEALTH SERVICES 100 104 92 86 96 105 94 103 94 71 81
</TABLE>
- - ---------------------
* The above graph assumes an investment of $100 in MIM's Common Stock on
August 15, 1996 and in the Nasdaq Stock Market (U.S.) Index and the Nasdaq
Health Services Index on July 31, 1996, and that all dividends were
reinvested. The performances shown in the above table are not necessarily
indicative of future performance.
Item 12. Common Stock Ownership by Certain Beneficial Owners and Management
Except as otherwise set forth below, the following table sets forth, to the
Company's knowledge, as of March 12, 1999, the beneficial ownership of the
Company's Common Stock by: (1) each person or entity known to the Company to own
beneficially five percent or more of the Company's Common Stock; (2) each of the
Company's directors; (3) each of the Named Executive Officers of the Company;
and (4) all directors and executive officers of the Company as a group. Such
information is based upon information provided to the Company by such persons.
Number of Shares
Beneficially Percent
Name and/or Address of Beneficial Owner Owned(1)(2) of Class
- - --------------------------------------- ----------- --------
Richard H. Friedman...................... 1,800,000(3) 9.5%
100 Clearbrook Road
Elmsford, NY 10523
Scott R. Yablon.......................... 763,334(4) 3.9%
100 Clearbrook Road
Elmsford, NY 10523
Barry A. Posner.......................... 21,600(5) *
100 Clearbrook Road
Elmsford, NY 10523
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<PAGE>
E. Paul Larrat........................... 77,500(6) *
167 Tillinghast Road
E. Greenwich, RI 02818
Eric Pallokat............................ -- --
4 Birch Road
Mahwah, NJ 07430
E. David Corvese......................... 2,062,106 11.0%
25 North Road
Peace Dale, RI 02883
John H. Klein............................ 1,800,000 9.6%
7 Loman Court
Cresskill, NJ 07626
Michael R. Erlenbach..................... 1,750,669 9.4%
6438 Huntington
Solon, OH 44139
Louis A. Luzzi, Ph.D..................... 15,134(7) *
University of Rhode Island
College of Pharmacy
Forgerty Hall
Kingston, RI 02881
Richard A. Cirillo....................... 6,667(8) *
c/o Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Louis DiFazio, Ph.D...................... 2,500(9) *
Route 206
Princeton, NJ 08543
Michael Kooper........................... --(9) --
770 Lexington Avenue
New York, NY 10021
All directors and executive officers
as a group (nine persons) ........... 2,678,100(1)(2)(10) 13.5%
- - ----------
* Less than 1%.
(1) The inclusion herein of any shares as beneficially owned does not
constitute an admission of beneficial ownership of those shares. Except as
otherwise indicated, each person has sole voting power and sole investment
power with respect to all shares beneficially owned by such person.
(2) Shares deemed beneficially owned by virtue of the right of an individual to
acquire them within 60 days after March 1, 1999 upon the exercise of an
option are treated as outstanding for purposes of determining beneficial
ownership and the percentage beneficially owned by such individual.
(3) Includes 300,000 shares of Common Stock subject to restrictions on transfer
and encumbrance through December 2, 2006 with respect to which Mr. Friedman
possesses voting rights. See "Long Term Incentive Plan - Awards in Last
Fiscal Year" in Item 11 of this Annual Report for a description of terms
and conditions relating to these restricted shares. Excludes 800,000 shares
subject to the unvested portion of options held by Mr. Friedman.
(4) Represents 763,334 shares issuable upon exercise of the vested portion of
options. Excludes 256,666 shares subject to the unvested portion of options
held by Mr. Yablon.
(5) Includes 20,000 shares of Common Stock subject to restrictions on transfer
and encumbrance through December 2, 2006 with respect to which Mr. Posner
possesses voting rights. See "Long Term Incentive Plan - Awards in Last
Fiscal Year" in Item 11 of this Annual Report for a description of terms
and conditions relating to these restricted shares. Excludes 200,000 shares
subject to the unvested portion of options held by Mr. Posner.
(6) Represents 77,500 shares issuable upon exercise of the vested portion of
options.
(7) Excludes 6,666 shares subject to unvested options held by Dr. Luzzi. Dr.
Luzzi and his wife share voting and investment power over these shares.
(8) Consists of 6,667 shares issuable upon exercise of the vested portion of
options. Excludes 13,333 shares
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<PAGE>
subject to the unvested portion of options.
(9) Excludes 20,000 shares subject to the unvested portions of options.
(10) Includes 842,334 shares issuable upon exercise of the vested portion of
options. See footnotes 2 through 9 above.
Item 13. Certain Relationships and Related Transactions
At December 31, 1997, Alchemie Properties, LLC, a Rhode Island limited
liability company of which Mr. Corvese is the manager and principal owner
("Alchemie"), was indebted to the Company in the amount of $280,629 respecting a
loan received from the Company in 1994 in the original principal amount of
$299,000. The loan bears interest at 10% per annum, with interest payable
monthly and principal payable in full on or before December 1, 2004, and is
secured by a lien on Alchemie's rental income.
During 1998, the Company paid $55,500 in rent to Alchemie pursuant to a
ten-year lease entered into in December 1994 for approximately 7,200 square feet
of office space in Peace Dale, Rhode Island.
At December 31, 1998, MIM Holdings was indebted to the Company in the
amount of $456,000 respecting loans received from the Company during 1995 in the
aggregate principal amount of $1,078,000. The Company holds a $456,000
promissory note from MIM Holdings due March 31, 2001 that bears interest at 10%
per annum. Interest generally is payable quarterly, although in December 1996
the note was amended to extend the due date to September 30, 1997 for all
interest accruing from January 1, 1996 to said date. This note is guaranteed by
Mr. Corvese and further secured by the assignment to MIM of a $100,000
promissory note that was originally given by an officer to MIM Holdings. The
remaining $622,000 of indebtedness will not be repaid and was recorded as a
stockholder distribution during the first half of 1996.
Effective March 31, 1998, Mr. Corvese terminated his employment and
resigned all of his positions with the Company and agreed not to stand for
re-election to the Board at the 1998 Annual Meeting of Stockholders. Pursuant to
a Separation Agreement dated March 31, 1998, the Company agreed to pay Mr.
Corvese an aggregate of $325,000 in 12 equal monthly installments and to
continue to provide Mr. Corvese and his dependents with medical and dental
insurance coverage for those 12 months. Under the Separtion Agreement, Mr.
Corvese is restricted from competing with the Company or soliciting its
employees or customers for one year from the last day he received severance
payments from the Company. During 1998, the Company paid Mr. Corvese a total of
$243,750 in severance.
Effective May 15, 1998, Mr. Klein terminated his employment and resigned
all of his positions with the Company and Mr. Friedman was appointed Chairman
and Chief Executive Officer. Pursuant to a Separation Agreement dated May 15,
1998, the Company agreed to pay Mr. Klein an aggregate of $325,000 in 12 equal
monthly installments and to continue to provide Mr. Klein and his dependents
with medical and dental insurance coverage for those 12 months. Under the
Separation Agreement, Mr. Klein is restricted from competing with the Company or
soliciting its employees or customers for one year from the last day he received
severance payments from the Company. During 1998, the Company paid Mr. Klein a
total of $200,000 in severance.
In connection with the Continental acquisition in August 1998, the three
largest shareholders of Continental ("Continental Shareholders"), including Mr.
Erlenbach (see Item 12), entered into an indemnification agreement with the
Company, whereby the Continental Shareholders, severally and not jointly, agreed
to indemnify and hold the Company harmless from and against certain claims
threatened against Continental. Under the agreement, the Continental
Shareholders are responsible for all amounts payable in connection with the
threatened claims over and above $100,000. The indemnification obligations of
the Continental Shareholders terminate on December 31, 1999, except with respect
to indemnifiable claims of which they are notified by the Company prior to that
time. In addition, the Continental Shareholders entered into a pledge agreement
with the Company, whereby they granted the Company security interests in an
aggregate of 487,453 shares (in proportion to their respective ownership
percentages) of Common Stock received by them in connection with the Continental
acquisition in order to secure their respective obligations under the
indemnification agreement.
On February 9, 1999, the Company entered into an agreement with Mr. Corvese
to purchase, in a private transaction not reported on Nasdaq, 100,000 shares of
Common Stock from Mr. Corvese at $3.375 per share. The last sale price per share
of the Common Stock on February 9, 1999 was $3.50.
As discussed above, under Section 145 of the Delaware General Corporation
Law and the Company's By-Laws, under certain circumstances the Company may be
obligated to indemnify Mr. Corvese as well as Michael J. Ryan, a former officer
of one of the Company's subsidiaries, in connection with their involvement in
the Federal and State of Tennessee investigation of which they are the subject.
In addition, until the Board can make a determination as to whether or not
either or both of Messrs. Corvese and Ryan are so entitled to indemnification,
the Company is obligated under Section 145 and its By-Laws to advance the costs
of 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
advancement of defense costs or to estimate the total amount that it may have to
pay in connection with such obligations or the time period over which such
amounts may 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.
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<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents Filed as a Part of this Report
Page
----
1. Financial Statements:
Report of Independent Public Accountants .............................. 22
Consolidated Balance Sheets as of December 31, 1998 and 1997 .......... 23
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 ................................... 24
Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 1998, 1997 and 1996 ....................... 25
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 ................................... 26
Notes to Consolidated Financial Statements ............................ 28
2. Financial Statement Schedules:
II. Valuation and Qualifying Accounts for the years ended
December 31, 1998, 1997 and 1996 ................................. 45
All other schedules not listed above have been omitted since they are not
applicable or are not required, or because the required information is included
in the Consolidated Financial Statements or Notes thereto.
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<PAGE>
3. Exhibits:
Exhibit
Number Description Location
- - ------ ----------- --------
2.1 Agreement and Plan of Merger by and among MIM
Corporation, CMP Acquisition Corp., Continental
Managed Pharmacy Services, Inc. and Principal
Shareholders dated as of January 27, 1998 ............. (6)(Exh. 2.1)
3.1 Amended and Restated Certificate of Incorporation
of MIM Corporation .................................... (1)(Exh. 3.1)
3.2 Amended and Restated By-Laws of MIM Corporation ....... (7)(Exh. 3(ii))
4.1 Specimen Common Stock Certificate ..................... (6)(Exh. 4.1)
10.1 Drug Benefit Program Services Agreement between
Pro-Mark Holdings, Inc. and RxCare of Tennessee,
Inc. dated as of March 1, 1994, as amended January
1, 1995 ............................................... (1)(Exh. 10.1)
10.2 Amendment No. 3 to Drug Benefit Program Services
Agreement dated October 1, 1998 ....................... (10)
10.3 Software Licensing and Support Agreement between
ComCoTec, Inc. and Pro-Mark Holdings, Inc. dated
November 21, 1994 ..................................... (1)(Exh. 10.6)
10.4 Promissory Notes of E. David Corvese and Nancy
Corvese in favor of Pro-Mark Holdings, Inc. dated
June 15, 1994 ......................................... (1)(Exh. 10.9)
10.5 Amendment to Promissory Note among E. David
Corvese, Nancy Corvese and Pro-Mark Holdings, Inc.
dated as of June 15, 1997 ............................. (4)(Exh. 10.1)
10.6 Amendment to Promissory Note among E. David
Corvese, Nancy Corvese and Pro-Mark Holdings, Inc.
dated as of June 15, 1997 ............................. (4)(Exh. 10.2)
10.7 Promissory Note of Alchemie Properties, LLC in
favor of Pro-Mark Holdings, Inc. dated August 14,
1994 .................................................. (1)(Exh. 10.10)
10.8 Promissory Note of MIM Holdings, LLC in favor of
MIM Strategic, LLC dated December 31, 1996 ............ (2)(Exh. 10.12)
10.9 Promissory Note of MIM Holdings, LLC in favor of
MIM Strategic, LLC dated March 31, 1996 ............... (1)(Exh. 10.11)
10.10 Promissory Note of MIM Holdings, LLC in favor of
MIM Strategic, LLC dated December 31, 1996,
replacing Promissory Note of MIM Holdings, LLC in
favor of MIM Strategic, LLC dated March 31, 1996 ...... (2)(Exh. 10.14)
10.11 Indemnity letter from MIM Holdings, LLC dated
August 5, 1996 ........................................ (1)(Exh. 10.36)
10.12 Assignment from MIM Holdings, LLC to MIM
Corporation dated as of December 31, 1996 ............. (2)(Exh. 10.43)
10.13 Guaranty of E. David Corvese in favor of MIM
Corporation dated as of December 31, 1996 ............. (2)(Exh. 10.42)
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<PAGE>
10.14 Employment Agreement between MIM Corporation and
Richard H. Friedman dated as of December 1, 1998* ..... (10)
10.15 Employment Agreement between MIM Corporation and
Barry A. Posner dated as of March 26, 1997* ........... (3)(Exh. 10.1)
10.16 Amendment No. 1 to Employment Agreement dated as
of May 15, 1998 between MIM Corporation and Barry
A. Posner* ............................................ (8)(Exh. 10.50)
10.17 Employment Agreement between MIM Corporation and
Barry A. Posner dated as of March 1, 1999* ............ (10)
10.18 Employment Agreement dated as of February 1, 1998
between MIM Corporation and Larry E. Edelson-Kayne* ... (7)(Exh. 10.48)
10.19 Employment Agreement dated as of April 17, 1998
between MIM Corporation and Scott R. Yablon* .......... (8)(Exh. 10.49)
10.20 Employment Agreement dated as of August 19, 1998
between MIM Corporation and Edward J. Sitar * ......... (9)(Exh. 10.51)
10.21 Employment Agreement between MIM Corporation and
Edward J. Sitar dated as of March 1, 1999* ............ (10)
10.22 Separation Agreement dated as of March 31, 1998
between MIM Corporation and E. David Corvese * ........ (7)(Exh.10.47)
10.23 Separation Agreement dated as of May 15, 1998
between MIM Corporation and John H. Klein * ........... (6)(Exh. 10.19)
10.24 Stock Option Agreement between E. David Corvese
and Leslie B. Daniels dated as of May 30, 1996* ....... (1)(Exh. 10.26)
10.25 Registration Rights Agreement-I between MIM
Corporation and John H. Klein, Richard H.
Friedman, Leslie B. Daniels, E. David Corvese and
MIM Holdings, LLC dated July 29, 1996* ................ (1)(Exh. 10.30)
10.26 Registration Rights Agreement-II between MIM
Corporation and John H. Klein, Richard H. Friedman
and Leslie B. Daniels dated July 29, 1996* ............ (1)(Exh. 10.31)
10.27 Registration Rights Agreement-III between MIM
Corporation and John H. Klein and E. David Corvese
dated July 29, 1996* .................................. (1)(Exh. 10.32)
10.28 Registration Rights Agreement-IV between MIM
Corporation and John H. Klein, Richard H.
Friedman, Leslie B. Daniels, E. David Corvese and
MIM Holdings, LLC dated July 31, 1996* ................ (1)(Exh. 10.34)
10.29 Registration Rights Agreement-V between MIM
Corporation and Richard H. Friedman and Leslie B.
Daniels dated July 31, 1996* .......................... (1)(Exh. 10.35)
10.30 Amendment No. 1 dated August 12, 1996 to
Registration Rights Agreement-IV between MIM
Corporation and John H. Klein, Richard H.
Friedman, Leslie B. Daniels, E. David Corvese and
MIM Holdings, LLC dated July 31, 1996* ................ (2)(Exh.10.29)
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<PAGE>
10.31 Amendment No. 2 dated June 16, 1998 to
Registration Rights Agreement-IV between MIM
Corporation and John H. Klein, Richard H.
Friedman, Leslie B. Daniels, E. David Corvese and
MIM Holdings, LLC dated July 31, 1996* ................ (10)
10.32 MIM Corporation 1996 Stock Incentive Plan, as
amended December 9, 1996* ............................. (2)(Exh. 10.32)
10.33 MIM Corporation 1996 Amended and Restated Stock
Incentive Plan, as amended December 2, 1998 ........... (10)
10.34 MIM Corporation 1996 Non-Employee Directors Stock
Incentive Plan* ....................................... (1)(Exh. 10.29)
10.35 Lease between Alchemie Properties, LLC and
Pro-Mark Holdings, Inc. dated as of December 1,
1994 .................................................. (1)(Exh. 10.27)
10.36 Lease Agreement between Mutual Properties
Stonedale L.P. and MIM Corporation dated April 23,
1997 .................................................. (5)(Exh.10.41)
10.37 Agreement between Mutual Properties Stonedale L.P.
and MIM Corporation dated as of April 23, 1997 ........ (5)(Exh.10.42)
10.38 Lease Amendment and Extension Agreement between
Mutual Properties Stonedale L.P. and MIM
Corporation dated December 10, 1997 ................... (5) (Exh.10.43)
10.39 Lease Amendment and Extension Agreement-II between
Mutual Properties Stonedale L.P. and MIM
Corporation dated March 27, 1998 ...................... (5) (Exh.10.44)
10.40 Lease Agreement between Mutual Properties
Stonedale L.P. and Pro-Mark Holdings, Inc. dated
December 23, 1997 ..................................... (5) (Exh.10.45)
10.41 Lease Amendment and Extension Agreement between
Mutual Properties Stonedale L.P. and Pro-Mark
Holdings, Inc. dated March 27, 1998 ................... (5) (Exh.10.46)
10.42 Lease Agreement between Continental Managed
Pharmacy Services, Inc. and Melvin I. Lazerick
dated May 12, 1998 .................................... (10)
10.43 Amendment No. 1 to Lease Agreement between
Continental Managed Pharmacy Services, Inc. and
Melvin I. Lazerick dated January 29, 1999 ............. (10)
10.44 Letter Agreement dated August 24, 1998 between
Continental Managed Pharmacy Services, Inc. and
Comerica Bank ......................................... (10)
10.45 Letter Agreement dated January 28, 1997 between
Continental Managed Pharmacy Services, Inc. and
Comerica Bank ......................................... (10)
10.46 Letter Agreement dated January 24, 1995 between
Continental Managed Pharmacy Services, Inc. and
Comerica Bank ......................................... (10)
10.47 Additional Credit Agreement dated January 23, 1996
between Continental Managed Pharmacy Services,
Inc. and Comerica Bank ................................ (10)
10.48 Guaranty dated August 24, 1998 between MIM
Corporation and Comerica Bank ......................... (10)
10.49 Third Amended and Restated Master Revolving Note
dated August 24, 1998 by Continental Managed
Pharmacy Services, Inc. in favor of Comerica Bank ..... (10)
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<PAGE>
10.50 Variable Rate Installment Note dated January 24,
1995 by Continental Managed Pharmacy Services,
Inc. in favor of Comerica Bank ........................ (10)
10.51 Variable Rate Installment Note dated January 26,
1996 by Continental Managed Pharmacy Services,
Inc. in favor of Comerica Bank ........................ (10)
10.52 Security Agreement (Equipment) dated January 24,
1995 by Continental Managed Pharmacy Services,
Inc. in favor of Comerica Bank ........................ (10)
10.53 Security Agreement (Accounts and Chattel Paper)
dated January 24, 1995 by Continental Managed
Pharmacy Services, Inc. in favor of Comerica Bank ..... (10)
10.54 Intercreditor Agreement dated January 24, 1995
between Continental Managed Pharmacy Services,
Inc. and Foxmeyer Drug Company ........................ (10)
10.55 Indemnification Agreement dated August 13, 1998
among MIM Corporation, Roulston Investment Trust
L.P., Roulston Ventures L.P. and Michael R.
Erlenbach ............................................. (10)
10.56 Pledge Agreement dated August 13, 1998 among MIM
Corporation, Roulston Investment Trust L.P.,
Roulston Ventures L.P. and Michael R. Erlenbach ....... (10)
10.57 Stock Purchase Agreement dated February 9, 1999
between MIM Corporation and E. David Corvese .......... (10)
21 Subsidiaries of the Company ........................... (10)
23 Consent of Arthur Andersen LLP ........................ (10)
27 Financial Data Schedule ............................... (10)
- - -------
(1) Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-05327), as amended,
which became effective on August 14, 1996.
(2) Incorporated by reference to the indicated exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
(3) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1997.
(4) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1997.
(5) Incorporated by reference to the indicated exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
(6) Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-4 (File No. 333-60647), as amended,
which became effective on August 21, 1998.
(7) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1998.
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<PAGE>
(8) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1998, as amended.
(9) Incorporated by reference to the indicated exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1998.
(10) Filed herewith.
* Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K
and Regulation SK-601 ss. 10 (iii).
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last quarter of the
fiscal year covered by this Annual Report.
-66-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 30, 1999.
MIM CORPORATION
By: /s/ Edward J. Sitar
--------------------------------------
Edward J. Sitar
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title(s) Date
- - --------------------------------------------------------------------------------
/s/ Richard H. Friedman Chairman and Chief Executive Officer March 30, 1999
- - ----------------------- (principal executive officer)
Richard H. Friedman
/s/ Scott R. Yablon President, Chief Operating Officer March 30, 1999
- - ----------------------- and Director
Scott R. Yablon
/s/ Edward J. Sitar Chief Financial Officer and Treasurer March 30, 1999
- - ----------------------- (principal financial officer)
Edward J. Sitar
/s/ Louis DiFazio Director March 30, 1999
- - -----------------------
Louis DiFazio, Ph.D.
/s/ Louis A. Luzzi Director March 30, 1999
- - -----------------------
Louis A. Luzzi, Ph.D.
/s/ Richard A. Cirillo Director March 30, 1999
- - -----------------------
Richard A. Cirillo
/s/ Michael Kooper Director March 30, 1999
- - -----------------------
Michael Kooper
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<PAGE>
EXHIBIT INDEX
(Exhibits being filed with this Annual Report on Form 10-K)
10.2 Amendment No. 3 to Drug Benefit Program Services Agreement dated October
1, 1998
10.14 Employment Agreement between MIM Corporation and Richard H. Friedman
dated as of December 1, 1998
10.17 Employment Agreement between MIM Corporation and Barry A. Posner dated
as of March 1, 1999
10.21 Employment Agreement between MIM Corporation and Edward J. Sitar dated
as of March 1, 1999
10.31 Amendment No. 2 dated June 16, 1998 to Registration Rights Agreement-IV
between MIM Corporation and John H. Klein, Richard H. Friedman, Leslie
B. Daniels, E. David Corvese and MIM Holdings, LLC dated July 31, 1996
10.33 MIM Corporation 1996 Amended and Restated Stock Incentive Plan, as
amended December 2, 1998
10.42 Lease Agreement between Continental Managed Pharmacy Services, Inc. and
Melvin I. Lazerick dated May 12, 1998
10.43 Amendment No. 1 to Lease Agreement between Continental Managed Pharmacy
Services, Inc. and Melvin I. Lazerick dated January 29, 1999
10.44 Letter Agreement dated August 24, 1998 between Continental Managed
Pharmacy Services, Inc. and Comerica Bank
10.45 Letter Agreement dated January 28, 1997 between Continental Managed
Pharmacy Services, Inc. and Comerica Bank
10.46 Letter Agreement dated January 24, 1995 between Continental Managed
Pharmacy Services, Inc. and Comerica Bank
10.47 Additional Credit Agreement dated January 23, 1996 between Continental
Managed Pharmacy Services, Inc. and Comerica Bank
10.48 Guaranty dated August 24, 1998 between MIM Corporation and Comerica Bank
10.49 Third Amended and Restated Master Revolving Note dated August 24, 1998
by Continental Managed Pharmacy Services, Inc. in favor of Comerica Bank
10.50 Variable Rate Installment Note dated January 24, 1995 by Continental
Managed Pharmacy Services, Inc. in favor of Comerica Bank
10.51 Variable Rate Installment Note dated January 26, 1996 by Continental
Managed Pharmacy Services, Inc. in favor of Comerica Bank
10.52 Security Agreement (Equipment) dated January 24, 1995 by Continental
Managed Pharmacy Services, Inc. in favor of Comerica Bank
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10.53 Security Agreement (Accounts and Chattel Paper) dated January 24, 1995
by Continental Managed Pharmacy Services, Inc. in favor of Comerica Bank
10.54 Intercreditor Agreement dated January 24, 1995 between Continental
Managed Pharmacy Services, Inc. and Foxmeyer Drug Company
10.55 Indemnification Agreement dated August 13, 1998 among MIM Corporation,
Roulston Investment Trust L.P., Roulston Ventures L.P. and Michael R.
Erlenbach
10.56 Pledge Agreement dated August 13, 1998 among MIM Corporation, Roulston
Investment Trust L.P., Roulston Ventures L.P. and Michael R. Erlenbach
10.57 Stock Purchase Agreement dated February 9, 1999 between MIM Corporation
and E. David Corvese
21 Subsidiaries of the Company
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
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AMENDMENT NO. 3
TO
DRUG BENEFIT PROGRAM SERVICES AGREEMENT
In consideration of the mutual promises contained herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the undersigned, being the parties to that certain Drug
Benefit
Program Services Agreement dated as of March 1, 1994, as amended (the "Service
Agreement"), hereby amend the Service Agreement effective October 1, 1998 as
follows:
1. Sections 2.1(a), 2.1(b), 2.1(c), 3.1(a), 3.1(b) and 3.1(c) of the
Service Agreement are deleted. Furthermore, the phrase "including but not
limited to the following:" is deleted from Section 3.1 of the Service Agreement
and substituted therefor shall be ".".
2. RxCare and Pro-Mark expressly agree that each of them is free to
solicit, negotiate, market, communicate and enter into contracts with any Drug
Benefit Program or other person, entity or individual (whether Managed Care
Organizations or Behavioral Health Organizations or the State of Tennessee) to
provide pharmaceutical benefit management services on its own behalf and for its
own benefit regardless of whether RxCare currently has a contract in force and
effect with any such Drug Benefit Program and so long as any such new contract
is not effective until the later of the following: (a) January 1, 1999 or (b)
the day following the termination date of the existing contract between RxCare
and such applicable Drug Benefit Program. Furthermore, RxCare and Pro-Mark shall
notify each other within 24 hours of the receipt of any written or oral
notification (whether or not such notification is in proper form under the terms
of the applicable agreement) from an applicable Drug Benefit Program as to the
termination date of each existing contract or Drug Benefit
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Program covered under an existing contract which in any case has been or is
currently being serviced by Pro-Mark under the Service Agreement.
3. As part of the consideration for this Amendment, Pro-Mark agrees to pay
RxCare the sum of $1,500,000.00. This payment shall be made at the time of the
execution of this Amendment, and such payment shall not be considered in
calculating the existence of cumulative losses or cumulative profits under the
Service Agreement. As additional consideration for the execution and delivery of
this Amendment by RxCare, Pro-Mark shall waive RxCare's obligations with respect
to all cumulative losses under the Service Agreement (if any) existing on
December 31, 1998 and RxCare shall have no further financial obligation with
respect to such cumulative losses after December 31, 1998 under the Service
Agreement, including any obligation under Amendment No. 2 to the Service
Agreement, as further evidenced by a correspondence dated March 28, 1996, from
Kathie Garrity of Pro-Mark to Gary Cripps. The parties acknowledge that a bona
fide dispute exists with respect to RxCare's obligations (which it denies) under
the instrument entitled "Amendment No. 2 to the Service Agreement." If
cumulative profits exist under the Service Agreement on December 31, 1998 (prior
to final adjustment to zero balance but excluding therefrom the amounts
contemplated by Para. 4, Para. 5 and Para. 6 of this Amendment) one-half of such
cumulative profits shall be paid by Pro-Mark to RxCare in accordance with the
Service Agreement.
4. Pro-Mark will furnish RxCare with administrative expense payments of
$20,000.00 per month for the months of October, November and December 1998.
These payments shall be delivered via an aggregate payment of $60,000.00 at the
time of the execution of this Amendment.
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5. Pro-Mark and RxCare shall use reasonable efforts to collect any monies
owed to Pro-Mark and RxCare from Integrated Pharmaceutical Services, Inc. and
Foundation Health Care, Inc. (collectively "Foundation/IPS") resulting from
alleged underpayments by Foundation/IPS with respect to the provision of
Pro-Mark Services (the "Foundation/IPS Claim"). In the event that the parties
receive a settlement offer from Foundation/IPS (or any successor in interest)
and only one of the parties desires to accept such offer, such party shall give
written notice ("Notice") to the other party (by orally confirmed facsimile
transmission) at the address set forth below the signature contained on this
Amendment. The Notice shall include the offer received from Foundation/IPS and a
statement setting forth all expenses incurred by such notifying party. The other
party shall have five (5) days from the date of the receipt of the Notice to
accept the settlement offer on the terms set forth in the Notice or to pay to
the accepting party an amount equal to one-half of the settlement offer less
one-half of the aggregate legal fees and expenses incurred by both parties.
RxCare and Pro-Mark shall cooperate with each other with respect to the
collection of the Foundation/IPS Claim and each party will be entitled to
receive one-half of any amounts collected, whether by judgment, settlement or
otherwise, less one-half of aggregate legal fees and expenses incurred by the
parties in pursuing the claim.
6. Within ten (10) days after receipt from each manufacturer of rebate
payments delivered on account of the contracts with the Behavioral Health
Organizations operating under the TennCare Partners Program for the period July
1, 1998, through December 31, 1998 (the "BHO rebates") Pro-Mark shall pay to
RxCare one-half thereof. Should it later be determined by virtue of a settlement
or proceeding to which RxCare and Pro-Mark are parties that such BHO rebates
must be paid over (whether in whole or in part) to
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a third party, (i) RxCare shall surrender to Pro-Mark or such third-party, as
the case may be, one-half of the required repayment amount, subject to a maximum
liability equalling the payments actually received by it from Pro-Mark on
account of its share of BHO rebates, and (ii) Pro-Mark shall surrender to RxCare
or such third-party, as the case may be, one-half of the required repayment
amount. With the exception of the foregoing, Pro-Mark agrees to indemnify and
hold RxCare harmless with respect to the claims of any third party unrelated to
RxCare relating to the BHO rebate payments in excess of the actual amount of BHO
rebates received by RxCare. Examples (for illustration but not limitation) of
the parties' agreement hereunder are as follows:
EXAMPLE I
BHO rebate payments received total $2,000,000.00. Total payments by
Pro-Mark to RxCare shall equal $1,000,000.00. Third party makes a claim
with respect to the BHO rebates in the total amount of $3,000,000.00. The
third party prevails and recovers a $3,000,000.00 judgment in a proceeding
to which each of Pro-Mark and RxCare is a party. RxCare is responsible for
$1,000,000.00 (its maximum liability) of such obligation. Pro-Mark is
responsible for remaining obligation of $2,000,000.00.
EXAMPLE II
BHO rebate payments received total $2,000,000.00. Total payments by
Pro-Mark to RxCare shall equal $1,000,000.00. A third party makes a claim
with respect to BHO rebates in the total amount of $1,000,000.00. The third
party prevails and recovers a $1,000,000.00 judgment in a proceeding to
which each of Pro-Mark and RxCare is a party. RxCare is responsible for
$500,000.00 of such obligation. Pro-Mark is responsible for the remaining
obligation of $500,000.00.
EXAMPLE III.
BHO rebate payments received total $2,000,000.00. Total payments by
Pro-Mark to RxCare shall equal $1,000,000.00. A third party makes a claim
with respect to the BHO rebates in the total amount of $500,000.00. The
third party
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prevails and recovers a $500,000.00 judgment in a proceeding to which each
of Pro-Mark and RxCare is a party. RxCare is responsible for $250,000.00 of
such obligation. Pro-Mark is responsible for the remaining obligation of
$250,000.00.
7. In order to avoid controversies and disputes, RxCare and Pro-Mark each
agrees that it, and its officers, directors, employees and agents and their
respective parent companies, their officers, directors, employees and agents
shall limit comments about the other, about their current and former
relationship and about the termination of that relationship to the following
statement and will decline to make further comments or respond to further
questions citing this agreement:
RxCare and Pro-Mark consider each other to be professional organizations
able to provide competent services to their customers. They ended their
contractual relationship to pursue their own business goals separately and
they each wish the other success. The parties have agreed to limit their
comments about the other to the foregoing statement and to not comment
further on the other, their relationship or its termination.
8. Each of Pro-Mark and RxCare shall have a perpetual, non-exclusive
royalty free right to the ownership, possession and use, for any purpose
whatsoever, of the software and data constituting the "pharmacists
credentialling system" utilized by the parties under the Service Agreement,
including the paper copies of all completed pharmacy questionnaires, supporting
documentation and the verification process associated therewith (collectively,
the "Credentialling System"). The parties agree to execute and deliver any and
all agreements, instruments and documents and take any and all action reasonably
requested by the other to evidence each party's respective rights in and to the
joint ownership, use and right to possession of the Credentialling System.
Promptly, but in any event within seven (7) days
5
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of the execution and delivery of this Amendment, Pro-Mark will deliver legible
copies, to the extent in existence, of the completed pharmacy questionnaires
(with supporting documentation) as well as all data relating to the
Credentialling System together with a usable version of the software and
electronically stored data. Pro-Mark further agrees to store all original
Credentialling System questionnaires, together with supporting documentation, at
its Nashville, Tennessee offices and shall provide RxCare access to such
original documents during regular business hours upon three (3) days prior
notice (oral or written).
9. Each of Pro-Mark and RxCare agrees to continue to perform their
respective obligations under the Service Agreement in good faith through the
termination date, except as such obligations are modified hereby. Each of the
parties further agrees to cooperate and provide reasonable assistance in good
faith with respect to the conversion or transition of any Drug Benefit Programs
to a new claims' processor, pharmacy benefit management company or other service
provider. The parties acknowledge and agree that Pro-Mark shall require at least
14 days prior written notice of a transition or conversion of any Drug Benefit
Program.
10. Any term defined in the Service Agreement shall have the same meaning
and effect when used in this Amendment.
11. Except as modified hereby, all other provisions of the Service
Agreement, including Amendment No. 1, shall remain in full force and effect;
provided, however, that nothing herein shall affect the effectiveness of the
notices of non-renewal given by each of the parties to the other.
12. In further consideration of their undertaking, the parties agree as
follows:
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(A) The parties release and discharge any claims which they have
raised or could have raised against the other with respect to internal
financial accounting under the Service Agreement;
(B) The parties each release and discharge any claims which they have
raised or could have raised against the other with respect to prior acts
relating to efforts to solicit, negotiate or market in order to secure
contracts with any Drug Benefit Program or any other person, entity or
individual;
(C) The parties release and discharge any claims (except for Third
Party Claims described below) which they have raised or could have raised
against the other for operational matters including all matters within the
ambit of the governmental investigations into the TennCare programs;
(D) Unless RxCare has actual knowledge of the claim at the time of the
execution of this Amendment, Pro-Mark agrees to assume full responsibility
for the claims of third parties unrelated to RxCare ("Third Party Claims")
to the extent that any such claim(s) is for Pro-Mark's performance or
failure to perform its obligations under the Service Agreement; provided,
however, that Pro-Mark's obligation is conditioned upon (1) RxCare
immediately notifying Pro-Mark in writing of any such Third Party Claims;
and (2) RxCare taking any action or not taking any action which Pro-Mark
reasonably requests for the purpose of protecting Pro-Mark's rights or
defending or mitigating Pro-Mark's obligations with respect to such Third
Party Claim(s), and (3) Pro-Mark having the right to control any and all
aspects of the defense and settlement of such Third Party Claim(s),
including, if it exercises such right, the selection of counsel, the
determination of all matters of tactics and strategy, and the amount,
nature and timing of any negotiated resolution;
(E) For purposes of the releases and discharges provided for in this
Paragraph 12, the parties intend each release and discharge to include the
claims of and the claims against the parties and their respective current
and former (i) officers, directors, employees and agents, and (ii) parents,
subsidiaries,
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affiliates, successors, and assigns (and each of their respective officers,
directors, employees, and agents) acting in their capacities as such.
IN WITNESS WHEREOF, the parties have caused this instrument to be executed
by the duly authorized representative effective as of the date first written
above.
PRO-MARK HOLDINGS, INC. RXCARE OF TENNESSEE, INC.
By: /s/BARRY A. POSNER By: /s/MICHAEL SWAIN
------------------ ------------------
Date: 11/24/98 Date: 11/24/98
ADDRESS: ADDRESS:
c/o MIM CORPORATION RXCARE OF TENNESSEE, INC.
100 Clearbrook Road 226 Capital Blvd Suite 510
Elmsford, NY 10523 Nashville, TN 37219
Attn: General Counsel
8
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated as of December 1, 1998, by
and between MIM Corporation, a Delaware corporation, with its principal place of
business at 100 Clearbrook Road, Elmsford, New York 10523 (hereinafter referred
to as the "Company"), and Richard H. Friedman, residing at 2 Palmer Place,
Armonk, NY 10504 (hereinafter referred to as the "Executive").
WHEREAS, the Company wishes to offer employment to the Executive, and the
Executive wishes to accept such offer, on the terms and provisions set forth
below; Accordingly, the parties hereto agree as follows:
1. Term. The Company hereby employs the Executive, and the Executive hereby
accepts such employment, commencing as of December 1, 1998 and ending November
30, 2003, as Chief Executive Officer and Chairman of the Board of Directors of
the Company (the "Board") unless sooner terminated in accordance with the
provisions of Section 4 or Section 5 (the period during which the Executive is
employed hereunder, including any extensions or renewals thereof, being
hereinafter referred to as the "Term").
2. Duties. The Executive, in his capacity as Chief Executive Officer and
Chairman of the Board, shall faithfully perform for the Company the duties of
said office and position and such other duties of an executive, managerial, or
administrative nature as shall be specified and designated from time to time by
the Board. The Executive shall devote all of his business time and effort to the
performance of his duties hereunder.
3. Compensation.
3.1 Salary. The Company shall pay the Executive during the Term an
initial base salary at the rate of $425,000 per annum (the "Annual
Salary"), in accordance with the customary payroll practices of the Company
applicable to senior executives, in installments not less frequently than
monthly.
<PAGE>
3.2 Benefits - In General. The Executive shall be permitted during the
Term to participate in any group life, hospitalization or disability
insurance plans, health programs, pension and profit sharing plans, salary
reviews, and similar benefits (other than bonuses and stock options or
other equity-based compensation, which are provided for under Section 3.3
and 3.4 hereof, or severance, displacement or other similar benefits) which
are of a type available from time to time to other senior executives of the
Company generally, in each case to the extent that the Executive is
eligible under the terms of such plans or programs.
3.3 Specific Benefits.
(a) During the Term, the Executive shall be entitled to receive a
bonus each calendar year, payable in cash in accordance with, and
subject to the terms and conditions of the Annual Bonus Compensation
Section of the Company's 1998 Senior Executive Bonus Program (the
"Bonus Program"), a copy of which is attached hereto as Exhibit A.
Such Annual Bonus Compensation shall be determined in accordance with
the terms and provisions of the Bonus Program and shall be payable
within ten (10) days of the completion of the audited financial
results of the Company.
(b) Upon execution and delivery of this Agreement, the Executive
shall be granted and shall receive 200,000 "Performance Units" (as
defined in the Bonus Program), subject to the terms and conditions of
the Bonus Program.
(c) Upon execution and delivery of this Agreement, the Executive
shall be granted and shall receive 300,000 "Performance Shares" (as
defined in the Bonus Program), subject to the terms and conditions of
the Bonus Program.
3.4 Grant of Option. Upon execution and delivery of this Agreement,
the Executive shall be granted and shall receive options ("Options") to
purchase 800,000 shares of the common stock, par value $0.0001 per share,
of the Company ("Common Stock"), at a price per share equal to $4.50 per
share, being the closing sales price per share of the Common Stock on the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") on December 2, 1998, the date on which the Company's
Compensation Committee granted the Executive these Options and the
compensation contemplated hereby. The Options shall, to the extent
permitted by Section 422 of
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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. Subject to Sections 3.8, 4 and 5 hereof and the
applicable stock option award agreement (i) 266,667 of such Options shall
vest and become exercisable on each of the first and second anniversaries
of the date thereof, and (ii) the remaining 266,666 Options shall vest and
become exercisable, on the third anniversary of the date hereof. The
Options shall be subject to the terms of a definitive stock option
agreement to be provided by the Company.
3.5 Vacation. The Executive shall be entitled to vacation of 20
business days per year from and after the date hereof, to be accrued and
available in accordance with the policies applicable to senior executives
of the Company generally.
3.6 Automobile. During the Term, the Company will provide the
Executive a monthly allowance of $1,500 for the use of an automobile.
3.7 Expenses. The Company shall pay or reimburse the Executive
ordinary and reasonable out-of-pocket expenses actually incurred (and, in
the case of reimbursement, paid) by the Executive during the Term in the
performance of the Executive's services under this Agreement, including,
but not limited to, business related travel and/or entertainment expenses;
provided, that the Executive submits proof of such expenses, with the
properly completed forms and supporting receipts and other documentation as
prescribed from time to time by the Company, in accordance with the
policies applicable to senior executives of the Company generally.
3.8 Shareholder Approval. The compensation set forth in Sections 3.3,
3.4, 4, 5.2 and 5.3 hereof shall be subject to the approval of this
Agreement by the Company's shareholders at an annual or special meeting of
the stockholders of the Company or by written consent in lieu thereof
("Shareholder Approval") on or before December 31, 1999. Notwithstanding
anything to the contrary contained in this Agreement or in the Bonus
Program, if approval of this Agreement by the Company's shareholders is not
obtained by December 31, 1999, the
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Executive shall not be entitled to receive any of the benefits set forth in
Section 3.3 and 3.4 hereof. Notwithstanding anything to the contrary
contained in this Agreement, in the event that Shareholder Approval is not
obtained by December 31, 1999, the Company and the Executive shall, for the
90-day period commencing January 1, 2000, negotiate in good faith in order
to provide the Executive with an alternative compensation arrangement
mutually agreeable to the Company and the Executive. In the event that the
Executive and the Company are unable to agree on an alternative
compensation arrangement within such 90-day period, the Executive shall
have the right to terminate this Agreement on not less than six (6) months
prior written notice, in which event the Executive shall be entitled to
receive, for a period of two (2) years after the termination of his
employment, the Annual Salary that the Executive was receiving at the time
of the termination of employment (and reimbursement for expenses incurred
prior to the date of termination as set forth in Section 3.7 hereof).
3.9 Incorporation By Reference. The terms and provisions of the Bonus
Program, as amended from time to time, are hereby incorporated herein by
reference as if fully set forth herein; provided, however, that in the
event that Shareholder Approval is not obtained on or before December 31,
1999, Sections 3.3 and 3.4 hereof, and the incorporation by reference of
the Bonus Program, shall be null and void and of no further force and
effect.
4. Termination upon Death or Disability.
4.1 Termination upon Death. If the Executive dies during the Term, the
obligations of the Company to or with respect to the Executive shall
terminate in their entirety except as otherwise provide under this Section
4. Upon death, (i) the Executive's estate or beneficiaries shall be
entitled to receive any Annual Salary and other benefits (including bonuses
awarded or declared but not yet paid) earned and accrued under Sections 3.1
and 3.2 of this Agreement prior to the date of termination and
reimbursement for expenses incurred prior to the date of termination as set
forth in Section 3.7 hereof; (ii) all fully vested and exercisable Options
granted under Section 3.4 hereof and held by the Executive may be exercised
by his estate for a period of one (1) year from and after the date of the
Executive's death; (iii) all Performance Units granted to the Executive
under Section 3.3(b) hereof shall vest at the accrued value (if any) under
the Bonus Program measured at the end of the fiscal year immediately
following the Executive's death; (iv) that portion of the Performance
Shares granted to the Executive under Section 3.3(c) hereof to which the
Executive would have been entitled to receive in
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accordance with the Bonus Program, as measured at the end of the fiscal
year immediately following the Executive's death shall vest in favor of the
Executive's estate; and (v) the Executive's estate and beneficiaries shall
have no further rights to any other compensation or benefits hereunder on
or after the termination of employment, or any other rights hereunder.
Notwithstanding anything to the contrary contained in this Section 4.1, it
is expressly understood and agreed that nothing in the foregoing clause (v)
shall restrict the ability of the Company to amend or terminate such
benefits plans and programs from time to time in its sole and absolute
discretion; provided, however, that the Company shall in no event be
required to provide any coverage contemplated by Section 3.2 hereof after
such time as the Executive becomes entitled to coverage under the benefit
plans and programs of another employer or recipient of the Executive's
services (and provided, further, that such entitlement shall be determined
without regard to any individual waivers or other arrangements).
4.2 Termination upon Disability. If the Executive by virtue of ill
health or other disability is unable to perform substantially and
continuously the duties assigned to him for more than 180 consecutive or
non-consecutive calendar days out of any consecutive twelve-month period,
the Company shall have the right, to the extent permitted by law, to
terminate the employment of the Executive upon notice in writing to the
Executive; provided that the Company will have no right to terminate the
Executive's employment if, in the opinion of a qualified physician
reasonably acceptable to the Company, it is reasonably certain that the
Executive will be able to resume the Executive's duties on a regular
full-time basis within 30 days of the date the Executive receives notice of
such termination. Upon termination of employment by virtue of disability,
(i) the Executive shall receive Annual Salary and other benefits (including
Bonuses awarded but not yet paid) earned and accrued under Section 3.2, of
this Agreement prior to the effective date of the termination of employment
and reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7 hereof; (ii) all
fully vested and exercisable Options granted under Section 3.4 hereof and
held by the Executive may be exercised by the Executive or his estate or
beneficiaries for a period of one (1) year from and after the date of the
Executive's disability; (iii) all Performance Units granted to the
Executive under Section 3.3 (b) hereof shall vest at the accrued value (if
any) under the Bonus Program measured
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at the end of the fiscal year immediately following the Executive's
termination of employment; (iv) that portion of the Performance Shares
granted to the Executive under Section 3.3(c) hereof to which the Executive
would have been entitled to receive in accordance with the Bonus Program,
as measured at the end of the fiscal year immediately following the
Executive's termination of employment shall vest in favor of the Executive;
and (v) if the Executive's disabilities shall continue for a period of six
(6) months after his termination under this Section 4.2, the Executive
shall receive for a period for two (2) years after termination of
employment (A) the Annual Salary that the Executive was receiving at the
time of such termination of employment, less the gross proceeds paid to the
Executive on account of Social Security or other similar benefits and
Company provided long-term disability insurance, payable in accordance with
Section 3.1 hereof; and (B) such continuing coverage under the benefit
plans and programs the Executive would have received under Section 3.2
hereof as would have applied in the absence of such termination; it being
expressly understood and agreed that nothing in this clause (v) shall
restrict the ability of the Company to amend or terminate such benefits
plans and programs from time to time in its sole and absolute discretion;
provided, however, that the Company shall in no event be required to
provide any coverage contemplated in Section 3.2 hereof after such time as
the Executive becomes entitled to coverage under the benefit plans and
programs of another employer or recipient of the Executive's services (and
provided, further, that such entitlement shall be determined without regard
to any individual waivers or other arrangements); and (vi) the Executive
shall have no further rights to any other compensation or benefits
hereunder on or after the termination of employment, or any other rights
hereunder.
5. Certain Terminations of Employment
5.1 Termination for "Cause"; Termination of Employment by the
Executive Without Good Reason. (a) For purposes of this Agreement, "Cause"
shall mean (i) the Executive's conviction of a felony or a crime of moral
turpitude; or (ii) the Executive's commission of unauthorized acts intended
to result in the Executive's personal enrichment at the material expense of
the Company; or (iii) the Executive's material violation of the Executive's
duties or responsibilities to the Company which constitute willful
misconduct or dereliction of duty, or the material breach of the covenants
contained in Section 6
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hereof; or (iv) the Executive's other material breach of this Agreement
which breach shall have continued unremedied for ten (10) days after
written notice by the Company to the Executive specifying such breach.
(b) The Company may terminate the Executive's employment hereunder for
Cause. If the Company terminates the Executive for Cause, (i) the Executive
shall receive Annual Salary and other benefits (including bonuses awarded
or declared but not yet paid) earned and accrued under this Agreement prior
to the effective date of the termination of employment (and reimbursement
for expenses incurred prior to the effective date of the termination of
employment as set forth in Section 3.7); (ii) the Executive shall be
entitled to retain only those Performance Shares which shall have vested on
or prior to the date of termination under this Section 5.1; (iii) all
vested and unvested options shall lapse and terminate immediately and may
no longer be exercised; (iv) all Performance Units shall terminate
immediately; and (v) the Executive shall have no further rights to any
other compensation or benefits hereunder on or after the termination of
employment, or any other rights hereunder.
(c) The Executive may terminate his employment upon written notice to
the Company which specifies an effective date of termination not less than
30 days from the date of such notice. If the Executive terminates his
employment and the termination is not covered by Section 4, 5.2, or 5.3,
(i) the Executive shall receive Annual Salary and other benefits (including
bonuses awarded or declared but not yet paid) earned and accrued under this
Agreement prior to the effective date of the termination of employment (and
reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7); (ii) all fully
vested and exercisable options granted under Section 3.4 hereof and held by
the Executive may be exercised by the Executive for a period of 30 days
from and after the date of the Executive's effective date of termination;
(iii) all Performance Units and Performance Shares shall lapse and
terminate immediately; and (iv) the Executive shall have no further rights
to any compensation or other benefits hereunder on or after the termination
of employment, or any other rights hereunder.
5.2 Termination Without Cause; Termination for Good Reason. (a) For
purposes of this Agreement, "Good Reason" shall mean the existence of any
one or more of the following conditions that shall continue for more than
45 days following written notice thereof by the Executive to the Company:
(i)
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the material reduction of the Executive's authority, duties and
responsibilities, or the assignment to the Executive of duties materially
inconsistent with the Executive's position or positions with the Company;
or (ii) the Company's material and continuing breach of this Agreement.
(b) The Company may terminate the Executive's employment at any time
for any reason whatsoever. If the Company terminates the Executive's
employment and the termination is not covered by Section 4, 5.1 or 5.3
hereof, , (i) the Executive shall receive Annual Salary and other benefits
(including bonuses awarded but not yet paid) earned and accrued under this
Agreement prior to the effective date of the termination of employment (and
reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7); (ii) the Executive
shall receive (A) for the longer of (x) two (2) years after termination of
employment or (y) the period of time remaining under the Term, the Annual
Salary that the Executive was receiving at the time of such termination of
employment, payable in accordance with Section 3.1 hereof, and (B) for a
period of two (2) years after termination of employment, such continuing
coverage under the benefit plans and programs the Executive would have
received under Section 3.2 hereof as would have applied in the absence of
such termination, it being expressly understood and agreed that nothing in
this clause (ii) shall restrict the ability of the Company to amend or
terminate such benefits plans and programs from time to time in its sole
and absolute discretion; provided, however, that the Company shall in no
event be required to provide any coverage contemplated by Section 3.2
hereof after such time as the Executive becomes entitled to coverage under
the benefit plans and programs of another employer or recipient of the
Executive's services (and provided, further, that such entitlement shall be
determined without regard to any individual waivers or other arrangements);
(iii) all outstanding unvested Options granted under Section 3.4 hereof and
held by the Executive shall vest and become immediately exercisable and
shall otherwise be exercisable in accordance with their terms and the
Executive shall become vested in any pension or other deferred compensation
other than pension or deferred compensation under a plan intended to be
qualified under Section 401(a) or 403(a) of the Internal Revenue Code of
1986, as amended; (iv) that portion of the Performance Units granted under
Section 3.3(b) hereof to which the Executive would have been entitled to
receive in accordance with the Bonus Program, as measured on the date of
the Executive's termination of employment shall vest and
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become immediately payable at any time and from time to time from and after
the termination date at the then applicable target rate set forth in the
Bonus Program; and (v) that portion of the Performance Shares granted under
Section 3.3(c) hereof to which the Executive would have been entitled to
receive in accordance with the Bonus Program as at the end of the fiscal
year immediately following the termination of the Executive's employment
shall vest and become immediately transferable free of any restrictions on
transferability of the Performance Shares (other than restrictions on
transfer imposed under Federal and state securities laws) by the Executive
and all other restrictions imposed thereon shall cease, other than those
restrictions, limitations and/or obligations contained in the Bonus Program
that expressly survive the termination of the Executive's employment with
the Company; and (vi) the Executive shall have no further rights to any
other compensation or benefits hereunder on or after the termination of
employment, or any other rights hereunder.
(c) The Executive may terminate the Executive's employment with the
Company for "Good Reason". If the Executive terminates his employment for
Good Reason and such termination is not covered by Section 5.3 hereof, (i)
the Executive shall receive Annual Salary and other benefits (including
bonuses awarded but not yet paid) earned and accrued under this Agreement
prior to the effective date of the termination of employment (and
reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7); (ii) the Executive
shall receive for a period of two (2) years after termination of employment
(A) the Annual Salary that the Executive was receiving at the time of such
termination of employment, payable in accordance with Section 3.1 hereof,
and (B) such continuing coverage under the benefit plans and programs the
Executive would have received under Section 3.2 hereof as would have
applied in the absence of such termination, it being expressly understood
and agreed that nothing in this clause (ii) shall restrict the ability of
the Company to amend or terminate such benefits plans and programs from
time to time in its sole and absolute discretion; provided, however, that
the Company shall in no event be required to provide any coverage
contemplated by Section 3.2 hereof after such time as the Executive becomes
entitled to coverage under the benefit plans and programs of another
employer or recipient of the Executive's services (and provided, further,
that such entitlement shall be determined without regard to any individual
waivers or other arrangements); (iii) all
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outstanding unvested Options granted under Section 3.4 hereof and held by
the Executive shall vest and become immediately exercisable and shall
otherwise be exercisable in accordance with their terms and the Executive
shall become vested in any pension or other deferred compensation other
than pension or deferred compensation under a plan intended to be qualified
under Section 401(a) or 403(a) of the Internal Revenue Code of 1986, as
amended; (iv) all Performance Units granted under Section 3.3(b) hereof and
held by the Executive shall vest and become immediately payable at any time
and from time to time from and after the termination date at the maximum
target rate set forth in the Bonus Program; and (v) all Performance Shares
granted under Section 3.3(c) hereof and held by the Executive shall vest
and become immediately transferable free of any restrictions on
transferability of the Performance Shares (other than restrictions on
transfer imposed under Federal and state securities laws) by the Executive
and all other restrictions imposed thereon shall cease, other than those
restrictions, limitations and/or obligations contained in the Bonus Program
that expressly survive the termination of the Executive's employment with
the Company; and (vi) the Executive shall have no further rights to any
other compensation or benefits hereunder on or after the termination of
employment, or any other rights hereunder.
5.3 Certain Terminations after Change of Control. (a) For purposes of
this Agreement, "Change of Control" means the occurrence of one 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") other than the Executive, 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
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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 Rights Agreement,
dated November 24, 1998, between the Company and American Stock Transfer &
Trust Company, as Rights Agent.
(b) If within the one (1) year period commencing upon any Change of
Control, the Executive is terminated by the Company or a successor entity
and the termination is not covered by Section 4 or 5. 1, or, within such
one (1) year period, the Executive elects to terminate his employment after
the Company or a successor entity materially reduces the Executive's
authority, duties and responsibilities, or assigns the Executive duties
materially inconsistent with the Executive's position or positions with the
Company or a successor entity immediately prior to such Change of Control,
(I) the Executive shall receive Annual Salary and other benefits (including
bonuses awarded or declared but not yet paid) earned and accrued under this
Agreement prior to the effective date of the termination of employment (and
reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7); (ii) the Executive
shall receive (A) for the longer of (x) three (3) years after termination
of employment; or (y) the period of time remaining under the Term, the
Annual Salary that the Executive was receiving at the time of such
termination of employment, payable in accordance with Section 3.1 hereof,
and (B) such continuing coverage under the benefit plans and programs the
Executive would have received under Sections 3.2 of this Agreement as would
have
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applied in the absence of such termination; it being expressly understood
and agreed that nothing in this clause (ii) shall restrict the ability of
the Company to amend or terminate such plans and programs from time to time
in its sole and absolute discretion; provided, however, that the Company
shall in no event be required to provide any coverage under Section 3.2
hereof after such time as the Executive becomes entitled to coverage under
the benefit plans and programs of another employer or recipient of the
Executive's services (and provided, further, that such entitlement shall be
determined without regard to any individual waivers or other arrangements);
(ill) all outstanding unvested Options granted under Section 3.4 hereof and
held by the Executive shall vest and become immediately exercisable and
shall otherwise be exercisable in accordance with their terms and the
Executive shall become vested in any pension or other deferred compensation
other than pension or deferred compensation under a plan intended to be
qualified under Section 401(a) or 403(a) of the Internal Revenue Code of
1986, as amended; (iv) all Performance Units granted under Section 3.3(b)
hereof and held by the Executive shall vest and become immediately payable
at any time and from time to time from and after the termination date, at
the maximum target rate set forth in the Bonus Program; (v) all Performance
Shares granted under Section 3.3 (c) hereof and held by the Executive shall
vest and become immediately transferable free of any restrictions on
transferability of the Performance Shares (other than restrictions on
transfer imposed under Federal and state securities laws) by the Executive
and all other restrictions imposed thereon shall cease other than those
restrictions, limitations and/or obligations contained in the Bonus Program
that expressly survive the termination of the Executive's employment with
the Company or any successor entity, as the case may be; and (vi) the
Executive shall have no further rights to any other compensation or
benefits hereunder on or after the termination of employment or any other
rights hereunder.
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6. Covenants of the Executive.
6.1 Covenant Against Competition, Other Covenants. The Executive
acknowledges that (i) the principal business of the Company (which, for
purposes of this Section 6 shall include the Company and each of its
subsidiaries and affiliates) is the provision of a broad range of services
designed to promote the cost-effective delivery of pharmacy benefits,
including pharmacy benefit management services, claims processing and/or
the purchasing of pharmaceutical products on behalf of pharmacy networks
and long term care facilities (including assisted living facilities and
nursing homes) (such business, and any and all other businesses that after
the date hereof, and from time to time during the Term, become material
with respect to the Company's then-overall business, herein being
collectively refereed to as the "Business'); (ii) the Company is dependent
on the efforts of a certain limited number of persons who have developed,
or will be responsible for developing the Company's Business, (iii) the
Company's Business is national in scope; (iv) the Executive's work for the
Company has given and will continue to give him access to confidential
affairs and proprietary information of the Company; (v) the covenants and
agreements of the Executive contained in this Section 6 are essential to
the business and goodwill of the Company; and (vi) the Company would not
have entered into do Agreement but for the covenants and agreements set
forth in this Section 6. Accordingly, the Executive covenants and agrees
that:
(a) At any time during his employment with the Company and ending
one (1) year following (i) termination of the Executive's employment
with the Company (irrespective of the reason for such termination) or
(ii) payment of any Annual Salary in accordance with Section 4 or 5
hereof (unless such termination is by the Company without Cause),
whichever occurs last, the Executive shall not engage, directly or
indirectly (which includes, without limitation owning, managing
operating, controlling, being employed by, giving financial assistance
to, participating in or being connected in any material way with any
person or entity other than the Company), anywhere in the United
States in (A) the Business or (B) any material component of the
Business; provided, however, that the Executive's ownership as a
passive investor of less than two percent (2%) of the issued and
outstanding stock of a publicly held corporation shall not be deemed
to constitute competition.
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(b) During and after the period during which the Executive is
employed, the Executive shall keep secret and retain in strictest
confidence, and shall not use for his benefit or the benefit of
others, except in connection with the business and affairs of the
Company, all confidential matters relating to the Company and/or the
Company's Business, learned by the Executive heretofore or hereafter
directly or indirectly from the Company (the "Confidential Company
Information"), including, without limitation, information with respect
to (i) the strategic plans, budgets, forecasts, intended expansion of
product, service or geographic markets of the company and it's
affiliates, (ii) sales figures, contracts agreements, and undertakings
with or with respect to the Company's customers or prospective
customers, (iii) profit or loss figures, and (iv) then existing or
then prospective customers, clients, suppliers and sources of supply
and customer lists, and shall not disclose such Confidential Company
Information to anyone outside of the Company except with the Company's
express written consent and except for Confidential Company
Information which is at the time of receipt or thereafter becomes
publicly known through no wrongful act of the Executive or is received
from a third party not under an obligation to keep such information
confidential and without breach of this Agreement. Notwithstanding the
foregoing, this Section 6.1(b) shall not apply to the extent that the
Executive is acting to the extent necessary to comply with legal
process; provided that in the event that the Executive is subpoenaed
to testify or to produce any information or documents before any
court, administrative agency or other tribunal relating to any aspect
pertaining to the Company, he shall immediately notify the Company
thereof.
(c) During the period commencing on the date hereof and ending
two (2) years following the later to occur of dates upon which the
Executive shall cease to be an (i) employee or (ii) an "affiliate", as
defined in Rule 144 promulgated under the Securities Act of 1993, and
the rules and regulations promulgated thereunder (as amended, the
"1993 Act"), of the Company, the Executive shall not, without the
Company's prior written consent, directly or indirectly, solicit or
encourage to leave the employment or other service of the Company any
employee or independent contractor thereof or hire (on behalf of the
Executive or any other person, firm, corporation or entity) any
employee or independent contractor who has left the employment or
other service of the Company within one (1)
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year of the termination of such employee's or independent contractor's
employment or other service with the Company. During such a one (1)
year period, the Executive will not, whether for his own account or
for the account of any other person, firm, corporation or other
entity, intentionally interfere with the Company's relationship with,
or endeavor to entice away from the Company any person who during the
Term is or was a customer or client of the Company.
(d) All memoranda, notes, lists, records, property and any other
tangible product and documents (and all copies thereof) made, produced
or compiled by the Executive or made available to the Executive
concerning the Business of the Company, including all Confidential
Company Information, shall be the Company's property and shall be
delivered to the Company at any time on request.
6.2 Rights and Remedies upon Breach. (a) The Executive acknowledges
and agrees that any breach by him of any of the provisions of Section 6.1
hereof (the "Restrictive Covenants") would result in irreparable injury and
damage for which money damages would not provide an adequate remedy.
Therefore, if the Executive breaches or threatens to commit a breach of any
of the provisions of Section 6. 1 hereof, the Company shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the other and severally enforceable, and all of which rights
and remedies shall be in addition to , and not in lieu of, any other rights
and remedies available to the Company under law or in equity (including,
without limitation, the recovery of damages):
(i) The right and remedy to have the Restrictive Covenants
specifically enforced (without posting bond and without the need to
prove damages) by any court having equity jurisdiction, including,
without limitation, the right to an entry against the Executive of
restraining orders and injunctions (preliminary, mandatory, temporary
and permanent) against violations, threatened or actual, and whether
or not then continuing, of such covenants.
(ii) The right and remedy to require the Executive to account for
and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits
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<PAGE>
(collectively, "Benefits") derived or received by him as the result of
any transactions constituting a breach of the Restrictive Covenants,
and the Executive shall account for and pay over such Benefits to the
Company and, if applicable, its affected subsidiaries and/or
affiliates.
(b) The Executive agrees that in any action seeking specific
performance or other equitable relief, he will not assert or contend that
any of the provisions of this Section 6 are unreasonable or otherwise
unenforceable. The existence of any claim or cause of action by the
Executive, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement of the Restrictive Covenants.
7. Other Provisions.
7.1 Severabilitv. The Executive acknowledges and agrees that (i) he
has had an opportunity to seek advice of counsel in connection with this
Agreement and (ii) the Restrictive Covenants are reasonable in geographical
and temporal scope and in all other respects. If it is determined that any
of the provisions of this Agreement, including, without limitation, any of
the Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the provisions of this Agreement shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions thereof.
7.2 Duration and Scope of Covenants. If any court or other
decision-maker of competent jurisdiction determines that any of Executive's
covenants contained in this Agreement, including, without limitation, any
of the Restrictive Covenants, or any part thereof, is unenforceable because
of the duration or geographical scope of such provision, then, after such
determination has become final and unappealable, the duration or scope of
such provision, as the case may be, shall be reduced so that such provision
becomes enforceable and, in its reduced form, such provision shall then be
enforceable and shall be enforced.
7.3 Enforceability; Jurisdictions. Any controversy or claim arising
out of or relating to this Agreement or the breach of this Agreement that
is not resolved by Executive and the Company (or its subsidiaries or
affiliates, where applicable), other than those arising under Section 6
thereof, to the extent necessary for the Company (or its subsidiaries or
affiliates, where applicable) to
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<PAGE>
avail itself of the rights and remedies provided under Section 6.2 hereof,
shall be submitted to arbitration in New York, New York in accordance with
New York law and the procedures of the American Arbitration Association.
The determination of the arbitrator(s) shall be conclusive and binding on
the Company (or its subsidiaries or affiliates, where applicable) and
Executive and judgment may be entered on the arbitrator(s)' award in any
court having jurisdiction.
7.4 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be
deemed given when so delivered personally, telegraphed, telexed or sent by
facsimile transmission or, if mailed, five days after the date of deposit
in the United States mails as follows:
(i) If to the Company, to:
MIM Corporation
100 Clearbrook Road
Elmsford, New York 10523
Attention: General Counsel
with a copy to:
Rogers & Wells
200 Park Avenue - Suite 5200
New York, New York 10166-0153
Attention: Richard A. Cirillo
(ii) If to the Executive, to:
Richard H. Friedman
2 Palmer Place
Armonk, NY 10504
Any such person may by notice given in accordance with this Section
7.4 to the other parties hereto designate another address or person
for receipt by such person of notices hereunder.
7.5 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
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7.6 Waivers and Amendments. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by
a written instrument signed by the parties or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any such
right, power or privilege nor any single or partial exercise of any such
right, power or privilege, preclude any other or further exercise thereof
or the exercise of any other such right, power or privilege.
7.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPALS OF CONFLICTS OF LAW.
7.8 Assignment. This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive; any purported
assignment by the Executive in violation hereof shall be null and void. In
the event of any sale, transfer or other disposition of all or
substantially all of the Company's assets or business, whether by merger,
consolidation or otherwise, the Company (without limiting the Executive's
rights under Section 5.3) may assign this Agreement and its rights
hereunder.
7.9 Withholding. The Company shall be entitled to withhold from any
payments or deemed payments any amount of tax withholding required by law.
7.10 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors, permitted
assigns, heirs, executors and legal representatives.
7.11 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and
delivered shall be an original but all such counterparts together shall
constitute one and the same instrument. Each counterpart may consist of two
copies hereof each signed by one of the parties hereto.
7.12 Survival. Anything contained in this Agreement to the contrary
not withstanding, the provisions of Sections 5, 6, 7.3 and 7.9, and the
other provisions of this Section 7 (to
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the extent necessary to effectuate the survival of Sections 5, 6, 7.3 and
7.9), shall survive termination of this Agreement and any termination of
the Executive's employment hereunder.
7.13 Existing Agreements. Executive represents to the Company that he
is not subject or a party to any employment or consulting agreement,
non-competition covenant or other agreement, covenant or understanding
which might prohibit him from executing this Agreement or limit his ability
to fulfill his responsibilities hereunder.
7.14 Headings. The headings in this Agreement are for reference only
and shall not affect the interpretation of this Agreement.
7.15 Supercedes Prior Agreements. Upon execution and delivery of this
Agreement, this Agreement shall supercede in its entirety any and all prior
agreements with respect to the Executive's employment.
IN WITNESS WHEREOF, the parties hereto have signed their names as of the
day and year first above written.
MIM CORPORATION
By:
- - ------------------------------
Barry A. Posner
Vice President & General Counsel
- - ------------------------------
Richard H. Friedman
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated as of March 1, 1999, by and
between MIM Corporation, a Delaware corporation, with its principal place of
business at 100 Clearbrook Road, Elmsford, New York 10523 (hereinafter referred
to as the "Company"), and Barry A. Posner, residing at 105 West 73rd Street,
Apt. 6C, New York, New York 10023 (hereinafter referred to as the "Executive").
WHEREAS, the Company wishes to offer employment to the Executive, and the
Executive wishes to accept such offer, on the terms and provisions set forth
below; Accordingly, the parties hereto agree as follows:
1. Term. The Company hereby employs the Executive, and the Executive hereby
accepts such employment, commencing as of March 1, 1999 and ending February 28,
2004, as Vice President and General Counsel of the Company unless sooner
terminated in accordance with the provisions of Section 4 or Section 5 (the
period during which the Executive is employed hereunder, including any
extensions or renewals thereof, being hereinafter referred to as the "Term").
2. Duties. The Executive, in his capacity as Vice President and General
Counsel, shall faithfully perform for the Company the duties of said office and
position and such other duties of an executive, managerial, or administrative
nature as shall be specified and designated from time to time by the Board. The
Executive shall devote all of his business time and effort to the performance of
his duties hereunder.
3. Compensation.
3.1 Salary. The Company shall pay the Executive during the Term an
initial base salary at the rate of $230,000 per annum (the "Annual
Salary"), in accordance with the customary payroll practices of the Company
applicable to senior executives, in installments not less frequently than
monthly.
<PAGE>
3.2 Benefits - In General. The Executive shall be permitted during the
Term to participate in any group life, hospitalization or disability
insurance plans, health programs, pension and profit sharing plans, salary
reviews, and similar benefits (other than bonuses and stock options or
other equity-based compensation, which are provided for under Section 3.3
and 3.4 hereof, or severance, displacement or other similar benefits) which
are of a type available from time to time to other senior executives of the
Company generally, in each case to the extent that the Executive is
eligible under the terms of such plans or programs.
3.3 Specific Benefits. (a) During the Term, the Executive shall be
entitled to receive a bonus each calendar year, payable in cash in
accordance with, and subject to the terms and conditions of the Annual
Bonus Compensation Section of the Company's 1998 Senior Executive Bonus
Program (the "Bonus Program"), a copy of which is attached hereto as
Exhibit A. Such Annual Bonus Compensation shall be determined in accordance
with the terms and provisions of the Bonus Program and shall be payable
within ten (10) days of the completion of the audited financial results of
the Company.
(b) During the Term, the Executive shall be entitled to participate in
the Company's 1998 Senior Executive Bonus Program (the "Bonus Program"), at
the participation levels set forth in Exhibit B attached hereto, and at
such additional participation levels as may be determined from time to time
by the Chief Executive Officer of the Company or the Company's Board of
Directors or any committee thereof.
3.4 Grant of Option. Upon execution and delivery of this Agreement,
the Executive shall be granted and shall receive options ("Options") to
purchase 100,000 shares of the common stock, par value $0.0001 per share,
of the Company ("Common Stock"), at a price per share equal to $4.50 per
share, being the closing sales price per share of the Common Stock on the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") on December 2, 1998, the date on which the Company's
Compensation Committee granted the Executive these Options and the
compensation contemplated hereby. 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
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<PAGE>
the Code shall not be qualified as ISO's. Subject to Sections 3.8, 4 and 5
hereof and the applicable stock option award agreement (i) 33,333 of such
Options shall vest and become exercisable on each of the first and second
anniversaries of the date thereof, and (ii) the remaining 33,334 Options
shall vest and become exercisable, on the third anniversary of the date
hereof. The Options shall be subject to the terms of a definitive stock
option agreement to be provided by the Company.
3.5 Vacation. The Executive shall be entitled to vacation of 20
business days per year from and after the date hereof, to be accrued and
available in accordance with the policies applicable to senior executives
of the Company generally.
3.6 Automobile. During the Term, the Company will provide the
Executive a monthly allowance of $1,000 for the use of an automobile.
3.7 Expenses. The Company shall pay or reimburse the Executive
ordinary and reasonable out-of-pocket expenses actually incurred (and, in
the case of reimbursement, paid) by the Executive during the Term in the
performance of the Executive's services under this Agreement, including,
but not limited to, business related travel and/or entertainment expenses;
provided, that the Executive submits proof of such expenses, with the
properly completed forms and supporting receipts and other documentation as
prescribed from time to time by the Company, in accordance with the
policies applicable to senior executives of the Company generally.
4. Termination upon Death or Disability.
4.1 Termination upon Death. If the Executive dies during the Term, the
obligations of the Company to or with respect to the Executive shall
terminate in their entirety except as otherwise provide under this Section
4. Upon death, (i) the Executive's estate or beneficiaries shall be
entitled to receive any Annual Salary and other benefits (including bonuses
awarded or declared but not yet paid) earned and accrued under Sections 3.1
and 3.2 of this Agreement prior to the date of termination and
reimbursement for expenses incurred prior to the date of termination as set
forth in Section 3.7 hereof; (ii) all fully vested and exercisable Options
granted under Section 3.4 hereof and
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<PAGE>
held by the Executive may be exercised by his estate for a period of one
(1) year from and after the date of the Executive's death; (iii) all
Performance Units granted to the Executive under Section 3.3(b) hereof
shall vest at the accrued value (if any) under the Bonus Program measured
at the end of the fiscal year immediately following the Executive's death;
(iv) that portion of the Performance Shares granted to the Executive under
Section 3.3(c) hereof to which the Executive would have been entitled to
receive in accordance with the Bonus Program, as measured at the end of the
fiscal year immediately following the Executive's death shall vest in favor
of the Executive's estate; and (v) the Executive's estate and beneficiaries
shall have no further rights to any other compensation or benefits
hereunder on or after the termination of employment, or any other rights
hereunder. Notwithstanding anything to the contrary contained in this
Section 4.1, it is expressly understood and agreed that nothing in the
foregoing clause (v) shall restrict the ability of the Company to amend or
terminate such benefits plans and programs from time to time in its sole
and absolute discretion; provided, however, that the Company shall in no
event be required to provide any coverage contemplated by Section 3.2
hereof after such time as the Executive becomes entitled to coverage under
the benefit plans and programs of another employer or recipient of the
Executive's services (and provided, further, that such entitlement shall be
determined without regard to any individual waivers or other arrangements).
4.2 Termination upon Disability. If the Executive by virtue of ill
health or other disability is unable to perform substantially and
continuously the duties assigned to him for more than 180 consecutive or
non-consecutive calendar days out of any consecutive twelve-month period,
the Company shall have the right, to the extent permitted by law, to
terminate the employment of the Executive upon notice in writing to the
Executive; provided that the Company will have no right to terminate the
Executive's employment if, in the opinion of a qualified physician
reasonably acceptable to the Company, it is reasonably certain that the
Executive will be able to resume the Executive's duties on a regular
full-time basis within 30 days of the date the Executive receives notice of
such termination. Upon termination of employment by virtue of disability,
(i) the Executive shall receive Annual Salary and other benefits (including
Bonuses awarded but not yet paid) earned and accrued under Section 3.2, of
this Agreement prior to the effective date of the termination of employment
and reimbursement for
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expenses incurred prior to the effective date of the termination of
employment as set forth in Section 3.7 hereof; (ii) all fully vested and
exercisable Options granted under Section 3.4 hereof and held by the
Executive may be exercised by the Executive or his estate or beneficiaries
for a period of one (1) year from and after the date of the Executive's
disability; (iii) all Performance Units granted to the Executive under
Section 3.3 (b) hereof shall vest at the accrued value (if any) under the
Bonus Program measured at the end of the fiscal year immediately following
the Executive's termination of employment; (iv) that portion of the
Performance Shares granted to the Executive under Section 3.3(c) hereof to
which the Executive would have been entitled to receive in accordance with
the Bonus Program, as measured at the end of the fiscal year immediately
following the Executive's termination of employment shall vest in favor of
the Executive; and (v) if the Executive's disabilities shall continue for a
period of six (6) months after his termination under this Section 4.2, the
Executive shall receive for a period for two (2) years after termination of
employment (A) the Annual Salary that the Executive was receiving at the
time of such termination of employment, less the gross proceeds paid to the
Executive on account of Social Security or other similar benefits and
Company provided long-term disability insurance, payable in accordance with
Section 3.1 hereof; and (B) such continuing coverage under the benefit
plans and programs the Executive would have received under Section 3.2
hereof as would have applied in the absence of such termination; it being
expressly understood and agreed that nothing in this clause (v) shall
restrict the ability of the Company to amend or terminate such benefits
plans and programs from time to time in its sole and absolute discretion;
provided, however, that the Company shall in no event be required to
provide any coverage contemplated in Section 3.2 hereof after such time as
the Executive becomes entitled to coverage under the benefit plans and
programs of another employer or recipient of the Executive's services (and
provided, further, that such entitlement shall be determined without regard
to any individual waivers or other arrangements); and (vi) the Executive
shall have no further rights to any other compensation or benefits
hereunder on or after the termination of employment, or any other rights
hereunder.
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5. Certain Terminations of Employment
5.1 Termination for "Cause"; Termination of Employment by the
Executive Without Good Reason. (a) For purposes of this Agreement, "Cause"
shall mean (i) the Executive's conviction of a felony or a crime of moral
turpitude; or (ii) the Executive's commission of unauthorized acts intended
to result in the Executive's personal enrichment at the material expense of
the Company; or (iii) the Executive's material violation of the Executive's
duties or responsibilities to the Company which constitute willful
misconduct or dereliction of duty, or the material breach of the covenants
contained in Section 6 hereof; or (iv) the Executive's other material
breach of this Agreement which breach shall have continued unremedied for
ten (10) days after written notice by the Company to the Executive
specifying such breach.
(b) The Company may terminate the Executive's employment hereunder for
Cause. If the Company terminates the Executive for Cause, (i) the Executive
shall receive Annual Salary and other benefits (including bonuses awarded
or declared but not yet paid) earned and accrued under this Agreement prior
to the effective date of the termination of employment (and reimbursement
for expenses incurred prior to the effective date of the termination of
employment as set forth in Section 3.7); (ii) the Executive shall be
entitled to retain only those Performance Shares which shall have vested on
or prior to the date of termination under this Section 5.1; (iii) all
vested and unvested options shall lapse and terminate immediately and may
no longer be exercised; (iv) all Performance Units shall terminate
immediately; and (v) the Executive shall have no further rights to any
other compensation or benefits hereunder on or after the termination of
employment, or any other rights hereunder.
(c) The Executive may terminate his employment upon written notice to
the Company which specifies an effective date of termination not less than
30 days from the date of such notice. If the Executive terminates his
employment and the termination is not covered by Section 4, 5.2, or 5.3,
(i) the Executive shall receive Annual Salary and other benefits (including
bonuses awarded or declared but not yet paid) earned and accrued under this
Agreement prior to the effective date of the termination of employment (and
reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7); (ii) all fully
vested and exercisable options granted under Section 3.4 hereof and held by
the Executive may be exercised by the Executive for a period of 30 days
from and after the date of the Executive's effective date of termination;
(iii) all Performance Units
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and Performance Shares shall lapse and terminate immediately; and (iv) the
Executive shall have no further rights to any compensation or other
benefits hereunder on or after the termination of employment, or any other
rights hereunder.
5.2 Termination Without Cause; Termination for Good Reason. (a) For
purposes of this Agreement, "Good Reason" shall mean the existence of any
one or more of the following conditions that shall continue for more than
45 days following written notice thereof by the Executive to the Company:
(i) the material reduction of the Executive's authority, duties and
responsibilities, or the assignment to the Executive of duties materially
inconsistent with the Executive's position or positions with the Company;
or (ii) the Company's material and continuing breach of this Agreement.
(b) The Company may terminate the Executive's employment at any time
for any reason whatsoever. If the Company terminates the Executive's
employment and the termination is not covered by Section 4, 5.1 or 5.3
hereof, , (i) the Executive shall receive Annual Salary and other benefits
(including bonuses awarded but not yet paid) earned and accrued under this
Agreement prior to the effective date of the termination of employment (and
reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7); (ii) the Executive
shall receive (A) for the longer of (x) two (2) years after termination of
employment or (y) the period of time remaining under the Term, the Annual
Salary that the Executive was receiving at the time of such termination of
employment, payable in accordance with Section 3.1 hereof, and (B) for a
period of two (2) years after termination of employment, such continuing
coverage under the benefit plans and programs the Executive would have
received under Section 3.2 hereof as would have applied in the absence of
such termination, it being expressly understood and agreed that nothing in
this clause (ii) shall restrict the ability of the Company to amend or
terminate such benefits plans and programs from time to time in its sole
and absolute discretion; provided, however, that the Company shall in no
event be required to provide any coverage contemplated by Section 3.2
hereof after such time as the Executive becomes entitled to coverage under
the benefit plans and programs of another employer or recipient of the
Executive's services (and provided, further, that such entitlement shall be
determined without regard to any individual waivers or other arrangements);
(iii) all outstanding unvested Options granted under Section 3.4 hereof and
held by the
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Executive shall vest and become immediately exercisable and shall otherwise
be exercisable in accordance with their terms and the Executive shall
become vested in any pension or other deferred compensation other than
pension or deferred compensation under a plan intended to be qualified
under Section 401(a) or 403(a) of the Internal Revenue Code of 1986, as
amended; (iv) that portion of the Performance Units granted under Section
3.3(b) hereof to which the Executive would have been entitled to receive in
accordance with the Bonus Program, as measured on the date of the
Executive's termination of employment shall vest and become immediately
payable at any time and from time to time from and after the termination
date at the then applicable target rate set forth in the Bonus Program; and
(v) that portion of the Performance Shares granted under Section 3.3(c)
hereof to which the Executive would have been entitled to receive in
accordance with the Bonus Program as at the end of the fiscal year
immediately following the termination of the Executive's employment shall
vest and become immediately transferable free of any restrictions on
transferability of the Performance Shares (other than restrictions on
transfer imposed under Federal and state securities laws) by the Executive
and all other restrictions imposed thereon shall cease, other than those
restrictions, limitations and/or obligations contained in the Bonus Program
that expressly survive the termination of the Executive's employment with
the Company; and (vi) the Executive shall have no further rights to any
other compensation or benefits hereunder on or after the termination of
employment, or any other rights hereunder.
(c) The Executive may terminate the Executive's employment with the
Company for "Good Reason". If the Executive terminates his employment for
Good Reason and such termination is not covered by Section 5.3 hereof, (i)
the Executive shall receive Annual Salary and other benefits (including
bonuses awarded but not yet paid) earned and accrued under this Agreement
prior to the effective date of the termination of employment (and
reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7); (ii) the Executive
shall receive for a period of two (2) years after termination of employment
(A) the Annual Salary that the Executive was receiving at the time of such
termination of employment, payable in accordance with Section 3.1 hereof,
and (B) such continuing coverage under the benefit plans and programs the
Executive would have received under Section 3.2 hereof as would have
applied in the absence of such termination, it being expressly
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understood and agreed that nothing in this clause (ii) shall restrict the
ability of the Company to amend or terminate such benefits plans and
programs from time to time in its sole and absolute discretion; provided,
however, that the Company shall in no event be required to provide any
coverage contemplated by Section 3.2 hereof after such time as the
Executive becomes entitled to coverage under the benefit plans and programs
of another employer or recipient of the Executive's services (and provided,
further, that such entitlement shall be determined without regard to any
individual waivers or other arrangements); (iii) all outstanding unvested
Options granted under Section 3.4 hereof and held by the Executive shall
vest and become immediately exercisable and shall otherwise be exercisable
in accordance with their terms and the Executive shall become vested in any
pension or other deferred compensation other than pension or deferred
compensation under a plan intended to be qualified under Section 401(a) or
403(a) of the Internal Revenue Code of 1986, as amended; (iv) all
Performance Units granted under Section 3.3(b) hereof and held by the
Executive shall vest and become immediately payable at any time and from
time to time from and after the termination date at the maximum target rate
set forth in the Bonus Program; and (v) all Performance Shares granted
under Section 3.3(c) hereof and held by the Executive shall vest and become
immediately transferable free of any restrictions on transferability of the
Performance Shares (other than restrictions on transfer imposed under
Federal and state securities laws) by the Executive and all other
restrictions imposed thereon shall cease, other than those restrictions,
limitations and/or obligations contained in the Bonus Program that
expressly survive the termination of the Executive's employment with the
Company; and (vi) the Executive shall have no further rights to any other
compensation or benefits hereunder on or after the termination of
employment, or any other rights hereunder.
5.3 Certain Terminations after Change of Control. (a) For purposes of
this Agreement, "Change of Control" means the occurrence of one 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-
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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 Rights Agreement,
dated November 24, 1998, between the Company and American Stock Transfer &
Trust Company, as Rights Agent.
(b) If within the one (1) year period commencing upon any Change of
Control, the Executive is terminated by the Company or a successor entity
and the termination is not covered by Section 4 or 5. 1, or, within such
one (1) year period, the Executive elects to terminate his employment after
the Company or a successor entity materially reduces the Executive's
authority, duties and responsibilities, or assigns the Executive duties
materially inconsistent with the Executive's position or positions with the
Company or a successor entity immediately prior to such Change of Control,
(I) the Executive shall receive Annual Salary and other benefits (including
bonuses awarded or declared but not yet paid) earned and accrued under this
Agreement prior to the effective date of the termination of
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employment (and reimbursement for expenses incurred prior to the effective
date of the termination of employment as set forth in Section 3.7); (ii)
the Executive shall receive (A) for the longer of (x) three (3) years after
termination of employment; or (y) the period of time remaining under the
Term, the Annual Salary that the Executive was receiving at the time of
such termination of employment, payable in accordance with Section 3.1
hereof, and (B) such continuing coverage under the benefit plans and
programs the Executive would have received under Sections 3.2 of this
Agreement as would have applied in the absence of such termination; it
being expressly understood and agreed that nothing in this clause (ii)
shall restrict the ability of the Company to amend or terminate such plans
and programs from time to time in its sole and absolute discretion;
provided, however, that the Company shall in no event be required to
provide any coverage under Section 3.2 hereof after such time as the
Executive becomes entitled to coverage under the benefit plans and programs
of another employer or recipient of the Executive's services (and provided,
further, that such entitlement shall be determined without regard to any
individual waivers or other arrangements); (ill) all outstanding unvested
Options granted under Section 3.4 hereof and held by the Executive shall
vest and become immediately exercisable and shall otherwise be exercisable
in accordance with their terms and the Executive shall become vested in any
pension or other deferred compensation other than pension or deferred
compensation under a plan intended to be qualified under Section 401(a) or
403(a) of the Internal Revenue Code of 1986, as amended; (iv) all
Performance Units granted under Section 3.3(b) hereof and held by the
Executive shall vest and become immediately payable at any time and from
time to time from and after the termination date, at the maximum target
rate set forth in the Bonus Program; (v) all Performance Shares granted
under Section 3.3 (c) hereof and held by the Executive shall vest and
become immediately transferable free of any restrictions on transferability
of the Performance Shares (other than restrictions on transfer imposed
under Federal and state securities laws) by the Executive and all other
restrictions imposed thereon shall cease other than those restrictions,
limitations and/or obligations contained in the Bonus Program that
expressly survive the termination of the Executive's employment with the
Company or any successor entity, as the case may be; and (vi) the Executive
shall have no further rights to any other
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compensation or benefits hereunder on or after the termination of
employment or any other rights hereunder.
6. Covenants of the Executive.
6.1 Covenant Against Competition, Other Covenants. The Executive
acknowledges that (i) the principal business of the Company (which, for
purposes of this Section 6 shall include the Company and each of its
subsidiaries and affiliates) is the provision of a broad range of services
designed to promote the cost-effective delivery of pharmacy benefits,
including pharmacy benefit management services, claims processing and/or
the purchasing of pharmaceutical products on behalf of pharmacy networks
and long term care facilities (including assisted living facilities and
nursing homes) (such business, and any and all other businesses that after
the date hereof, and from time to time during the Term, become material
with respect to the Company's then-overall business, herein being
collectively refereed to as the "Business'); (ii) the Company is dependent
on the efforts of a certain limited number of persons who have developed,
or will be responsible for developing the Company's Business, (iii) the
Company's Business is national in scope; (iv) the Executive's work for the
Company has given and will continue to give him access to confidential
affairs and proprietary information of the Company; (v) the covenants and
agreements of the Executive contained in this Section 6 are essential to
the business and goodwill of the Company; and (vi) the Company would not
have entered into do Agreement but for the covenants and agreements set
forth in this Section 6. Accordingly, the Executive covenants and agrees
that:
(a) At any time during his employment with the Company and ending
one (1) year following (i) termination of the Executive's employment
with the Company (irrespective of the reason for such termination) or
(ii) payment of any Annual Salary in accordance with Section 4 or 5
hereof (unless such termination is by the Company without Cause),
whichever occurs last, the Executive shall not engage, directly or
indirectly (which includes, without limitation owning, managing
operating, controlling, being employed by, giving financial assistance
to, participating in or being connected in any material way with any
person or entity other than the Company), anywhere in the United
States in (A) the Business or (B) any material component of the
Business; provided, however, that the Executive's
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ownership as a passive investor of less than two percent (2%) of the
issued and outstanding stock of a publicly held corporation shall not
be deemed to constitute competition.
(b) During and after the period during which the Executive is
employed, the Executive shall keep secret and retain in strictest
confidence, and shall not use for his benefit or the benefit of
others, except in connection with the business and affairs of the
Company, all confidential matters relating to the Company and/or the
Company's Business, learned by the Executive heretofore or hereafter
directly or indirectly from the Company (the "Confidential Company
Information"), including, without limitation, information with respect
to (i) the strategic plans, budgets, forecasts, intended expansion of
product, service or geographic markets of the company and it's
affiliates, (ii) sales figures, contracts agreements, and undertakings
with or with respect to the Company's customers or prospective
customers, (iii) profit or loss figures, and (iv) then existing or
then prospective customers, clients, suppliers and sources of supply
and customer lists, and shall not disclose such Confidential Company
Information to anyone outside of the Company except with the Company's
express written consent and except for Confidential Company
Information which is at the time of receipt or thereafter becomes
publicly known through no wrongful act of the Executive or is received
from a third party not under an obligation to keep such information
confidential and without breach of this Agreement. Notwithstanding the
foregoing, this Section 6.1(b) shall not apply to the extent that the
Executive is acting to the extent necessary to comply with legal
process; provided that in the event that the Executive is subpoenaed
to testify or to produce any information or documents before any
court, administrative agency or other tribunal relating to any aspect
pertaining to the Company, he shall immediately notify the Company
thereof.
(c) During the period commencing on the date hereof and ending
two (2) years following the later to occur of dates upon which the
Executive shall cease to be an (i) employee or (ii) an "affiliate", as
defined in Rule 144 promulgated under the Securities Act of 1993, and
the rules and regulations promulgated thereunder (as amended, the
"1993 Act"), of the Company, the Executive shall not, without the
Company's prior written consent, directly or indirectly, solicit or
encourage to leave the employment or other service of the Company any
employee or independent contractor thereof
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or hire (on behalf of the Executive or any other person, firm,
corporation or entity) any employee or independent contractor who has
left the employment or other service of the Company within one (1)
year of the termination of such employee's or independent contractor's
employment or other service with the Company. During such a one (1)
year period, the Executive will not, whether for his own account or
for the account of any other person, firm, corporation or other
entity, intentionally interfere with the Company's relationship with,
or endeavor to entice away from the Company any person who during the
Term is or was a customer or client of the Company.
(d) All memoranda, notes, lists, records, property and any other
tangible product and documents (and all copies thereof) made, produced
or compiled by the Executive or made available to the Executive
concerning the Business of the Company, including all Confidential
Company Information, shall be the Company's property and shall be
delivered to the Company at any time on request.
6.2 Rights and Remedies upon Breach . (a) The Executive acknowledges
and agrees that any breach by him of any of the provisions of Section 6.1
hereof (the "Restrictive Covenants") would result in irreparable injury and
damage for which money damages would not provide an adequate remedy.
Therefore, if the Executive breaches or threatens to commit a breach of any
of the provisions of Section 6. 1 hereof, the Company shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the other and severally enforceable, and all of which rights
and remedies shall be in addition to, and not in lieu of, any other rights
and remedies available to the Company under law or in equity (including,
without limitation, the recovery of damages):
(i) The right and remedy to have the Restrictive Covenants
specifically enforced (without posting bond and without the need to
prove damages) by any court having equity jurisdiction, including,
without limitation, the right to an entry against the Executive of
restraining orders and injunctions (preliminary, mandatory, temporary
and permanent) against violations, threatened or actual, and whether
or not then continuing, of such covenants.
(ii) The right and remedy to require the Executive to account for
and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits
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(collectively, "Benefits") derived or received by him as the result of
any transactions constituting a breach of the Restrictive Covenants,
and the Executive shall account for and pay over such Benefits to the
Company and, if applicable, its affected subsidiaries and/or
affiliates.
(b) The Executive agrees that in any action seeking specific
performance or other equitable relief, he will not assert or contend that
any of the provisions of this Section 6 are unreasonable or otherwise
unenforceable. The existence of any claim or cause of action by the
Executive, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement of the Restrictive Covenants.
7. Other Provisions.
7.1 Severabilitv. The Executive acknowledges and agrees that (i) he
has had an opportunity to seek advice of counsel in connection with this
Agreement and (ii) the Restrictive Covenants are reasonable in geographical
and temporal scope and in all other respects. If it is determined that any
of the provisions of this Agreement, including, without limitation, any of
the Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the provisions of this Agreement shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions thereof.
7.2 Duration and Scope of Covenants. If any court or other
decision-maker of competent jurisdiction determines that any of Executive's
covenants contained in this Agreement, including, without limitation, any
of the Restrictive Covenants, or any part thereof, is unenforceable because
of the duration or geographical scope of such provision, then, after such
determination has become final and unappealable, the duration or scope of
such provision, as the case may be, shall be reduced so that such provision
becomes enforceable and, in its reduced form, such provision shall then be
enforceable and shall be enforced.
7.3 Enforceability; Jurisdictions. Any controversy or claim arising
out of or relating to this Agreement or the breach of this Agreement that
is not resolved by Executive and the Company (or its subsidiaries or
affiliates, where applicable), other than those arising under Section 6
thereof, to the extent necessary for the Company (or its subsidiaries or
affiliates, where applicable) to
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avail itself of the rights and remedies provided under Section 6.2 hereof,
shall be submitted to arbitration in New York, New York in accordance with
New York law and the procedures of the American Arbitration Association.
The determination of the arbitrator(s) shall be conclusive and binding on
the Company (or its subsidiaries or affiliates, where applicable) and
Executive and judgment may be entered on the arbitrator(s)' award in any
court having jurisdiction.
7.4 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be
deemed given when so delivered personally, telegraphed, telexed or sent by
facsimile transmission or, if mailed, five days after the date of deposit
in the United States mails as follows:
(i) If to the Company, to:
MIM Corporation
100 Clearbrook Road
Elmsford, New York 10523
Attention: Assistant General Counsel
with a copy to:
Rogers & Wells
200 Park Avenue - Suite 5200
New York, New York 10166-0153
Attention: Richard A. Cirillo
(ii) If to the Executive, to:
Barry A. Posner
105 West 73rd Street, Apt. 6C
New York, NY 10023
Any such person may by notice given in accordance with this Section 7.4 to the
other parties hereto designate another address or person for receipt by such
person of notices hereunder.
7.5 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
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7.6 Waivers and Amendments. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by
a written instrument signed by the parties or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any such
right, power or privilege nor any single or partial exercise of any such
right, power or privilege, preclude any other or further exercise thereof
or the exercise of any other such right, power or privilege.
7.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPALS OF CONFLICTS OF LAW.
7.8 Assignment. This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive; any purported
assignment by the Executive in violation hereof shall be null and void. In
the event of any sale, transfer or other disposition of all or
substantially all of the Company's assets or business, whether by merger,
consolidation or otherwise, the Company (without limiting the Executive's
rights under Section 5.3) may assign this Agreement and its rights
hereunder.
7.9 Withholding. The Company shall be entitled to withhold from any
payments or deemed payments any amount of tax withholding required by law.
7.10 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors, permitted
assigns, heirs, executors and legal representatives.
7.11 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and
delivered shall be an original but all such counterparts together shall
constitute one and the same instrument. Each counterpart may consist of two
copies hereof each signed by one of the parties hereto.
7.12 Survival. Anything contained in this Agreement to the contrary
not withstanding, the provisions of Sections 5, 6, 7.3 and 7.9, and the
other provisions of this Section 7
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(to the extent necessary to effectuate the survival of Sections 5, 6, 7.3
and 7.9), shall survive termination of this Agreement and any termination
of the Executive's employment hereunder.
7.13 Existing Agreements. Executive represents to the Company that he
is not subject or a party to any employment or consulting agreement,
non-competition covenant or other agreement, covenant or understanding
which might prohibit him from executing this Agreement or limit his ability
to fulfill his responsibilities hereunder.
7.14 Headings. The headings in this Agreement are for reference only
and shall not affect the interpretation of this Agreement.
7.15 Supercedes Prior Agreements. Upon execution and delivery of this
Agreement, this Agreement shall supercede in its entirety any and all prior
agreements with respect to the Executive's employment.
IN WITNESS WHEREOF, the parties hereto have signed their names as of the
day and year first above written.
MIM CORPORATION
By:/S/ RICHARD H. FRIEDMAN
-----------------------
Richard H. Friedman /S/ BARRY A. POSNER
Chief Executive Officer ---------------------------
Barry A. Posner
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<PAGE>
Exhibit A
1998 Senior Executive Bonus Program
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<PAGE>
Exhibit B
Executive Bonus Grant
Annual Bonus Percentage Level: 24%-40%
Options to Purchase Common Stock,
Par value $0.0001 per share 100,000
(See Section 3.4)
Performance Units: 10,000 per year
Performance Shares: 20,000 per year
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated as of March 1, 1999, by and
between MIM Corporation, a Delaware corporation, with its principal place of
business at 100 Clearbrook Road, Elmsford, New York 10523 (hereinafter referred
to as the "Company"), and Edward J. Sitar, residing at 960 Glenwood Avenue,
Plainfield, New Jersey 07060 (hereinafter referred to as the "Executive").
WHEREAS, the Company wishes to offer employment to the Executive, and the
Executive wishes to accept such offer, on the terms and provisions set forth
below; Accordingly, the parties hereto agree as follows:
1. Term. The Company hereby employs the Executive, and the Executive hereby
accepts such employment, commencing as of March 1, 1999 and ending February 28,
2004, as Chief Financial Officer of the Company unless sooner terminated in
accordance with the provisions of Section 4 or Section 5 (the period during
which the Executive is employed hereunder, including any extensions or renewals
thereof, being hereinafter referred to as the "Term").
2. Duties. The Executive, in his capacity as Chief Financial Officer, shall
faithfully perform for the Company the duties of said office and position and
such other duties of an executive, managerial, or administrative nature as shall
be specified and designated from time to time by the Board. The Executive shall
devote all of his business time and effort to the performance of his duties
hereunder.
3. Compensation.
3.1 Salary. The Company shall pay the Executive during the Term an
initial base salary at the rate of $180,000 per annum (the "Annual
Salary"), in accordance with the customary payroll practices of the Company
applicable to senior executives, in installments not less frequently than
monthly.
3.2 Benefits - In General. The Executive shall be permitted during the
Term to participate in any group life, hospitalization or disability
insurance plans, health programs,
<PAGE>
pension and profit sharing plans, salary reviews, and similar benefits
(other than bonuses and stock options or other equity-based compensation,
which are provided for under Section 3.3 and 3.4 hereof, or severance,
displacement or other similar benefits) which are of a type available from
time to time to other senior executives of the Company generally, in each
case to the extent that the Executive is eligible under the terms of such
plans or programs.
3.3 Specific Benefits. (a) During the Term, the Executive shall be
entitled to receive a bonus each calendar year, payable in cash in
accordance with, and subject to the terms and conditions of the Annual
Bonus Compensation Section of the Company's 1998 Senior Executive Bonus
Program (the "Bonus Program"), a copy of which is attached hereto as
Exhibit A. Such Annual Bonus Compensation shall be determined in accordance
with the terms and provisions of the Bonus Program and shall be payable
within ten (10) days of the completion of the audited financial results of
the Company.
(b) During the Term, the Executive shall be entitled to participate in
the Company's 1998 Senior Executive Bonus Program (the "Bonus Program"), at
the participation levels set forth in Exhibit B attached hereto, and at
such additional participation levels as may be determined from time to time
by the Chief Executive Officer of the Company or the Company's Board of
Directors or any committee thereof.
3.4 Grant of Option. Upon execution and delivery of this Agreement,
the Executive shall be granted and shall receive options ("Options") to
purchase 50,000 shares of the common stock, par value $0.0001 per share, of
the Company ("Common Stock"), at a price per share equal to $4.50 per
share, being the closing sales price per share of the Common Stock on the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") on December 2, 1998, the date on which the Company's
Compensation Committee granted the Executive these Options and the
compensation contemplated hereby. The Options shall, to the extent
permitted by Section 422
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<PAGE>
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. Subject to Sections 3.8, 4 and 5 hereof and the
applicable stock option award agreement (i) 16,666 of such Options shall
vest and become exercisable on each of the first and second anniversaries
of the date thereof, and (ii) the remaining 16,667 Options shall vest and
become exercisable, on the third anniversary of the date hereof. The
Options shall be subject to the terms of a definitive stock option
agreement to be provided by the Company.
3.5 Vacation. The Executive shall be entitled to vacation of 20
business days per year from and after the date hereof, to be accrued and
available in accordance with the policies applicable to senior executives
of the Company generally.
3.6 Automobile. During the Term, the Company will provide the
Executive a monthly allowance of $1,000 for the use of an automobile.
3.7 Expenses. The Company shall pay or reimburse the Executive
ordinary and reasonable out-of-pocket expenses actually incurred (and, in
the case of reimbursement, paid) by the Executive during the Term in the
performance of the Executive's services under this Agreement, including,
but not limited to, business related travel and/or entertainment expenses;
provided, that the Executive submits proof of such expenses, with the
properly completed forms and supporting receipts and other documentation as
prescribed from time to time by the Company, in accordance with the
policies applicable to senior executives of the Company generally.
4. Termination upon Death or Disability.
4.1 Termination upon Death. If the Executive dies during the Term, the
obligations of the Company to or with respect to the Executive shall
terminate in their entirety except as otherwise provide under this Section
4. Upon death, (i) the Executive's estate or beneficiaries shall be
entitled to receive any Annual Salary and other benefits (including bonuses
awarded or declared but not yet paid) earned and accrued under Sections 3.1
and 3.2 of this Agreement prior to the date of termination and
reimbursement for expenses incurred prior to the date of termination as set
forth in Section 3.7 hereof; (ii) all fully vested and exercisable Options
granted under Section 3.4 hereof and held by the Executive may be exercised
by his estate for a period of one (1) year from and after the date of the
Executive's death; (iii) all Performance Units granted to the Executive
under Section 3.3(b)
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<PAGE>
hereof shall vest at the accrued value (if any) under the Bonus Program
measured at the end of the fiscal year immediately following the
Executive's death; (iv) that portion of the Performance Shares granted to
the Executive under Section 3.3(c) hereof to which the Executive would have
been entitled to receive in accordance with the Bonus Program, as measured
at the end of the fiscal year immediately following the Executive's death
shall vest in favor of the Executive's estate; and (v) the Executive's
estate and beneficiaries shall have no further rights to any other
compensation or benefits hereunder on or after the termination of
employment, or any other rights hereunder. Notwithstanding anything to the
contrary contained in this Section 4.1, it is expressly understood and
agreed that nothing in the foregoing clause (v) shall restrict the ability
of the Company to amend or terminate such benefits plans and programs from
time to time in its sole and absolute discretion; provided, however, that
the Company shall in no event be required to provide any coverage
contemplated by Section 3.2 hereof after such time as the Executive becomes
entitled to coverage under the benefit plans and programs of another
employer or recipient of the Executive's services (and provided, further,
that such entitlement shall be determined without regard to any individual
waivers or other arrangements).
4.2 Termination upon Disability. If the Executive by virtue of ill
health or other disability is unable to perform substantially and
continuously the duties assigned to him for more than 180 consecutive or
non-consecutive calendar days out of any consecutive twelve-month period,
the Company shall have the right, to the extent permitted by law, to
terminate the employment of the Executive upon notice in writing to the
Executive; provided that the Company will have no right to terminate the
Executive's employment if, in the opinion of a qualified physician
reasonably acceptable to the Company, it is reasonably certain that the
Executive will be able to resume the Executive's duties on a regular
full-time basis within 30 days of the date the Executive receives notice of
such termination. Upon termination of employment by virtue of disability,
(i) the Executive shall receive Annual Salary and other benefits (including
Bonuses awarded but not yet paid) earned and accrued under Section 3.2, of
this Agreement prior to the effective date of the termination of employment
and reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7 hereof; (ii) all
fully vested and exercisable Options granted under Section 3.4 hereof and
held by the
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<PAGE>
Executive may be exercised by the Executive or his estate or beneficiaries
for a period of one (1) year from and after the date of the Executive's
disability; (iii) all Performance Units granted to the Executive under
Section 3.3 (b) hereof shall vest at the accrued value (if any) under the
Bonus Program measured at the end of the fiscal year immediately following
the Executive's termination of employment; (iv) that portion of the
Performance Shares granted to the Executive under Section 3.3(c) hereof to
which the Executive would have been entitled to receive in accordance with
the Bonus Program, as measured at the end of the fiscal year immediately
following the Executive's termination of employment shall vest in favor of
the Executive; and (v) if the Executive's disabilities shall continue for a
period of six (6) months after his termination under this Section 4.2, the
Executive shall receive for a period for two (2) years after termination of
employment (A) the Annual Salary that the Executive was receiving at the
time of such termination of employment, less the gross proceeds paid to the
Executive on account of Social Security or other similar benefits and
Company provided long-term disability insurance, payable in accordance with
Section 3.1 hereof; and (B) such continuing coverage under the benefit
plans and programs the Executive would have received under Section 3.2
hereof as would have applied in the absence of such termination; it being
expressly understood and agreed that nothing in this clause (v) shall
restrict the ability of the Company to amend or terminate such benefits
plans and programs from time to time in its sole and absolute discretion;
provided, however, that the Company shall in no event be required to
provide any coverage contemplated in Section 3.2 hereof after such time as
the Executive becomes entitled to coverage under the benefit plans and
programs of another employer or recipient of the Executive's services (and
provided, further, that such entitlement shall be determined without regard
to any individual waivers or other arrangements); and (vi) the Executive
shall have no further rights to any other compensation or benefits
hereunder on or after the termination of employment, or any other rights
hereunder.
5. Certain Terminations of Employment
5.1 Termination for "Cause"; Termination of Employment by the
Executive Without Good Reason. (a) For purposes of this Agreement, "Cause"
shall mean (i) the Executive's conviction of a felony or a crime of moral
turpitude; or (ii) the Executive's commission of unauthorized acts
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<PAGE>
intended to result in the Executive's personal enrichment at the material
expense of the Company; or (iii) the Executive's material violation of the
Executive's duties or responsibilities to the Company which constitute
willful misconduct or dereliction of duty, or the material breach of the
covenants contained in Section 6 hereof; or (iv) the Executive's other
material breach of this Agreement which breach shall have continued
unremedied for ten (10) days after written notice by the Company to the
Executive specifying such breach.
(b) The Company may terminate the Executive's employment hereunder for
Cause. If the Company terminates the Executive for Cause, (i) the Executive
shall receive Annual Salary and other benefits (including bonuses awarded
or declared but not yet paid) earned and accrued under this Agreement prior
to the effective date of the termination of employment (and reimbursement
for expenses incurred prior to the effective date of the termination of
employment as set forth in Section 3.7); (ii) the Executive shall be
entitled to retain only those Performance Shares which shall have vested on
or prior to the date of termination under this Section 5.1; (iii) all
vested and unvested options shall lapse and terminate immediately and may
no longer be exercised; (iv) all Performance Units shall terminate
immediately; and (v) the Executive shall have no further rights to any
other compensation or benefits hereunder on or after the termination of
employment, or any other rights hereunder.
(c) The Executive may terminate his employment upon written notice to
the Company which specifies an effective date of termination not less than
30 days from the date of such notice. If the Executive terminates his
employment and the termination is not covered by Section 4, 5.2, or 5.3,
(i) the Executive shall receive Annual Salary and other benefits (including
bonuses awarded or declared but not yet paid) earned and accrued under this
Agreement prior to the effective date of the termination of employment (and
reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7); (ii) all fully
vested and exercisable options granted under Section 3.4 hereof and held by
the Executive may be exercised by the Executive for a period of 30 days
from and after the date of the Executive's effective date of termination;
(iii) all Performance Units and Performance Shares shall lapse and
terminate immediately; and (iv) the Executive shall have no further rights
to any compensation or other benefits hereunder on or after the termination
of employment, or any other rights hereunder.
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<PAGE>
5.2 Termination Without Cause; Termination for Good Reason. (a) For
purposes of this Agreement, "Good Reason" shall mean the existence of any
one or more of the following conditions that shall continue for more than
45 days following written notice thereof by the Executive to the Company:
(i) the material reduction of the Executive's authority, duties and
responsibilities, or the assignment to the Executive of duties materially
inconsistent with the Executive's position or positions with the Company;
or (ii) the Company's material and continuing breach of this Agreement.
(b) The Company may terminate the Executive's employment at any
time for any reason whatsoever. If the Company terminates the
Executive's employment and the termination is not covered by Section
4, 5.1 or 5.3 hereof, , (i) the Executive shall receive Annual Salary
and other benefits (including bonuses awarded but not yet paid) earned
and accrued under this Agreement prior to the effective date of the
termination of employment (and reimbursement for expenses incurred
prior to the effective date of the termination of employment as set
forth in Section 3.7); (ii) the Executive shall receive (A) for the
longer of (x) two (2) years after termination of employment or (y) the
period of time remaining under the Term, the Annual Salary that the
Executive was receiving at the time of such termination of employment,
payable in accordance with Section 3.1 hereof, and (B) for a period of
two (2) years after termination of employment, such continuing
coverage under the benefit plans and programs the Executive would have
received under Section 3.2 hereof as would have applied in the absence
of such termination, it being expressly understood and agreed that
nothing in this clause (ii) shall restrict the ability of the Company
to amend or terminate such benefits plans and programs from time to
time in its sole and absolute discretion; provided, however, that the
Company shall in no event be required to provide any coverage
contemplated by Section 3.2 hereof after such time as the Executive
becomes entitled to coverage under the benefit plans and programs of
another employer or recipient of the Executive's services (and
provided, further, that such entitlement shall be determined without
regard to any individual waivers or other arrangements); (iii) all
outstanding unvested Options granted under Section 3.4 hereof and held
by the Executive shall vest and become immediately exercisable and
shall otherwise be exercisable in accordance with their terms and the
Executive shall become vested in any pension or other deferred
compensation other than pension or deferred compensation under a plan
intended to be qualified under Section 401(a) or 403(a)
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<PAGE>
of the Internal Revenue Code of 1986, as amended; (iv) that portion of
the Performance Units granted under Section 3.3(b) hereof to which the
Executive would have been entitled to receive in accordance with the
Bonus Program, as measured on the date of the Executive's termination
of employment shall vest and become immediately payable at any time
and from time to time from and after the termination date at the then
applicable target rate set forth in the Bonus Program; and (v) that
portion of the Performance Shares granted under Section 3.3(c) hereof
to which the Executive would have been entitled to receive in
accordance with the Bonus Program as at the end of the fiscal year
immediately following the termination of the Executive's employment
shall vest and become immediately transferable free of any
restrictions on transferability of the Performance Shares (other than
restrictions on transfer imposed under Federal and state securities
laws) by the Executive and all other restrictions imposed thereon
shall cease, other than those restrictions, limitations and/or
obligations contained in the Bonus Program that expressly survive the
termination of the Executive's employment with the Company; and (vi)
the Executive shall have no further rights to any other compensation
or benefits hereunder on or after the termination of employment, or
any other rights hereunder.
(c) The Executive may terminate the Executive's employment with
the Company for "Good Reason". If the Executive terminates his
employment for Good Reason and such termination is not covered by
Section 5.3 hereof, (i) the Executive shall receive Annual Salary and
other benefits (including bonuses awarded but not yet paid) earned and
accrued under this Agreement prior to the effective date of the
termination of employment (and reimbursement for expenses incurred
prior to the effective date of the termination of employment as set
forth in Section 3.7); (ii) the Executive shall receive for a period
of two (2) years after termination of employment (A) the Annual Salary
that the Executive was receiving at the time of such termination of
employment, payable in accordance with Section 3.1 hereof, and (B)
such continuing coverage under the benefit plans and programs the
Executive would have received under Section 3.2 hereof as would have
applied in the absence of such termination, it being expressly
understood and agreed that nothing in this clause (ii) shall restrict
the ability of the Company to amend or terminate such benefits plans
and programs from time to time in its sole and absolute discretion;
provided, however, that the Company shall in no event be required to
provide any coverage contemplated by Section
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<PAGE>
3.2 hereof after such time as the Executive becomes entitled to
coverage under the benefit plans and programs of another employer or
recipient of the Executive's services (and provided, further, that
such entitlement shall be determined without regard to any individual
waivers or other arrangements); (iii) all outstanding unvested Options
granted under Section 3.4 hereof and held by the Executive shall vest
and become immediately exercisable and shall otherwise be exercisable
in accordance with their terms and the Executive shall become vested
in any pension or other deferred compensation other than pension or
deferred compensation under a plan intended to be qualified under
Section 401(a) or 403(a) of the Internal Revenue Code of 1986, as
amended; (iv) all Performance Units granted under Section 3.3(b)
hereof and held by the Executive shall vest and become immediately
payable at any time and from time to time from and after the
termination date at the maximum target rate set forth in the Bonus
Program; and (v) all Performance Shares granted under Section 3.3(c)
hereof and held by the Executive shall vest and become immediately
transferable free of any restrictions on transferability of the
Performance Shares (other than restrictions on transfer imposed under
Federal and state securities laws) by the Executive and all other
restrictions imposed thereon shall cease, other than those
restrictions, limitations and/or obligations contained in the Bonus
Program that expressly survive the termination of the Executive's
employment with the Company; and (vi) the Executive shall have no
further rights to any other compensation or benefits hereunder on or
after the termination of employment, or any other rights hereunder.
5.3 Certain Terminations after Change of Control. (a) For purposes of
this Agreement, "Change of Control" means the occurrence of one 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
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<PAGE>
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 Rights Agreement, dated November 24, 1998,
between the Company and American Stock Transfer & Trust Company, as Rights
Agent.
(b) If within the one (1) year period commencing upon any Change of
Control, the Executive is terminated by the Company or a successor entity
and the termination is not covered by Section 4 or 5. 1, or, within such
one (1) year period, the Executive elects to terminate his employment after
the Company or a successor entity materially reduces the Executive's
authority, duties and responsibilities, or assigns the Executive duties
materially inconsistent with the Executive's position or positions with the
Company or a successor entity immediately prior to such Change of Control,
(I) the Executive shall receive Annual Salary and other benefits (including
bonuses awarded or declared but not yet paid) earned and accrued under this
Agreement prior to the effective date of the termination of employment (and
reimbursement for expenses incurred prior to the effective date of the
termination of employment as set forth in Section 3.7); (ii) the Executive
shall receive (A) for the longer of (x) three (3) years after termination
of employment; or (y) the period of time remaining under the Term, the
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<PAGE>
Annual Salary that the Executive was receiving at the time of such
termination of employment, payable in accordance with Section 3.1 hereof,
and (B) such continuing coverage under the benefit plans and programs the
Executive would have received under Sections 3.2 of this Agreement as would
have applied in the absence of such termination; it being expressly
understood and agreed that nothing in this clause (ii) shall restrict the
ability of the Company to amend or terminate such plans and programs from
time to time in its sole and absolute discretion; provided, however, that
the Company shall in no event be required to provide any coverage under
Section 3.2 hereof after such time as the Executive becomes entitled to
coverage under the benefit plans and programs of another employer or
recipient of the Executive's services (and provided, further, that such
entitlement shall be determined without regard to any individual waivers or
other arrangements); (ill) all outstanding unvested Options granted under
Section 3.4 hereof and held by the Executive shall vest and become
immediately exercisable and shall otherwise be exercisable in accordance
with their terms and the Executive shall become vested in any pension or
other deferred compensation other than pension or deferred compensation
under a plan intended to be qualified under Section 401(a) or 403(a) of the
Internal Revenue Code of 1986, as amended; (iv) all Performance Units
granted under Section 3.3(b) hereof and held by the Executive shall vest
and become immediately payable at any time and from time to time from and
after the termination date, at the maximum target rate set forth in the
Bonus Program; (v) all Performance Shares granted under Section 3.3 (c)
hereof and held by the Executive shall vest and become immediately
transferable free of any restrictions on transferability of the Performance
Shares (other than restrictions on transfer imposed under Federal and state
securities laws) by the Executive and all other restrictions imposed
thereon shall cease other than those restrictions, limitations and/or
obligations contained in the Bonus Program that expressly survive the
termination of the Executive's employment with the Company or any successor
entity, as the case may be; and (vi) the Executive shall have no further
rights to any other compensation or benefits hereunder on or after the
termination of employment or any other rights hereunder.
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6. Covenants of the Executive.
6.1 Covenant Against Competition, Other Covenants. The Executive
acknowledges that (i) the principal business of the Company (which,
for purposes of this Section 6 shall include the Company and each of
its subsidiaries and affiliates) is the provision of a broad range of
services designed to promote the cost-effective delivery of pharmacy
benefits, including pharmacy benefit management services, claims
processing and/or the purchasing of pharmaceutical products on behalf
of pharmacy networks and long term care facilities (including assisted
living facilities and nursing homes) (such business, and any and all
other businesses that after the date hereof, and from time to time
during the Term, become material with respect to the Company's
then-overall business, herein being collectively refereed to as the
"Business'); (ii) the Company is dependent on the efforts of a certain
limited number of persons who have developed, or will be responsible
for developing the Company's Business, (iii) the Company's Business is
national in scope; (iv) the Executive's work for the Company has given
and will continue to give him access to confidential affairs and
proprietary information of the Company; (v) the covenants and
agreements of the Executive contained in this Section 6 are essential
to the business and goodwill of the Company; and (vi) the Company
would not have entered into do Agreement but for the covenants and
agreements set forth in this Section 6. Accordingly, the Executive
covenants and agrees that:
(a) At any time during his employment with the Company and ending
one (1) year following (i) termination of the Executive's employment
with the Company (irrespective of the reason for such termination) or
(ii) payment of any Annual Salary in accordance with Section 4 or 5
hereof (unless such termination is by the Company without Cause),
whichever occurs last, the Executive shall not engage, directly or
indirectly (which includes, without limitation owning, managing
operating, controlling, being employed by, giving financial assistance
to, participating in or being connected in any material way with any
person or entity other than the Company), anywhere in the United
States in (A) the Business or (B) any material component of the
Business; provided, however, that the Executive's ownership as a
passive investor of less than two percent (2%) of the issued and
outstanding stock of a publicly held corporation shall not be deemed
to constitute competition.
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(b) During and after the period during which the Executive is
employed, the Executive shall keep secret and retain in strictest
confidence, and shall not use for his benefit or the benefit of
others, except in connection with the business and affairs of the
Company, all confidential matters relating to the Company and/or the
Company's Business, learned by the Executive heretofore or hereafter
directly or indirectly from the Company (the "Confidential Company
Information"), including, without limitation, information with respect
to (i) the strategic plans, budgets, forecasts, intended expansion of
product, service or geographic markets of the company and it's
affiliates, (ii) sales figures, contracts agreements, and undertakings
with or with respect to the Company's customers or prospective
customers, (iii) profit or loss figures, and (iv) then existing or
then prospective customers, clients, suppliers and sources of supply
and customer lists, and shall not disclose such Confidential Company
Information to anyone outside of the Company except with the Company's
express written consent and except for Confidential Company
Information which is at the time of receipt or thereafter becomes
publicly known through no wrongful act of the Executive or is received
from a third party not under an obligation to keep such information
confidential and without breach of this Agreement. Notwithstanding the
foregoing, this Section 6.1(b) shall not apply to the extent that the
Executive is acting to the extent necessary to comply with legal
process; provided that in the event that the Executive is subpoenaed
to testify or to produce any information or documents before any
court, administrative agency or other tribunal relating to any aspect
pertaining to the Company, he shall immediately notify the Company
thereof.
(c) During the period commencing on the date hereof and ending
two (2) years following the later to occur of dates upon which the
Executive shall cease to be an (i) employee or (ii) an "affiliate", as
defined in Rule 144 promulgated under the Securities Act of 1993, and
the rules and regulations promulgated thereunder (as amended, the
"1993 Act"), of the Company, the Executive shall not, without the
Company's prior written consent, directly or indirectly, solicit or
encourage to leave the employment or other service of the Company any
employee or independent contractor thereof or hire (on behalf of the
Executive or any other person, firm, corporation or entity) any
employee or independent contractor who has left the employment or
other service of the Company within one (1)
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year of the termination of such employee's or independent contractor's
employment or other service with the Company. During such a one (1)
year period, the Executive will not, whether for his own account or
for the account of any other person, firm, corporation or other
entity, intentionally interfere with the Company's relationship with,
or endeavor to entice away from the Company any person who during the
Term is or was a customer or client of the Company.
(d) All memoranda, notes, lists, records, property and any other
tangible product and documents (and all copies thereof) made, produced
or compiled by the Executive or made available to the Executive
concerning the Business of the Company, including all Confidential
Company Information, shall be the Company's property and shall be
delivered to the Company at any time on request.
6.2 Rights and Remedies upon Breach . (a) The Executive acknowledges
and agrees that any breach by him of any of the provisions of Section 6.1
hereof (the "Restrictive Covenants") would result in irreparable injury and
damage for which money damages would not provide an adequate remedy.
Therefore, if the Executive breaches or threatens to commit a breach of any
of the provisions of Section 6. 1 hereof, the Company shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the other and severally enforceable, and all of which rights
and remedies shall be in addition to, and not in lieu of, any other rights
and remedies available to the Company under law or in equity (including,
without limitation, the recovery of damages):
(i) The right and remedy to have the Restrictive Covenants
specifically enforced (without posting bond and without the need to
prove damages) by any court having equity jurisdiction, including,
without limitation, the right to an entry against the Executive of
restraining orders and injunctions (preliminary, mandatory, temporary
and permanent) against violations, threatened or actual, and whether
or not then continuing, of such covenants.
(ii) The right and remedy to require the Executive to account for
and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits (collectively, "Benefits")
derived or received by him as the result of any transactions
constituting a
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<PAGE>
breach of the Restrictive Covenants, and the Executive shall account
for and pay over such Benefits to the Company and, if applicable, its
affected subsidiaries and/or affiliates.
(b) The Executive agrees that in any action seeking specific
performance or other equitable relief, he will not assert or contend that
any of the provisions of this Section 6 are unreasonable or otherwise
unenforceable. The existence of any claim or cause of action by the
Executive, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement of the Restrictive Covenants.
7. Other Provisions.
7.1 Severabilitv. The Executive acknowledges and agrees that (i) he
has had an opportunity to seek advice of counsel in connection with this
Agreement and (ii) the Restrictive Covenants are reasonable in geographical
and temporal scope and in all other respects. If it is determined that any
of the provisions of this Agreement, including, without limitation, any of
the Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the provisions of this Agreement shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions thereof.
7.2 Duration and Scope of Covenants. If any court or other
decision-maker of competent jurisdiction determines that any of Executive's
covenants contained in this Agreement, including, without limitation, any
of the Restrictive Covenants, or any part thereof, is unenforceable because
of the duration or geographical scope of such provision, then, after such
determination has become final and unappealable, the duration or scope of
such provision, as the case may be, shall be reduced so that such provision
becomes enforceable and, in its reduced form, such provision shall then be
enforceable and shall be enforced.
7.3 Enforceability; Jurisdictions. Any controversy or claim arising
out of or relating to this Agreement or the breach of this Agreement that
is not resolved by Executive and the Company (or its subsidiaries or
affiliates, where applicable), other than those arising under Section 6
thereof, to the extent necessary for the Company (or its subsidiaries or
affiliates, where applicable) to avail itself of the rights and remedies
provided under Section 6.2 hereof, shall be submitted to arbitration
-15-
<PAGE>
in New York, New York in accordance with New York law and the procedures of
the American Arbitration Association. The determination of the
arbitrator(s) shall be conclusive and binding on the Company (or its
subsidiaries or affiliates, where applicable) and Executive and judgment
may be entered on the arbitrator(s)' award in any court having
jurisdiction.
7.4 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be
deemed given when so delivered personally, telegraphed, telexed or sent by
facsimile transmission or, if mailed, five days after the date of deposit
in the United States mails as follows:
(i) If to the Company, to:
MIM Corporation
100 Clearbrook Road
Elmsford, New York 10523
Attention: Assistant General Counsel
with a copy to:
Rogers & Wells
200 Park Avenue - Suite 5200
New York, New York 10166-0153
Attention: Richard A. Cirillo
(ii) If to the Executive, to:
Edward J. Sitar
960 Glenwood Avenue
Plainfield, New Jersey 07060
Any such person may by notice given in accordance with this Section 7.4 to the
other parties hereto designate another address or person for receipt by such
person of notices hereunder.
7.5 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
7.6 Waivers and Amendments. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by
a written
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<PAGE>
instrument signed by the parties or, in the case of a waiver, by the party
waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any such right, power or
privilege nor any single or partial exercise of any such right, power or
privilege, preclude any other or further exercise thereof or the exercise
of any other such right, power or privilege.
7.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPALS OF CONFLICTS OF LAW.
7.8 Assignment. This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive; any purported
assignment by the Executive in violation hereof shall be null and void. In
the event of any sale, transfer or other disposition of all or
substantially all of the Company's assets or business, whether by merger,
consolidation or otherwise, the Company (without limiting the Executive's
rights under Section 5.3) may assign this Agreement and its rights
hereunder.
7.9 Withholding. The Company shall be entitled to withhold from any
payments or deemed payments any amount of tax withholding required by law.
7.10 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors, permitted
assigns, heirs, executors and legal representatives.
7.11 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and
delivered shall be an original but all such counterparts together shall
constitute one and the same instrument. Each counterpart may consist of two
copies hereof each signed by one of the parties hereto.
7.12 Survival. Anything contained in this Agreement to the contrary
not withstanding, the provisions of Sections 5, 6, 7.3 and 7.9, and the
other provisions of this Section 7 (to the extent necessary to effectuate
the survival of Sections 5, 6, 7.3 and 7.9), shall survive termination of
this Agreement and any termination of the Executive's employment hereunder.
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<PAGE>
7.13 Existing Agreements. Executive represents to the Company that he
is not subject or a party to any employment or consulting agreement,
non-competition covenant or other agreement, covenant or understanding
which might prohibit him from executing this Agreement or limit his ability
to fulfill his responsibilities hereunder.
7.14 Headings. The headings in this Agreement are for reference only
and shall not affect the interpretation of this Agreement.
7.15 Supercedes Prior Agreements. Upon execution and delivery of this
Agreement, this Agreement shall supercede in its entirety any and all prior
agreements with respect to the Executive's employment.
IN WITNESS WHEREOF, the parties hereto have signed their names as of the
day and year first above written.
MIM CORPORATION
By: /S/ RICHARD H. FRIEDMAN /S/ EDWARD J. SITAR
----------------------- --------------------------------
Richard H. Friedman Edward J. Sitar
Chief Executive Officer
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<PAGE>
Exhibit A
1998 Senior Executive Bonus Program
-19-
<PAGE>
Exhibit B
Executive Bonus Grant
Annual Bonus Percentage Level: 25%-40%
Options to Purchase Common Stock,
Par value $0.0001 per share 50,000
(See Section 3.4)
Performance Units: 2,500 per year
Performance Shares: 5,000 per year
-20-
Amendment No. 2 to
Registration Rights Agreement - IV
This Amendment No. 2 (this "Amendment") to Registration Rights Agreement -
IV is made and entered into as of June 16, 1998 by and among MIM Corporation, a
Delaware corporation (the "Company"), E. David Corvese ("Corvese"), John H.
Klein ("Klein"), Richard H. Friedman ("Friedman"), Leslie B. Daniels
("Daniels"), Nancy P. Corvese, The Corvese Irrevocable Trust - 1992, The Corvese
Family Trust - 1994 and The Peterson Family Trust - 1994.
RECITALS
WHEREAS, certain of the parties hereto entered into a Registration Rights
Agreement - IV on July 31, 1996, as amended by Amendment No. 1 thereto dated
August 12, 1996 (the "Original Agreement");
WHEREAS, the Company and Corvese entered into a Separation Agreement on
March 31, 1998 (the "Separation Agreement"), which purported to amend the
Original Agreement in certain respects;
WHEREAS, the parties hereto desire to amend the Original Agreement through
this Amendment to reflect the revisions contemplated by the Separation
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. All capitalized terms used herein without definition shall have the
meaning ascribed to such terms in the Original Agreement. All
references to the "Agreement" in the Original Agreement shall
hereafter be deemed to mean the Original Agreement as amended by this
Amendment.
2. Section 2(a) of the Original Agreement is hereby amended to provide
that (i) the provision limiting the Company's obligation to effect
more than two Demand Registrations under the Agreement shall not
include the demand by Corvese under Section 10(a) of the Separation
Agreement to register 2,323,052 (or such lesser number as Corvese may
elect) shares of the Company's Common Stock (the "Corvese Demand
Registration") such that the Company may still be required to effect
two Demand Registrations under the Agreement, (ii) the provision
limiting the Company's obligation to register less than 2,000,000
shares of Registrable Securities pursuant to a Demand Registration
under the Agreement is modified such that the Company shall not be
required to register less than 1,000,000 shares of Registrable
Securities pursuant to a Demand Registration under the Agreement; and
(iii) the number of Registrable Securities required for Holders to
request registration under Section 2(a) shall be decreased from
2,250,000 to 1,000,000.
3. With respect to the Corvese Demand Registration, the parties hereto
(other than Corvese) confirm their respective waiver of any right to
include his or its Registrable Securities in the Corvese Demand
Registration pursuant to Section 2(a) of the Original Agreement.
4. With respect to Corvese Shares and Holdings Shares only, subclause
(iii) of the proviso set forth in the definition of the term
"Registrable Securities" is hereby amended as follows: at the end of
subclause (iii) following the word "sale" and immediately preceding
the word "or" add the following:
"and Corvese (together with any affiliates) beneficially owns an
aggregate of less than 10% of the Company's then outstanding shares of
Common Stock."
5. Section 2(b) of the Original Agreement is hereby amended to provide
that it shall not be applicable to the Corvese Demand Registration.
Nothing contained herein shall (i) be construed as a waiver of the
Company's rights or the Holders' obligations under Section 2(b) of the
Original Agreement for any
Page -1-
<PAGE>
purposes other than the Corvese Demand Registration or (ii) otherwise
limit the Company's ability to enforce the provisions of Section 2(b)
against any Holder other than with respect to the Corvese Demand
Registration.
6. Section 2(c) of the Original Agreement is hereby amended to provide
that with respect to the Corvese Demand Registration and any future
Demand Registration pursuant to the Agreement which includes Corvese
Shares or Corvese Option Shares, the Company shall be required to use
its best efforts to cause the registration statement covering such
Registrable Securities to remain effective for the lesser of 24 months
or until such Registrable Securities of Corvese have been sold.
7. Each of the following persons hereby (i) acknowledges the assignment
to such person of the number of Holdings Shares listed opposite such
person's name below and that such person has thereby become a Holder
under the Original Agreement and (ii) agrees to be bound by the
obligations imposed upon Holders under the Original Agreement:
E. David Corvese 672,106 shares
Nancy P. Corvese 672,106 shares
The Corvese Irrevocable Trust - 1992 704,760 shares
The Corvese Family Trust - 1994 195,782 shares
The Peterson Family Trust - 1994 78,299 shares
----------------
2,323,053 shares
For purposes of the Agreement, "Holdings Shares" shall hereafter mean
the above-listed shares held by the above-listed persons or their
successors and permitted assigns.
8. Except as modified hereby, the Original Agreement shall remain
unmodified and in full force and effect.
9. This Amendment may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Amendment and all
of which, when taken together, will be deemed to constitute one and
the same Amendment.
10. This Amendment shall be construed in accordance with, and its
interpretation shall be governed by, the laws of the State of
Delaware, without giving effect to otherwise applicable principles of
conflicts of law.
[Remainder of Page Intentionally Left Blank]
Page -2-
<PAGE>
IN WITNESS WHEREOF, the undersigned parties hereby execute this Amendment
as of the 16th day of June 1998.
/s/ E. DAVID CORVESE
------------------------------------
E. David Corvese
/S/ JOHN H. KLEIN
------------------------------------
John H. Klein
/S/ RICHARD H. FRIEDMAN
------------------------------------
Richard H. Friedman
/S/ LESLIE B. DANIELS
------------------------------------
Leslie B. Daniels
/S/ NANCY P. CORVESE
------------------------------------
Nancy P. Corvese
The Corvese Irrevocable Trust - 1992
By: /S/ ERNEST CORVESE
--------------------------------
Ernest Corvese, Trustee
The Corvese Family Trust - 1994
By: /S/ BRIAN J. CORVESE
--------------------------------
Brian J. Corvese, Trustee
The Peterson Family Trust - 1994
By: /S/ BRIAN J. CORVESE
--------------------------------
Brian J. Corvese, Trustee
MIM Corporation
By: /S/ BARRY A. POSNER
--------------------------------
Page -3-
MIM CORPORATION
1996 STOCK INCENTIVE PLAN
As Amended and Restated
Effective December 1, 1998
SECTION 1 - Purpose
This MIM CORPORATION 1996 STOCK INCENTIVE PLAN (the "Plan") is intended to
provide a means whereby MIM Corporation, a Delaware corporation (the "Company"),
and any Subsidiary or other Affiliate of the Company (as hereinafter defined)
may, through the grant of Incentive Stock Options and Non-Qualified Stock
Options (collectively "Options"), Performance Shares (as defined in Section
6(c)) and Performance Units (as defined in Section 6(d)) to Employees (as
defined in Section 3), attract and retain such Employees and motivate them to
exercise their best efforts on behalf of the Company and of any Subsidiary or
other Affiliate.
As used in the Plan, the following terms shall have the following meanings:
"Affiliate" means any corporation, limited liability company, partnership
or other entity, including Subsidiaries, which is controlled by or under common
control with the Company.
"Agreement" means the written agreement between the Company and an Awardee;
as contemplated by Section 6(d).
"Award" means an Option, Performance Shares or Performance Units.
"Awardee" means an Employee to whom an Award has been granted under the
Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Effective Date" means March 1, 1999.
"Incentive Stock Options" ("ISOs") means options to acquire Common Shares
(as defined in Section 4) granted under the Plan which qualify as incentive
stock options within the meaning of section 422 of the Code at the time they are
granted and which are either designated as ISOs in the Agreements covering such
options or which are designated as ISOs by the Committee (as defined in Section
2 hereof) at the time of grant.
"Non-Qualified Stock Options" ("NQSOs") means all options to acquire Common
Shares granted under the Plan other than ISOs.
"Stock Award" means an Award which is an Option or Performance Shares.
<PAGE>
"Subsidiary" means any corporation (whether or not in existence at the time
the Plan is adopted) which, at the time an Option is granted, is a subsidiary of
the Company under the definition of "subsidiary corporation" contained in
section 424(f) of the Code or any similar provision hereafter enacted.
SECTION 2 - Administration
The Plan shall be administered by the Company's Compensation Committee (the
"Committee"), which shall consist of not less than two (2) non-employee
directors (within the meaning of Rule 16b-3(b)(3) under the Securities Exchange
Act of 1934 (the "Exchange Act"), or any successor thereto) who are also outside
directors (within the meaning of Treas. Reg. ss. 1.162-27(e)(3), or any
successor thereto) of the Company who shall be appointed by, and shall serve at
the pleasure of, the Company's Board of Directors (the "Board"). Each member of
such Committee, while serving as such, shall be deemed to be acting in his or
her capacity as a director of the Company.
The Committee shall have full and final authority in its absolute
discretion, subject to the terms of the Plan, to select the Awardees to be
granted Awards under the Plan, to grant Awards on behalf of the Company, and to
set the date of grant and the other terms of such Awards. The Committee may
correct any defect, supply any omission and reconcile any inconsistency in the
Plan and in any Award granted hereunder in the manner and to the extent it shall
deem desirable. The Committee also shall have the authority to establish such
rules and regulations, not inconsistent with the provisions of the Plan, for the
proper administration of the Plan, and to amend, modify or rescind any such
rules and regulations, and to make such determinations and interpretations
under, or in connection with, the Plan, Awards and Agreements (including,
without limitation, determinations with respect to the establishment and
satisfaction of performance objectives under Section 6), as it deems necessary
or advisable. All such rules, regulations, determinations and interpretations
shall be binding and conclusive upon the Company, its shareholders and all
officers and employees and former officers and employees, and upon their
respective legal representatives, beneficiaries, successors and assigns and upon
all other persons claiming under or through any of them. Notwithstanding the
preceding, the Committee shall not have the power or authority under this Plan
to take any action with respect to an Award granted pursuant to this Plan which
is intended to qualify as "performance-based compensation" within the meaning of
section 162(m) of the Code if the taking of such action would cause such Award
to cease to so qualify.
No member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award granted
hereunder.
SECTION 3 - Eligibility
The class of persons who shall be eligible to receive Awards under the
Plan shall be the employees (including any directors and officers who also are
employees) of the Company and/or of a Subsidiary or other Affiliate
("Employees") who the Committee believes have the capacity to
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<PAGE>
contribute to the success of the Company and/or a Subsidiary or other Affiliate,
provided that ISOs shall be granted only to Employees of the Company or of a
Subsidiary. More than one Award may be granted to an Employee under the Plan.
SECTION 4 - Stock
The number of shares of the Company's $.0001 par value per share Common
Stock ("Common Shares") that may be subject to Stock Awards under the Plan from
and after the Effective Date (i.e., excluding Options previously granted under
the Plan and exercised as of the Effective Date, but including Options
previously granted and not exercised as of the Effective Date, Common Shares
available for Awards under the Plan immediately prior to the Effective Date, and
an increase in the number of Common Shares so available as provided herein)
shall be 2,375,000 shares, subject to adjustment as hereinafter provided. Such
number shall be increased, to the extent authorized by the Board, by the number
(not to exceed _______) of Common Shares repurchased by the Company from time to
time in the open market or in private transactions after the Effective Date and
by the number of Common Shares delivered to or withheld by the Company in
payment of the exercise price of any Option granted under the Plan or in
satisfaction of an Awardee's tax obligations in respect of an Award granted
under the Plan. Notwithstanding the preceding, (i) no Awardee shall receive
Stock Awards in any one fiscal year of the Company (regardless of when Common
Shares are deliverable in respect of such Stock Awards) for more than 1,500,000
Common Shares, (ii) not more than __________ Common Shares may be subject to
Awards in the form of ISOs and (iii) not more than 750,000 Common Shares may be
subject to Awards in the form of Performance Shares. Shares issuable under the
Plan may be authorized but unissued shares or reacquired shares, as the Company
may determine from time to time.
Any Common Shares subject to a Stock Award which expires or otherwise
terminates for any reason whatever (including, without limitation, the surrender
thereof by the Awardee) without having been exercised shall continue to be
available for the granting of Stock Awards under the Plan; provided, however,
that (a) if a Stock Award is canceled, the Common Shares covered by the canceled
Stock Award shall be counted against the maximum number of shares specified in
Section 4 for which Stock Awards may be granted to a single Awardee, and (b) if
the exercise price of a Stock Award is reduced after the date of grant, the
transaction shall be treated as a cancellation of the original Stock Award and
the grant of a new Stock Award for purposes of counting the maximum number of
shares for which Stock Awards may be granted to a single Awardee.
SECTION 5 - Annual ISO Limit
(a) ISOs. The aggregate Fair Market Value (determined as of the date the
ISO is granted) of the Common Shares with respect to which ISOs become
exercisable for the first time by an Awardee during any calendar year (under
this Plan and any other ISO plan of the Company or any
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<PAGE>
parent corporation (within the meaning of section 424(e) of the Code ("Parent"))
or Subsidiary) shall not exceed $100,000. The term "Fair Market Value" shall
mean the value of the Common Shares arrived at by a good faith determination of
the Committee and shall be:
(1) the mean between the highest and lowest quoted selling price, if
there is a market for the Common Shares on a registered securities exchange
or in an over the counter market, on the date specified;
(2) the weighted average of the means between the highest and lowest
sales on the nearest date before and the nearest date after the specified
date, if there are no such sales on the specified date but there are such
sales on dates within a reasonable period both before and after the
specified date;
(3) the mean between the bid and asked prices, as reported by the
National Quotation Bureau on the specified date, if actual sales are not
available during a reasonable period beginning before and ending after the
specified date; or
(4) such other method of determining Fair Market Value as shall be
authorized by the Code, or the rules or regulations thereunder, and adopted
by the Committee.
Where the Fair Market Value of Common Shares is determined under (2) above,
the average of the means between the highest and lowest sales on the nearest
date before and the nearest date after the specified date shall be weighted
inversely by the respective numbers of trading days between the dates of
reported sales and the specified date (i.e., the valuation date), in accordance
with Treas. Reg. ss. 20.2031-2(b)(1), or any successor thereto.
(b) Options Over Annual Limit. If an Option intended as an ISO is granted
to an Awardee and such Option may not be treated in whole or in part as an ISO
pursuant to the limitation in (a) above, such Option shall be treated as an ISO
to the extent it may be so treated under such limitation and as a NQSO as to the
remainder. For purposes of determining whether an ISO would cause such
limitation to be exceeded, ISOs shall be taken into account in the order
granted.
(c) NQSOs. The annual limit set forth above for ISOs shall not apply to
NQSOs.
SECTION 6 - Awards
(a) Granting of Awards. From time to time until the expiration or earlier
suspension or discontinuance of the Plan, the Committee may, on behalf of the
Company, grant to Awardees under the Plan such Awards as it determines are
warranted, subject to the limitations of the Plan; provided, however, that
grants of ISOs and NQSOs shall be separate and not in tandem. The granting of an
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<PAGE>
Award under the Plan shall not be deemed either to entitle the Awardee receiving
the Award to, or to disqualify the Awardee from, any participation in any other
grant of Awards under the Plan. In making any determination as to whether an
Awardee shall be granted an Award and as to the number of shares to be covered
by such Award, in the case of a Stock Award, or as to the amount payable
pursuant to such Award in the case of Performance Units, the Committee shall
take into account the duties of the Awardee, the Committee's views as to his or
her present and potential contributions to the success of the Company or a
Subsidiary or other Affiliate, and such other factors as the Committee shall
deem relevant in accomplishing the purposes of the Plan. Moreover, the Committee
may determine that the applicable Agreement shall provide that said Award may be
exercised only if certain conditions, as determined by the Committee, are
fulfilled.
(b) Terms and Conditions of Options. Options granted pursuant to the Plan
shall expressly specify whether they are ISOs or NQSOs; however, if the Option
is not designated in the Agreement as an ISO or NQSO, the Option shall
constitute an ISO if it complies with the terms of section 422 of the Code, and
otherwise, it shall constitute an NQSO. In addition, the Options granted
pursuant to the Plan shall include expressly or by reference the following terms
and conditions, as well as such other provisions not inconsistent with the
provisions of this Plan as the Committee shall deem desirable, and for ISOs
granted under this Plan, the provisions of section 422(b) of the Code:
(1) Number of Shares. A statement of the number of Common Shares to
which the Option pertains (or, except in the case of an ISO, of a formula
or other method by which such number shall be then or thereafter
objectively determinable).
(2) Price. A statement of the Option exercise price (or, except in the
case of an ISO, of a formula or method by which the exercise price shall be
then or thereafter objectively determinable) which shall be determined and
fixed by the Committee in its discretion at the time of grant, provided
that, in the case of an ISO, the exercise price shall not be less than 100%
of the Fair Market Value of the optioned Common Shares on the date the ISO
is granted (or 110%, if the ISO is granted to a more than 10% shareholder
per (6) below).
(3) Term.
(A) ISOs. Subject to earlier termination as provided in
Subsection 6(e) below, the term of each ISO shall be not more than 10
years (5 years in the case of a more than 10% shareholder as provided
in (6) below) from the date of grant.
(B) NQSOs. The term of each NQSO shall be not more than 15 years
from the date of grant.
(4) Exercise.
(A) General. Options shall be exercisable in such installments
and on such dates, commencing not less than 6 months and 1 day from
the date of grant (but, in the case of ISOs, not less than 12 months
from the date of grant), as the Committee
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<PAGE>
may specify, provided that:
(i) in the case of new Options granted to an Awardee in
replacement for options (whether granted under the Plan or
otherwise) held by the Awardee, the new Options may be made
exercisable, if so determined by the Committee, in its
discretion, at the earliest date the replaced options were
exercisable; and
(ii) the Committee may accelerate the exercise date of any
outstanding Options in its discretion, if it deems such
acceleration to be desirable.
Any Common Shares, the right to the purchase of which has accrued
under an Option, may be purchased at any time up to the expiration or
termination of the Option. Exercisable Options may be exercised, in
whole or in part, from time to time by giving written notice of
exercise to the Company at its principal office, specifying the number
of Common Shares to be purchased and accompanied by payment in full of
the aggregate Option exercise price for such shares. Only full shares
shall be issued under the Plan and, if any fractional share would
otherwise be issuable upon the exercise of an Option granted
hereunder, the number of Common Shares issuable upon such exercise
shall be rounded to the nearest whole share and the unexercised
portion of such Option adjusted accordingly provided that in no event
shall the total number of Common Shares issuable upon the full
exercise of an Option exceed the number so specified for such Option
under Section 6(b)(1) hereof.
(B) Manner of Payment. The Option price shall be payable:
(i) in cash or its equivalent;
(ii) in the case of an ISO, if the Committee in its
discretion causes the Agreement so to provide and, in the case of
a NQSO, if the Committee in its discretion so determines at or
prior to the time of exercise, in Common Shares previously
acquired by the Awardee, provided that if such shares were
acquired through the exercise of an ISO and are used to pay the
Option exercise price of an ISO, such shares 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 date of
exercise, or if such Common Shares were acquired through exercise
of an NQSO or of an option under a similar plan or through
exercise of an ISO and are used to pay the Option exercise price
of an NQSO, such shares have been held by the Awardee for a
period of more than 12 months on the date of exercise; or
(iii) in the discretion of the Committee, in any combination
of (i) and (ii) above.
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In the event such Option exercise price is paid, in whole or
in part, with Common Shares, the portion of the Option exercise
price so paid shall equal the Fair Market Value on the date of
exercise of the Option of the Common Shares surrendered in
payment of such Option exercise price.
(5) Rights as a Shareholder. An Awardee shall have no rights as a
shareholder with respect to any shares covered by his or her Option until
the issuance of a stock certificate to him or her for such shares.
(6) Ten Percent Shareholder. If an Awardee owns more than 10% of the
total combined voting power of all shares of stock of the Company or of a
Subsidiary or Parent at the time an ISO is granted to such Awardee, the
Option exercise price for the ISO shall be not less than 110% of the Fair
Market Value of the optioned Common Shares on the date the ISO is granted,
and such ISO, by its terms, shall not be exercisable after the expiration
of five years after the date the ISO is granted. The conditions set forth
in this Subsection (6) shall not apply to NQSOs.
(c) Performance Shares. The Committee may from time to time cause the
Company to grant pursuant to the Plan Awards of Common Shares to Employees,
subject to such restrictions, conditions and other terms as the Committee may
determine ("Performance Shares").
(1) Restrictions. At the time a grant of Performance Shares is made,
the Committee shall establish a period of time (the "Restricted Period")
applicable to such Performance Shares. Each grant of Performance Shares may
be subject to a different Restricted Period. The Committee may, at the time
a grant is made, prescribe restrictions in addition to the expiration of
the Restricted Period, including the performance of corporate and/or
individual performance objectives, which shall be applicable to all or any
portion of the Performance Shares. Performance objectives may be based on
achieving a certain level of total revenue, earnings, earnings per share or
return on equity of the Company and its Subsidiaries and Affiliates, or on
the extent of changes in such criteria. None of the Performance Shares may
be sold, transferred, assigned, pledged or otherwise encumbered or
transferred during the Restricted Period or prior to the satisfaction of
any other restrictions prescribed by the Committee with respect to such
Performance Shares.
(2) Certificates. The Company shall issue, in the name of each Awardee
to whom Performance Shares have been granted, certificates representing the
total number of Performance Shares granted to the Awardee, as soon as
reasonably practicable after the grant. The Company, at the direction of
the Committee, shall hold such certificates, properly endorsed for
transfer, for the recipient's benefit until such time as the Performance
Shares are forfeited to the Company or the restrictions lapse. Each such
certificate shall bear the following legend, in addition to such other
legends as counsel to the Corporation may require:
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THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO TRANSFER AND
OTHER RESTRICTIONS UNDER THE MIM CORPORATION 1996 STOCK INCENTIVE PLAN, AS
AMENDED AND RESTATED EFFECTIVE MARCH 1, 1999, AND UNDER A PERFORMANCE
SHARES AGREEMENT WITH THE CORPORATION. NO INTEREST IN THE SHARES
REPRESENTED HEREBY MAY BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE
PROVISIONS OF SUCH PLAN AND AGREEMENT.
(3) Rights of Awardee. Holders of Performance Shares shall have the
right to vote such Performance Shares and the right to receive any
distributions of regular cash dividends with respect to such shares,
provided that all distributions made with respect to Performance Shares as
a result of any split, distribution or combination of Performance Shares or
other similar transaction shall be subject to the restrictions of this
Subsection 6(c).
(4) Forfeiture. Subject to the provisions of Section 8, Performance
Shares granted pursuant to the Plan shall be forfeited to the Company if
the Awardee terminates Employment with the Company or its Subsidiaries or
Affiliates prior to the expiration or termination of the Restricted Period
and/or the satisfaction of any other conditions applicable to such
Performance Shares. Upon such forfeiture, the Performance Shares that are
forfeited shall be available for subsequent Awards under the Plan.
(5) Delivery of Performance Shares. Upon the expiration or termination
of the Restricted Period and the satisfaction of any other conditions
prescribed by the Committee, the restrictions applicable to the Performance
Shares shall lapse and a certificate for the number of Common Shares with
respect to which the restrictions have lapsed shall be delivered, free of
all such restrictions, to the Awardee.
(d) Performance Units. The Committee may from time to time grant Awards to
Employees under the Plan representing the right to receive in cash an amount
determined by reference to certain performance measurements, subject to such
restrictions, conditions and other terms as the Committee may determine
("Performance Units").
(1) Awards. The Agreement covering Performance Units shall specify
Performance Objectives (as defined in Subsection 6(d)(2), a Performance
Period (as defined in Subsection 6(d)(3)) and a value for each Performance
Unit or a formula for determining the value of each Performance Unit at the
time of payment (the "Ending Value"). Performance Units granted to an
Awardee shall be credited to an account (a "Performance Unit Account")
established and maintained for such Awardee.
(2) Performance Objectives. With respect to each Award of Performance
Units, the Committee shall specify performance objectives, including
corporate and/or individual performance objectives, which must be satisfied
in order for the Awardee to be entitled to payment with respect to such
Performance Units ("Performance Objectives"). Performance Objectives may be
based on achieving a certain level of total revenue, earnings, earnings per
share or return on equity of the Company and its Subsidiaries and
Affiliates, or on the extent
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of changes in such criteria. Different Performance Objectives may be
established for different Awards of Performance Units, and an Awardee may
be granted more than one Award of Performance Units at the same time.
(3) Performance Period. The Committee shall determine a period of time
(the "Performance Period") during which the Performance Objectives must be
satisfied in order for the Awardee to be entitled to payment of Performance
Units granted to such Awardee. Different Performance Periods may be
established for different Awards of Performance Units. Performance Periods
may run consecutively or concurrently.
(4) Payment for Performance Units. As soon as practicable following
the end of a Performance Period, the Committee shall determine whether the
Performance Objectives for the Performance Period have been achieved. As
soon as reasonably practicable after such determination, or at such later
date or in such installments as the Committee shall determine at the time
of grant, the Company shall pay to the Awardee an amount equal to the
Ending Value of each Performance Unit as to which the Performance
Objectives have been satisfied ; provided, however, that in no event shall
an Awardee receive an amount in excess of $1,000,000 in respect of
Performance Units for any given year.
(e) Termination of Employment. If an Awardee's employment as an Employee or
with the Company and Subsidiaries and, except in the case of ISOs, other
Affiliates ("Employment") is terminated for any reason, any Award granted to
such Awardee and outstanding at the date of termination shall be exercisable,
vested or payable on and after such date only to the extent and at the times
specified in the applicable Agreement, provided that, in the case of an ISO,
such Agreement shall comply with the requirements of section 422 of the Code.
(f) Agreements. Awards granted under the Plan shall be evidenced by written
documents ("Agreements") in such form as the Committee shall, from time to time,
approve, which Agreements shall contain such provisions, not inconsistent with
the provisions of the Plan and, in the case of an ISO, section 422(b) of the
Code, as the Committee shall deem advisable, and which Agreements, in the case
of any Option, shall specify whether an Option is an ISO or NQSO; provided,
however, if an Option is not designated in the Agreement as an ISO or NQSO, the
Option shall constitute an ISO if it complies with the terms of section 422 of
the Code, and otherwise, it shall constitute an NQSO. Each Awardee shall enter
into, and be bound by, the terms of the Agreement.
SECTION 7 - Capital Adjustments
The number of shares which may be issued under the Plan as stated in
Section 4 hereof, and the number of shares issuable upon exercise of outstanding
Stock Awards under the Plan (as well as the Option exercise price per share
under outstanding Options) shall, subject to the provisions of section 424(a) of
the Code, be adjusted, as may be deemed appropriate by the Committee, to reflect
any stock dividend, stock split, share combination, or similar change in the
capitalization of the Company.
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<PAGE>
In the event of a corporate transaction as that term is described in
section 424(a) of the Code and the Treasury Regulations issued thereunder (a
"Corporate Transaction") (as, for example, a merger, consolidation, acquisition
of property or stock, separation, reorganization, or liquidation), each
outstanding Award shall be assumed by the surviving or successor corporation;
provided, however, that, in the event of a proposed Corporate Transaction, the
Committee may terminate all or a portion of the outstanding Awards if it
determines that such termination is in the best interests of the Company. If the
Committee decides to terminate outstanding Awards, the Committee shall give each
Awardee holding an Option to be terminated not less than ten days' notice prior
to any such termination by reason of such a Corporate Transaction, and any such
Option which is to be so terminated may be exercised (if and only to the extent
that it is then exercisable) up to and including the date immediately preceding
such termination. Further, as provided in Section 6(b)(4)(A)(ii) hereof, the
Committee, in its discretion, may accelerate, in whole or in part, the date on
which any or all Options become exercisable.
The Committee also may, in its discretion, change the terms of any
outstanding Option to reflect any such Corporate Transaction, provided that, in
the case of ISOs, such change is excluded from the definition of a
"modification" under section 424(h) of the Code.
SECTION 8 - Change in Control
Subject to the term and other provisions of the applicable Agreement, all
of an Awardee's Awards shall become fully exercisable (in the case of Options),
vested (in the case of Performance Shares) and payable (in the case of
Performance Units, at the maximum Ending Value provided in the applicable
Agreement (subject to the limitation contained in Subsection 6(d)(4))) in the
event that (a) a Change in Control of the Company occurs after June 30, 1996 and
(b) such Awardee's Employment is terminated under circumstances specified in the
applicable Agreement within one year following such Change in Control. A "Change
in Control" shall be deemed to have taken place only upon the occurrence of one
or more of the following: (i) a "person" or "group" within the meaning of
sections 13(d) and 14(d) of the Securities and Exchange Act of 1934 (the
"Exchange Act") other than the Executive, 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
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<PAGE>
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 Rights Agreement,
dated November 24, 1998, between the Company and American Stock Transfer & Trust
Company, as Rights Agent). The Company shall give appropriate advance notice to
all Awardees of Options under the Plan of a pending Change in Control so as to
permit such Awardees the opportunity to exercise such Options prior to the
Change in Control.
SECTION 9 - Amendment or Discontinuance of the Plan
At any time and from time to time, the Board may suspend or terminate the
Plan or amend it, and the Committee may amend any outstanding Award, in any
respect whatsoever, except that the following amendments shall require the
approval by the affirmative votes of holders of at least a majority of the
shares present, or represented, and entitled to vote at a duly held meeting of
stockholders of the Company:
(a) with respect to ISOs, any amendment which would:
(1) change the class of employees eligible to participate in the Plan;
(2) except as permitted under Section 7 hereof, increase the maximum
number of Common Shares with respect to which ISOs may be granted under the
Plan; or
(3) extend the duration of the Plan under Section 10 hereof with
respect to any ISOs granted hereunder; and
(b) any amendment which would require shareholder approval pursuant to
Treas. Reg. ss. 1.162-27(e)(4), or any successor thereto.
The foregoing notwithstanding, no such suspension, discontinuance or
amendment shall materially impair the rights of any holder of an outstanding
Award without the consent of such holder.
SECTION 10 - Termination of Plan
Unless earlier terminated as provided in the Plan, the Plan and all
authority granted hereunder shall terminate absolutely at 12:00 midnight on May
22, 2006, which date is the day immediately prior to 10 years after the date the
Plan was adopted by the Board, and no Awards hereunder shall be granted
thereafter. Nothing contained in this Section 10, however, shall terminate or
affect the
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<PAGE>
continued existence of rights created under Awards issued hereunder and
outstanding on May 22, 2006 which by their terms extend beyond such date.
SECTION 11 - Shareholder Approval
This Plan became effective on May 23, 1996.
SECTION 12 - Miscellaneous
(a) Governing Law. The Plan, and the Agreements entered into, and the
Awards granted thereunder, shall be governed by the applicable Code provisions.
Otherwise, the operation of, and the rights of Awardees under, the Plan, the
Agreements, and the Awards shall be governed by applicable federal law and
otherwise by the laws of the State of Delaware.
(b) Rights. Neither the adoption of the Plan nor any action of the Board or
the Committee shall be deemed to give any individual any right to be granted an
Award, or any other right hereunder, unless and until the Committee shall have
granted such individual an Award, and then his or her rights shall be only such
as are provided by the Plan and the Award Agreement.
Any Stock Award under the Plan shall not entitle the holder thereof to any
rights as a shareholder of the Company prior to the issuance of the shares
pursuant thereto. Further, no provision of the Plan or any Agreement with an
Awardee shall limit the Company's right, in its discretion, to retire such
person at any time pursuant to its retirement rules or otherwise to terminate
his or her Employment at any time for any reason whatsoever.
(c) No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the Awardee to exercise such Option.
(d) Non-Transferability. No Award shall be assignable or transferable by
the Awardee otherwise than by will or by the laws of descent and distribution,
and during the lifetime of such person, any Options shall be exercisable only by
him or her or by his or her guardian or legal representative. If an Awardee is
married at the time of exercise of an Option or vesting of Performance Shares
and if the Awardee so requests at the time of exercise or vesting, the
certificate or certificates issued shall be registered in the name of the
Awardee and the Awardee's spouse, jointly, with right of survivorship.
(e) Withholding and Use of Shares to Satisfy Tax Obligations. The
obligation of the Company to deliver Common Shares or pay cash to an Awardee
pursuant to any Award under the Plan shall be subject to applicable federal,
state and local tax withholding requirements.
In connection with an Award in the form of Common Shares subject to the
withholding requirements of applicable federal tax laws, the Committee, in its
discretion (and subject to such
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withholding rules ("Withholding Rules") as shall be adopted by the Committee),
may permit the Awardee to satisfy the minimum required federal, state and local
withholding tax, in whole or in part, by electing to have the Company withhold
(or by returning to the Company) Common Shares, which shares shall be valued,
for this purpose, at their Fair Market Value on the date of exercise of the
Option or vesting of Performance Shares (or if later, the date on which the
Awardee recognizes ordinary income with respect to such exercise or vesting)
(the "Determination Date"). An election to use Common Shares to satisfy tax
withholding requirements must be made in compliance with and subject to the
Withholding Rules. The Company may not withhold shares in excess of the number
necessary to satisfy the minimum required federal, state and local income tax
withholding requirements. In the event Common Shares acquired under the exercise
of an ISO are used to satisfy such withholding requirement, such Common Shares
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 Common Shares were acquired through exercise of an NQSO or of an option
under a similar plan, such option must have been granted to the Awardee at least
six months prior to the Determination Date.
(f) Listing and Registration of Shares. Each Stock Award shall be subject
to the requirement that, if at any time the Committee shall determine, in its
discretion, that the listing, registration or qualification of the shares
covered thereby upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of such Award
or the purchase or vesting of shares thereunder, or that action by the Company
or by the Awardee should be taken in order to obtain an exemption from any such
requirement, no such Stock Award may be exercised, in whole or in part, unless
and until such listing, registration, qualification, consent, approval, or
action shall have been effected, obtained, or taken under conditions acceptable
to the Committee. Without limiting the generality of the foregoing, each Awardee
or his or her legal representative or beneficiary may also be required to give
satisfactory assurance that shares acquired pursuant to a Stock Award are being
purchased for investment and not with a view to distribution, and certificates
representing such shares may be legended accordingly.
***
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IN WITNESS WHEREOF, MIM Corporation has caused these presents to be duly
executed, under seal, this 1st day of December, 1998.
MIM Corporation
By: /s/ Barry A. Posner
-----------------------------------
Name: Barry A. Posner
Title: Vice President and
General Counsel
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LEASE
THIS LEASE ("Lease") is executed and delivered the 27 day of May, 1998 at
Cleveland, Ohio, by and between MELVIN I. LAZERICK ("Landlord"), and CONTINENTAL
PHARMACY, INC., an Ohio corporation ("Tenant").
WITNESSETH:
WHEREAS, Landlord is the fee simple owner of the real property having an
address of 1400 E. Schaaf Road, Brooklyn Heights, Ohio more particularly
described on Exhibit A attached hereto, which property is improved with a
one-story building containing approximately 19,500 square feet (said real
property as so improved being herein called the "Premises");
WHEREAS, Tenant presently occupies the Premises as a subtenant under a
sublease with Unisys Corporation (the "Sublease"), which Sublease expires
October 31, 1998;
WHEREAS, Tenant desires to remain in occupancy of the Premises after the
term of its Sublease ends; and
WHEREAS, Landlord desires to lease the Premises to Tenant and Tenant
desires to lease the Premises from Landlord, subject to the terms and provision
hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, and in and for the
covenants, agreements, representations and warranties hereinafter set forth,
Landlord and Tenant hereby agree as follows:
ARTICLE ONE
TERM
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises for a term of eight (8) months (the "Term") commencing November 1, 1998
(the "Commencement Date") and ending June 30, 1999, unless sooner terminated as
herein provided.
ARTICLE TWO
USE OF PREMISES
Tenant covenants and agrees that the Premises shall be occupied as a
pharmacy distribution and administration facility with related offices and for
no other purpose.
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ARTICLE THREE
RENT
Tenant covenants and agrees to pay to Landlord, promptly when due, without
notice or demand, and without setoff or deduction, Rent for the Premises in the
amount of $13,000.00 per month. Rent shall be payable at the address of Landlord
set forth in Article 20, or at such other place as Landlord shall from time to
time designate by written notice to Tenant.
ARTICLE FOUR
ADDITIONAL RENTAL
Section 4.01 OTHER AMOUNTS AS ADDITIONAL RENTAL. In addition to the Rent
provided for in Article Three, Tenant shall also pay without notice or demand
and without abatement, reduction or setoff, as and toward "Additional Rental"
hereunder, any other costs, expenses and all other sums of money required to be
paid by Tenant under the terms of this Lease and, unless otherwise specified
herein with respect to the time of payment, within ten (10) days after receipt
of an invoice from Landlord therefor, whether or not the same be designated as
Additional Rental. In the event of any non-payment by Tenant of all or any part
thereof, when due, Landlord shall have all of the rights and remedies provided
for in this Lease, or by law, for the non-payment of rent or for the breach of a
condition.
Section 4.02 INTEREST. Any and all amounts which become due and payable to
Landlord under this Lease, whether deemed to be Additional Rent or otherwise
hereunder, shall bear interest at the rate of four percent (4%) per annum in
excess of the Prime Rate of KeyBank or its successors, from the date or dates
such amount shall become due and payable until the date or dates of payment by
Tenant.
ART1CLE FIVE
TAXES
Landlord will pay all real estate taxes and assessments which are assessed
against the Premises.
ARTICLE SIX
INSURANCE
Section 6.01 MAINTENANCE OF INSURANCE. Landlord shall maintain fire and
extended coverage insurance on all improvements located on the Premises. Tenant
shall maintain fire and extended coverage on all of Tenant's personal property.
Section 6.02 LIABILITY INSURANCE. At all times during the term of this
Lease, at its own cost and expense, Tenant shall provide and keep in force on an
occurrence basis commercial general liability insurance policies, in broad form,
protecting Tenant, Landlord, and any mortgagees as additional insured, against
any and all liability in the amount of not less than a combined single limit of
Two Million Dollars ($2,000,000.00). All such policies shall cover the entire
Premises and all buildings and improvements thereon.
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Section 6.03 MUTUAL WAIVER OF SUBROGATION. Notwithstanding anything set
forth in this Lease to the contrary, Landlord and Tenant do hereby waive any and
all right of recovery, claim, action or cause of action against the other, their
respective agents, officers and employees for any loss or damage that may occur
to the Premises or any addition or improvements thereto, by reason of fire, the
elements or any other cause which could be insured against under the terms of a
standard fire and extended coverage insurance policy or policies, with
vandalism, malicious mischief and all-risk coverage and business interruption
insurance or for which Landlord or Tenant may be reimbursed as a result of
insurance coverage affecting any loss suffered by either party hereto,
regardless of cause or origin, including the negligence of Landlord or Tenant or
their respective agents, officers and employees. In addition, all insurance
policies carried by either party covering the Premises including, but not
limited to, contents, fire, and casualty insurance, shall expressly waive any
right on the part of the insurer against the other party for damage to or
destruction of the Premises resulting from the acts, omissions or negligence of
the other party.
Section 6.04 FORM OF POLICIES. All of the policies of insurance to be
maintained under this Lease shall name Landlord and any mortgagee designated by
Landlord as additional insureds and shall provide that the same may not be
canceled by the insurer for non-payment of premiums or otherwise until at least
twenty (20) days after service of written notice of the proposed cancellation
upon the other party and the mortgagee named in such policy.
Section 6.05 FAILURE TO MAINTAIN INSURANCE. In the event that Tenant fails
to obtain, or having obtained, thereafter fails to maintain insurance as is
required in this Lease and such failure shall continue for a period of ten (10)
days after notice by Landlord with respect to such failure, Landlord may, but
shall not be obligated to, effect and maintain any such insurance coverage and
pay the premiums therefor and all premiums so paid by Landlord, together with
interest thereon at the rate provided in Section 4.0 of this Lease from the date
of such payment by Landlord, shall be deemed Additional Rental hereunder, and
payable by Tenant on demand by Landlord.
ARTICLE SEVEN
APPLICABLE LAWS AND REGULATIONS
Section 7.01 COMPLIANCE WITH LAWS. Tenant shall, at its own cost and
expense, promptly observe and comply with all present and future laws,
ordinances, requirements, orders, directives, rules and regulations of the
federal, state, county and municipal governments and of all governmental
authorities ("Legal Requirements") affecting the Premises.
Section 7.02 TENANT'S INDEMNITY REGARDING HAZARDOUS USE. Tenant agrees to
indemnify, defend and hold harmless Landlord for all costs and expenses due to
events relating to Tenant's (or any subtenant's) use, shipment, storage,
disposal or discharge of hazardous or toxic materials or wastes, hazardous or
toxic substances, solid wastes, waste water, or process water in, on or about
the Premises that may result in any requirements, liability or claims to remedy
and/or clean-up such wastes, toxins or substances, whether based upon a statute,
regulation, order of a governmental agency, or a private claim. These
requirements include, but are not limited to, those claims or liabilities
arising out of the Clean Air Act, the Clean Water Act, the Resource Conservation
and Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Toxic Substances Control Act, the Safe Drinking Water Act,
and the state
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counterparts of such statutes. This indemnification applies to, but is not
limited to, claims or liability regarding air pollution, water pollution, land
pollution, groundwater pollution, solid and hazardous waste management and toxic
or hazardous substance control and includes responsibility for remedial action
and clean up. This indemnification will survive the termination of this Lease.
ARTICLE EIGHT
REPAIRS AND MAINTENANCE
Section 8.01 TENANT'S OBLIGATIONS. Tenant has examined and inspected the
Premises, is satisfied with the physical condition of same and accepts same in
its present "as is" physical condition. Tenant further represents that it has
performed all of the repair and maintenance obligations to be performed by it
under the Sublease. Tenant covenants and agrees to keep and maintain all
portions of Premises and the buildings and other improvements comprising the
Premises, in reasonably good order, condition and repair; to promptly make all
repairs becoming necessary during the term of the Lease, to provide cleaning,
janitor and window washing services for the Premises; to clean, maintain and
snowplow the parking areas, walkways, drives and service areas, and generally,
to make all repairs necessary to preserve the Premises in good order, condition
and repair; to complete alterations commenced by Tenant and to comply with all
orders and requirements of any governmental authority applicable to such
buildings and other improvements and to any occupations thereof, all of which
repairs, replacements and restorations shall be in quality and class at least
equal to the original work; provided, however, that Landlord shall be
responsible for any repairs which would constitute a capital expenditure under
generally accepted accounting principles and practices.
Section 8.02 FAILURE TO REPAIR. In the event that Tenant fails to perform
any of its obligations pursuant to Section 8.01 Landlord may, but shall not be
required to, at the sole cost and expense of Tenant, make such repairs or
replacements or perform such acts required to be performed by Tenant pursuant to
Section 8.01, and the cost and expense thereof shall be deemed to be Additional
Rent hereunder and shall be due and payable by Tenant on demand by Landlord, or,
at Landlord's election, shall be due and payable in full with the next monthly
installment of Annual Rent due hereunder.
ARTICLE NINE
PUBLIC UTILITIES AND SERVICES
Tenant shall pay or cause to be paid all charges for gas, water,
electricity, light, heat, power, steam, air-conditioning, telephone or other
communication service or other utility or service used, rendered or supplied to,
upon or in connection with the Premises throughout the term of this Lease, and
to indemnify, defend and save harmless Landlord from and against any liability,
costs, expenses, claims or damages on such account.
ARTICLE TEN
ALTERATIONS
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Tenant agrees that it will not (a) demolish or undertake any structural
alterations to any of the buildings or other improvements erected upon or
otherwise comprising the Premises, without the prior written consent of Landlord
and any mortgagee (if required) or (b) make any other alterations which would
change the character of the buildings or other improvements comprising the
Premises which would weaken, impair or the otherwise in any way affect the
structural aspects or integrity of or lessen the value of the Premises and/or
the buildings and other improvements comprising the Premises, or (c) make any
alteration, addition, enlargement or improvement to the Premises and/or
buildings or the other improvements comprising the Premises where the estimated
cost therefor is in excess of Ten Thousand Dollars ($10,000.00) (subject to any
other requirement of Landlord's mortgagee of which Tenant is notified in
writing), without the prior written consent of Landlord. With respect to any
such alterations permitted to be made by Tenant, Tenant shall (a) pay all costs,
expenses and charges therefor, (b) make the same in accordance with all
applicable laws and building codes in a good and workmanlike manner, (c) cause
the same to be performed by qualified contractors who shall not create any labor
or other disturbance at the Premises while performing same, (d) fully and
completely indemnify and hold harmless Landlord from and against any mechanic's
liens or other liens or claims in connection with the making thereof and (e) by
reason of such alterations, not thereby reduce the economic value of the
Premises. In addition, Tenant shall comply with the provisions of Ohio Revised
Code Section 1311.04 with respect to filing, service and posting of a Notice of
Commencement with respect to any such alterations and Tenant shall indemnify,
defend and hold Landlord harmless from any liability that may be imposed upon
Landlord as a result of Tenant's failure to comply with said statute.
ARTICLE ELEVEN
LIENS
Tenant shall not suffer or permit any liens to be filed against the
Premises or any part thereof by reason of any work, labor, services or materials
done for or supplied to, or claimed to have been done for or supplied to, Tenant
or anyone holding the Premises or any part thereof through or under Tenant. If
any such lien shall at any time be filed against the Premises, Tenant shall
immediately cause the same to be discharged of record by either payment, deposit
or bond.
ARTICLE TWELVE
EXCULPATION AND INDEMNITY
Section 12.01 CONTROL OF PREMISES. Tenant shall be in exclusive control and
possession of the Premises as provided in this Lease, and Landlord shall not in
any event be liable for any injury or damage to any property or to any person
happening on, in or about the Premises, or for any injury or damage to the
Premises, or to any property, whether belonging to Tenant or any other person or
entity, except for any injury or damage caused by Landlord's negligence or
willful misconduct, subject to Section 6.05 of this Lease.
Section 12.02. TENANT'S INDEMNIFICATION. Tenant shall indemnify, defend and
save harmless Landlord from and against all liability, judgments, claims,
demands, suits, actions, losses, penalties, fines, damages, costs and expenses,
including attorneys' fees, of any kind or nature whatsoever, due to or arising
out of or from any breach, violation or non-performance of any covenant,
condition, provision or agreement in this Lease set forth and contained on the
part of Tenant to be fulfilled, kept, observed and performed, and claims of
every kind or nature, arising out
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of the use and occupation of the Premises by Tenant, including, without
limitation, any damage to the property occasioned by or arising from the use and
occupation thereof by Tenant or by any sublessee, subtenant or assignee of
Tenant, any injury to any person or persons, including death resulting at any
time therefrom, occurring in or about the Premises or the sidewalks in front of
the same or adjacent thereto.
ARTICLE THIRTEEN
INTENTIONALLY DELETED
ARTICLE FOURTEEN
DAMAGE AND DESTRUCTION
If the Premises shall be damaged or destroyed to such an extent that the
Premises are rendered untenantable, then either party shall have the right to
terminate this Lease by delivering written notice to the other. If this Lease
shall not be terminated, then rent shall abate during the period the Premises
are untenantable and Landlord shall promptly repair the damage. If the Premises
shall be rendered only partially untenantable, then this Lease shall not
terminate and rent shall abate to the extent the Premises cannot reasonably be
used by Tenant. Landlord shall promptly repair any such damage to the Premises.
Tenant shall not be entitled to any compensation or damages from Landlord for
loss of the use of the whole or any part of the Premises or Tenants's personal
property or any inconvenience or annoyance occasioned by such damage, repair,
reconstruction or restoration.
ART1CLE FIFTEEN
CONDEMNATION
(a) In the event the Building shall be taken or condemned either
permanently or temporarily for any public or quasi-public use or purpose by any
competent authority in appropriation proceedings or by any right of eminent
domain, the entire compensation award therefor, including, but not limited to,
all damages as compensation for diminution in value of the leasehold, reversion,
and fee, shall belong to the Landlord without any deduction therefrom for any
present or future estate of Tenant. Although all damages in the event of any
condemnation are to belong to the Landlord, whether such damages are awarded as
compensation for diminution in value of the leasehold, reversion or to the fee
of the Premises, Tenant shall have the right to claim and recover from the
condemning authority, but not from Landlord, such compensation as may be
separately awarded or recoverable by Tenant in Tenant's own right on account of
any and all damage to Tenant's business by reason of the condemnation and for or
on account of any cost or loss which Tenant might incur in removing Tenant's
merchandise, furniture, fixtures, leasehold improvements and equipment.
(b) In the event that all or part of the Premises are appropriated or taken
under the power of eminent domain by any public authority, by any quasi-public
authority or by conveyance in lieu thereof (all of which is sometimes
hereinafter referred to as "taking," the date of which shall be the date upon
which possession of the portion taken is acquired by the taking authority) and
as a result of such taking there is material interference with Tenant's
continued use of the Premises for its business operations carried on at the time
of such taking, or as a result of such taking, Tenant is
6
<PAGE>
denied access to the Premises, then this Lease shall terminate and the rent and
any other sums payable by Tenant to Landlord shall be prorated as of the date of
such taking and other sums payable by Tenant pursuant to this Lease shall be
paid to such date of taking. In the event that such taking is not a material
interference with Tenant's business as set forth above, then this Lease shall
not terminate, but the rent payable to Tenant to Landlord shall be equitably
reduced to reflect the extent and value of the Premises so taken.
ARTICLE SIXTEEN
ASSIGNMENT AND SUBLETTING
Tenant shall not sublet the Premises or any part thereof nor assign this
Lease, without in each case the prior written consent of Landlord, which consent
shall not be unreasonably withheld or delayed.
ARTICLE SEVENTEEN
INTENTIONALLY DELETED
ARTICLE EIGHTEEN
DEFAULT
Section 18.01 EVENTS OF DEFAULT. The following events shall be "Events of
Default" under this Lease Agreement:
(a) Tenant shall fail to pay any installment of rent hereby reserved
as and when the same shall become due and shall not cure such failure to
pay within five (5) days after written notice thereof is given by Landlord
to Tenant;
(b) Tenant shall fail to comply with any term, provision, or covenant
of this Lease, other than the payment of rent, and shall not cure such
failure within fifteen (15) days after written notice thereof is given by
Landlord to Tenant (provided that if such failure cannot reasonably be
cured within fifteen (15) days, then, upon written consent of Landlord,
Tenant shall have an additional reasonable period of time within which to
cure such failure, provided, said written consent shall be given if Tenant
has diligently commenced and continued in its attempt to cure same upon
receipt of written notice of said failure);
(c) Tenant shall be adjudged insolvent, make a transfer in fraud of
creditors or make an assignment for the benefit of creditors;
(d) Tenant shall file a petition under any section or chapter of the
federal bankruptcy laws, as amended, or under any similar law or statute of
the United States or any state thereof, or Tenant shall be adjudged
bankrupt or insolvent in proceedings filed against Tenant thereunder; or
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(e) A receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant, which receiver is not discharged within one
hundred eighty (180) days thereafter.
Section 18.02 REMEDIES OF LANDLORD. Upon the occurrence of any Event of
Default, Landlord shall have the option to pursue any one or more of the
following remedies:
(a) Terminate this Lease Agreement, in which event Landlord shall have
the right of re-entry and Tenant shall immediately surrender the Premises
to Landlord.
(b) Enter upon and take Possession of the Premises and expel or remove
Tenant and other persons who may be occupying the Premises or any part
thereof, by force if necessary, without termination hereof, without being
liable to prosecution or for any claim for damage, and relet the Premises,
and receive the rent therefor; and Tenant agrees to pay Landlord on demand
any deficiency that may arise by reason of such reletting.
(c) Enter upon the Premises, without being liable for any claim for
damages, and do whatever Tenant is obligated to do under the terms of this
Lease Agreement and Tenant agrees to reimburse Landlord on demand for any
expenses which Landlord may incur in thus effecting compliance with
Tenant's obligations hereunder.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any
of the other remedies therein provided, or any other remedies provided by law or
in equity, nor shall pursuit of any remedy herein provided constitute a
forfeiture or waiver of any rent due to Landlord hereunder or of any damage
accruing to Landlord by reason of the violation of any of the terms, provisions
and covenants herein contained. Forbearance by Landlord to enforce one or more
of the remedies herein provided upon the occurrence of an Event of Default shall
not be deemed or construed to constitute a waiver of such default.
Section 18.03 DAMAGES. Landlord's damages, if there shall be an event of
default under this Lease, shall include in addition to any other damages set
forth in this Lease or permitted at law or equity the following:
(a) All of Landlord's reasonable expenses incurred with respect to
such event of default including, without limitation, attorneys' fees,
commissions, rental concessions to new tenants, and the cost of any repairs
of the Premises.
(b) All Annual Rent, Additional Rent, if any, and other sums then due,
when the event of default occurs and all damages to which Landlord may be
entitled for Tenant's failure to comply with the provisions of this Lease,
plus an amount equal to the difference between all Annual Rent, Additional
Rent and other sums reserved under this Lease for the remainder of the term
and the then fair rental value of the Premises for the then remaining
balance of the term, discounted to present value.
(c) All costs incurred by Landlord to place the Premises in the
condition required by all applicable provisions of this Lease.
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ARTICLE NINETEEN
WARRANTY OF TITLE AND QUIET ENJOYMENT
Landlord represents and warrants that it is the owner in fee simple of the
Premises. Landlord represents and warrants that Tenant, on paying the rent and
performing its obligations hereunder, shall peaceably and quietly hold and enjoy
the Premises for the Term of this Lease without any hindrance, molestation or
ejection by Landlord, its successors or assigns, or those claiming through them.
ARTICLE TWENTY
NOTICES
All notices hereunder shall be in writing and sent by United States
certified or registered mail, postage prepaid, or by a nationally recognized
overnight delivery service providing proof of receipt, addressed if to Landlord
at 26150 Village Lane, Beachwood, Ohio 44122 and if to Tenant, to the Premises,
provided that each party by like notice may designate any future or different
addresses to which subsequent notices shall be sent. Notices shall be deemed
given upon receipt.
ARTICLE TWENTY-ONE
SUBORDINATION AND ATTORNMENT
This Lease is and shall at all times, unless Landlord shall otherwise
elect, be subject and subordinate to all covenants, restrictions, easements and
encumbrances now or hereafter affecting the fee title of the Premises and to all
ground and underlying leases and mortgages or financings or retinancings in any
amounts, and to any and all advances thereunder, which may not or hereafter be
placed against or affect any or all of the land or any of all of the buildings
and improvements now or at any time hereafter constituting a part of or
adjoining the Premises, and to all renewals, modifications, consolidations,
participations, replacements and extensions thereof. The aforesaid provisions
shall be self-operative and no further instrument of subordination shall be
necessary unless required by any such ground or underlying lessor or mortgagee.
Should Landlord or any ground or underlying lessor or mortgagee desire
confirmation of such subordination, Tenant, within ten (10) days following
Landlord's written request therefor, agrees to execute and deliver, without
charge, any and all documents (in form reasonably acceptable to such ground or
underlying lessor or mortgagee) subordinating this Lease and Tenant's rights
hereunder, which agreement shall provide that Tenant's rights under this Lease
shall not be disturbed so long as Tenant is not in default hereunder.
9
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ARTICLE TWENTY-TWO
FORCE MAJEURE
The time for performance by Landlord or Tenant of any term, provision or
covenant of this Lease Agreement, other than the payment of money, shall be
deemed extended by time lost due to delays resulting from acts of God, strikes,
civil riots, floods, restrictions by governmental authority and any other cause
not within the control of Landlord or Tenant, as the case may be.
ARTICLE TWENTY-THREE
MEMORANDUM OF LEASE
This Lease shall not be recorded, but a short form memorandum of lease
shall be recorded, setting forth the terms hereof and the option set forth in
Article Twenty-Four hereof and such other terms and conditions as Landlord or
Tenant shall reasonably request, and the cost of the recording shall be paid by
Tenant.
ARTICLE TWENTY-FOUR
SURRENDER AND HOLDOVER
Tenant shall deliver up and surrender to Landlord possession of the
Premises upon the expiration of the Lease, or its termination in any way, in as
good condition and repair as the same shall be at the commencement of said term
(damage by fire and other perils covered standard fire and extended coverage
insurance and ordinary wear and tear only excepted), and shall deliver the keys
at the office of Landlord or Landlord's agent. Should Tenant or any party
claiming under Tenant remain in possession of the Premises, or any part thereof,
after expiration of this Lease, Tenant shall be deemed to be occupying the
Premises as a Tenant from month to month at a monthly rental of $15,833.33,
together with all additional rent and charges as set forth in this Lease.
ARTICLE TWENTY-FIVE
MISCELLANEOUS
Section 25.01 CONSTRUCTION. The captions used in this Lease are for
convenience only and shall not be deemed to amplify, modify or limit the
provisions hereof. Words of any gender used in this Lease Agreement shall be
construed to include any other gender, and words in the singular shall include
the plural and vise versa, unless the context otherwise requires.
Section 25.02 SUCCESSORS AND ASSIGNS. ENTIRE AGREEMENT. Except as limited
herein, this Lease Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
successors and assigns. This Lease contains the entire agreement of the parties
hereto with respect to the subject matter hereof and can be altered, amended or
modified only by written instrument executed by all such parties.
Section 25.03 ESTOPPEL CERTIFICATES. Landlord and Tenant each agree that at
any time and from time to time at reasonable intervals, and within twenty (20)
days after written request by the other, that each party will execute and
deliver to the other, a written estoppel certificate stating: (i) that this
Lease is in full force and effect and has not been assigned, modified,
supplemented and amended in any way, or if there has been any assignment,
modifications,
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<PAGE>
supplement or amendment, identifying the same; (ii) the date of commencement and
expiration of the Term; (iii) that all conditions under this Lease to be
performed by Landlord and/or Tenant as of the date of said writing, so far as
can be ascertained at that time, are satisfied, or listing what conditions
remain unperformed; (iv) that, so far as can be ascertained at that time, there
are no offsets or defenses against the enforcement of this Lease by Landlord
and/or Tenant, or specifying such default, defense or offset; and (v) the date
to which rent has been paid.
Section 25.04 PARTIAL INVALIDITY. If any provision of this Lease shall be
held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
SECTION 25.05 LEASE NOT CONSTRUED AGAINST EITHER PARTY. All provisions of
this lease have been negotiated by both parties at arm's length and neither
party shall be deemed the scrivener of this Lease. This Lease shall not be
construed for or against either party by reason of the authorship or alleged
authorship of any provision hereof.
SECTION 25.06 NO PARTNERSHIP. It is further understood and agreed that the
Landlord shall in no event be construed or held to be a partner, joint venturer
or associate of the Tenant in the conduct of the Tenant's business, nor shall
Landlord be liable for any debts incurred by the Tenant in the Tenant's
business; but it is understood and agreed that the relationship is and at all
times shall remain that of landlord and tenant.
Section 25.07 NO WAIVER. Waiver by either party hereto of any breach by the
other party hereto of any covenant or condition herein contained, or failure by
Landlord or Tenant to exercise any right or remedy in respect of any such
breach, shall not constitute a waiver or relinquishment for the future of any
such covenant or condition or of any subsequent breach of any such covenant or
condition, or bar any right or remedy of Landlord or Tenant in respect of any
such subsequent breach.
IN WITNESS WHEREOF, the parties hereto have executed this Lease Agreement
as of above written.
Witnesses: LANDLORD:
/s/[ILLEGIBLE]
/s/Sheila J. Pecek /s/MELVIN I. LAZERICK
--------------------------
MELVIN I. LAZERICK
/s/Kathi Palazzi TENANT:
/s/Sal Salanzo CONTINENTAL PHARMACY,INC.
By: /s/Carl H. Jesina
-----------------------
Title: President
11
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("Amendment") dated as of January 29, 1999 is
executed by and between MELVIN I. LAZERICK ("Landlord"), and CONTINENTAL
PHARMACY, INC., an Ohio corporation ("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant entered into a lease dated May 12, 1998 (the
"Lease"), pursuant to which Tenant leased certain premises located at 1400 East
Schaaf Road, Brooklyn Heights, Ohio, as more particularly described therein (the
"Premises"); and
WHEREAS, Landlord and Tenant have agreed to amend the Lease in order to
extend the Lease Term through June 30, 2000, and to otherwise modify the Lease
in the respects hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
contained herein and other good or valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree that effective
upon execution hereof, the Lease shall be amended as follows:
1. ARTICLE 1 of the Lease shall be deleted in its entirety and the
following shall be substituted therefor:
"ARTICLE ONE -- TERM
Section 1.01 -- Initial Term. Landlord hereby leases to Tenant and
Tenant hereby Leases from Landlord the Premises for an initial term of
one (1) year and eight (8) months (the "Initial Term") commencing
November 1, 1998 (the "Commencement Date") and ending June 30, 2000,
unless sooner terminated as provided herein.
Section 1.02 -- Renewal Term. Provided Tenant is not then in default
under any of the terms, covenants or conditions of this Lease, Tenant
shall have the option to renew this Lease for one (1) period of four
(4) years (the "Renewal Term") on the same terms and conditions
contained herein for the Initial Term, except that the rent shall be
as provided in Article Three. Tenant shall exercise said option by
written notice to Landlord not less than one hundred eighty (180) days
prior to expiration of the Initial Term."
<PAGE>
2. Article Three of the Lease shall be deleted in its entirety and the
following shall be substituted therefor:
"ARTICLE THREE -- RENT. Tenant covenants and agrees to pay Landlord,
promptly when due, without notice or demand, and without set-off or
deduction, Rent for the Premises as follows:
(a) From the Commencement Date through June 30, 1999, the sum of One
Hundred Four Thousand ($104,000) Dollars ($8.00 per sq. ft.), payable
in equal monthly installments of Thirteen Thousand ($13,000) Dollars
each;
(b) From July 1, 1999 though June 30, 2000, the sum of One Hundred
Forty-Six Thousand two Hundred Fifty ($146,250) Dollars per annum
($7.50 per sq. ft.), payable in twelve (12) equal monthly installments
of Twelve Thousand One Hundred Eighty-Seven 50/100 ($312,187.50)
Dollars each;
(c) For the first two (2) years of the Renewal Term (July 1, 2000
through June 30, 2002), the sum of One Hundred Fifty-Six Thousand
($156,000) Dollars per annum ($8.00 per sq. ft.), payable in
twenty-four (24) equal monthly installments of Thirteen Thousand Eight
Hundred Twelve 50/100 ($13,000) Dollars each; and
(d) For the last two (2) years of the Renewal Term (July 1, 2002
though June 20, 1004), the sum of One Hundred Sixty-Five Thousand
Seven Hundred Fifty ($165,750) Dollars per annum ($8.50 per sq. ft.),
payable in twenty-four (24) equal monthly installments of Thirteen
Thousand Eight Hundred Twelve 50/100 ($13,812.50) Dollars each."
Rent shall be payable at the address of the Landlord set forth in
Article Twenty of the Lease, or at such other place as Landlord may
from time to time designate by written notice to Tenant."
3. The following provision shall be added to the Lease as Section 4.03:
"Section 4.03 -- Increase in Real Estate Taxes. Tenant shall reimburse
and pay to Landlord as Additional Rental, any increases in real estate
taxes attributable to Premises over those paid for the calendar year
1998 ("Base Year"), which taxes are payable by Landlord pursuant to
Article Five of the Lease. Real estate taxes are defined to mean all
taxes and assessments, general, special or otherwise, if any, levied,
assessed or imposed under governmental authority upon or with respect
to the Premises and/or the land upon which it is located, which become
payable by Landlord annually."
<PAGE>
4. The following provision shall be added to the Lease as Section 25.08:
"Section 25.08" -- Right to Lease Additional Building. Provided Tenant
is not then in default under any of the terms or conditions of this
Lease, Tenant shall have the right to lease the building adjacent to
the Premises being a single story five thousand (5,000) sq. ft.
structure located at 1402 East Schaaf Road (the "Expansion Premises")
upon vacation by the current tenant of the Expansion Premises, on the
same terms and conditions contained in this Lease (including the same
per square foot rental rate). Tenant shall exercise said option by
giving Landlord written notice thereof on the earlier of one hundred
eighty (180) days prior to the expiration of the Initial Term, or
within thirty (30) days following receipt of written notice from
Landlord of the vacation of the Expansion Premises by the current
tenant NRP Group, Inc. Landlord represents that the lease of NRP
Group, Inc. currently expires on June 30, 1999. Tenant's failure to
exercise said option within the said time period shall be deemed a
waiver of said option. In the event Tenant desires to lease the
Expansion Space, Tenant shall execute an amendment to this Lease
confirming the lease of the Expansion Space, which shall provide the
same terms and conditions as this Lease including the same rental per
square foot for the Expansion Space."
5. In further consideration of this Agreement, Tenant's parent company MIM
Corporation will execute a Lease Guaranty substantially in the form attached
hereto as Exhibit "A".
6. Except as expressly amended hereby, the Lease remains unmodified and in
full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of
the date first above written but have actually executed this Amendment on the
dates set forth in the acknowledgments hereof.
WITNESSES: LANDLORD
/s/[ILLEGIBLE] /s/MELVIN I. LAZERICK
- - ------------------- ------------------------------
/s/SHEILA J. PECEK Melvin I. Lazerick
- - -------------------
TENANT
CONTINENTAL PHARMACY, INC.
/s/[ILLEGIBLE] By: /S/SCOTT R. YABLON
- - ------------------- --------------------
Title: President
<PAGE>
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
BEFORE ME, a Notary Public in and for said County and State, this day
personally appeared the above named MELVIN I. LAZERICK. who acknowledged that he
did sign the foregoing instrument and that such signing was his free act and
deed.
WITNESS my signature and notarial
seal at Cleveland, Ohio this
29th day of January, 1999.
/s/Sheila J. Pecek
------------------------------
Notary Public
STATE OF NEW YORK ) SHEILA J. PECEK
) SS: Notary Public, State of Ohio
COUNTY OF WESTCHESTER ) Recorded in Cuyahoga County
My Commission Expires: 3/12/2001
BEFORE ME, a Notary Public in and for said County and State, this day
personally appeared the above named CONTINENTAL PHARMACY, INC., an Ohio
corporation, by Scott R. Yablon, its President, who acknowledged that with due
authorization and as such President he did sign the foregoing instrument on
behalf of said corporation, and that such signing was his free act and deed
individually and as such President, and the free act and deed of said
corporation.
WITNESS my signature and notarial seal at Elmsford, New York, this 2nd day
of February 1999.
/s/Soibhan Hill
------------------------
Notary Public
[STAMP]
August 24, 1998
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
1400 E. Schaaf Road
Brooklyn Heights, OH 44131
Gentlemen:
Reference is hereby made to that certain letter agreement dated January 24,
1995, as amended and supplemented by that certain Additional Credit Agreement
dated January 23, 1996 and that certain letter agreement dated January 28, 1997
(collectively, the "Agreement"), by and between the Bank and the Borrower. Terms
used but not otherwise defined in this letter agreement shall have the meanings
given to such terms in the Agreement and the Loan Documents.
On January 27, 1998, Borrower entered into an Agreement and Plan of Merger
with CMP Acquisition Corp. ("CMP"), a wholly-owned subsidiary of MIM
Corporation, a Delaware corporation ("MIM"), upon the consummation of which
Borrower shall survive as a wholly-owned subsidiary of MIM and the separate
corporate existence of CMP will terminate (the "Merger"). The Bank has consented
to the Merger by delivery to Borrower of that Letter of Consent dated the date
hereof.
Borrower has requested that (i) the interest rate on that certain Second
Amended and Restated Master Revolving Note for $6,500,000 dated as of April 9,
1997 from Borrower to Bank be amended and restated to provide that the per annum
rate of interest prior to a Default shall be reduced from a per annum rate of
the Bank's "prime rate" plus .75%, to an amount equal to the Bank's "prime rate"
as it is from time to time in effect; (ii) the guaranty from Michael R.
Erlenbach, dated January 24, 1995, as reaffirmed on January 24, 1996 and January
28, 1997 (collectively, the "Guaranty"), which Guaranty guarantees the payment
of all Indebtedness to the Bank when due, up to an aggregate amount of
$1,000,000, be terminated and replaced with an unlimited Guaranty from MIM to
Bank; (iii) Bank accept, in lieu of annual audited financial statements of
Borrower, annual audited consolidated financial statements of MIM, together with
unaudited, certified financial statements of Borrower; (iv) instead of thirty
(30) days, Bank accept the quarterly financial statements of Borrower forty-five
(45) days after the close of the applicable quarter; and (v) Bank acknowledge
the existence of certain indebtedness and liens and waive any and all prior,
current and future rights it may have as a result of the existence thereof.
<PAGE>
Continental Managed Pharmacy Services, Inc.
August 24, 1998
Page 2
Subject to the conditions set forth below, Bank is willing to grant such
amendments upon the following terms and conditions:
1. That the Borrower covenants and agrees that so long as any Liabilities
remain outstanding, Borrower shall not:
(a) Create, incur, assume or in any manner become liable in respect of, or
suffer to exist, any indebtedness, other than (i) the Indebtedness,
(ii) indebtedness in respect of taxes, assessments and governmental
charges which at the time are not yet due and payable or the amount or
validity of which is currently being contested in good faith by
appropriate proceedings and for which adequate reserves in conformity
with generally accepted accounting principles ("GAAP") have been
taken; and (iii) indebtedness incurred with respect to purchases of
goods, equipment, services and inventory arising in the ordinary
course of business.
(b) Purchase or otherwise acquire, whether in one or a series of
transactions, all or a substantial portion of the business, assets,
rights, revenues or property, real, personal or mixed, tangible or
intangible, of any person or all or a substantial portion of the
capital stock of, or other ownership interest in any other person, nor
merge or consolidate or amalgamate with any other person or take any
other action having a similar effect, nor enter into any joint venture
or similar arrangement with any other person except CMP.
(c) Sell, lease, license, transfer, assign or otherwise dispose of all or
a material portion of its business, assets, rights, revenues or
property, real, personal or mixed, tangible or intangible, whether in
one or a series of transactions, other than inventory sold in the
ordinary course of business upon customary credit terms.
(d) Make any substantial change in the nature of its business from that
engaged in on the date of this letter agreement or engage in any other
businesses other than those in which it is engaged on the date of this
letter agreement.
(e) Make, pay, declare or authorize any dividend, payment or distribution
in respect of any class of its capital stock or make any dividend,
payment or distribution in connection with the redemption, purchase,
retirement or other acquisition, directly or indirectly, of any shares
of its capital stock.
(f) Purchase or otherwise acquire any capital stock of or other ownership
interest in, or debt securities of or other evidences of indebtedness
of, any other person; nor make
<PAGE>
Continental Managed Pharmacy Services, Inc.
August 24, 1998
Page 3
any loan or advance of any of its funds or property or make any other
extension of credit to, or make any investment or acquire any interest
whatsoever, in, any other person; nor incur any contingent liability;
nor permit any subsidiary or related company subject to Borrower's
control (collectively, "Affiliate"), to do any of the foregoing, other
than (i) extensions of trade credit made in the ordinary course of
business on customary credit terms, and (ii) commercial paper of any
United States issuer having the highest rating then given by Moody's
Investors Service, Inc., or Standard & Poor's Corporation, direct
obligations of and obligations fully guaranteed by the United States
of America or any agency or instrumentality thereof or certificates of
deposit of any commercial bank which is a member of the Federal
Reserve System and which has capital surplus and undivided profit (as
shown on its most recently published statement of financial condition)
aggregating not less than $100,000,000.
(g) Make, or suffer to be made by any Affiliate, any dispositions of
money, including revenues and rights thereto, other than as
contemplated in this letter agreement, the Agreement and the Loan
Documents, to any other person other than in the ordinary course of
business pursuant to an arm's length transaction.
(h) Enter into, become a party to, or become liable in respect of, any
contract or undertaking with any related entity or Affiliate except in
the ordinary course of business and on terms not less favorable to the
Borrower or such related entity or Affiliate, other than those which
could be obtained if such contract or undertaking were an arm's length
transaction with a person other than the related company.
(i) Create, incur, assume or in any manner become liable in respect of, or
suffer to exist, any contingent liabilities other than any guarantees
in favor of the Bank as requested by the Bank.
(j) Make any optional payment, prepayment or redemption of any debt
subordinate to the Indebtedness ("Subordinated Debt"), nor amend or
modify, or consent or agree to any amendment or modification, which
would shorten any maturity or increase the amount of any payment of
principal or increase the rate (or require earlier payment) of
interest on any such Subordinated Debt, nor amend the subordination
provisions of any agreement under which any such Subordinated Debt is
issued or created or otherwise related thereto, nor enter into any
agreement or arrangement providing for the defeasance of any such
Subordinated Debt.
<PAGE>
Continental Managed Pharmacy Services, Inc.
August 24, 1998
Page 4
(k) Enter into any agreement with any person other than the Bank which
prohibits or limits the ability of the Borrower, or any Affiliate, to
create, incur, assume or suffer to exist any lien upon any of its
assets, rights, revenues or property, real, personal or mixed,
tangible or intangible, whether now or hereafter acquired.
(1) Enter into any agreement containing any provision which would be
violated or breached by this letter agreement or any of the
transactions contemplated hereby or by performance by the Borrower of
its obligations in connection therewith.
(m) Change its fiscal year or make any significant changes (i) in
accounting treatment and reporting practices except as permitted by
GAAP or (ii) in tax reporting treatment except as permitted by law.
2. That the following actions are taken:
(a) Borrower shall execute and deliver a Third Amended and Restated Master
Revolving Note in form and substance acceptable to the Bank.
(b) MIM shall execute a guaranty in favor of the Bank in form and
substance acceptable to the Bank.
(c) Borrower shall pay to Bank the sum of $15,000 and shall pay all costs
and expenses incurred by the Bank in connection with this letter
agreement and any costs related thereto.
3. Bank hereby acknowledges that the indebtedness and liens represented by the
UCC filings set forth on Exhibit A attached hereto presently exist and/or
have existed during the term of the Agreement from and after the time
indicated on Exhibit A and that such indebtedness and liens may have
resulted in certain breaches by Borrower of its representations,
warranties, covenants and agreements under the Agreement and Loan Documents
and thereby may have given the Bank certain rights by reason of events of
default under the Agreement and Loan Documents. Bank hereby waives any and
all breaches by Borrower of its representations, warranties, covenants and
agreements under the Agreement and Loan Documents relating to or arising
from the indebtedness and liens set forth on Exhibit A which occurred prior
to the date hereof ("Prior Breaches") and hereby waives any and all rights
(including, without limitation, rights in connection with events of
default) it may have under this letter agreement, the Agreement and Loan
Documents as a result of such Prior Breaches. Bank further waives any all
breaches by Borrower of its representations, warranties, covenants and
agreements under this letter agreement, the Agreement and Loan Documents
(as amended hereby)
<PAGE>
Continental Managed Pharmacy Services, Inc.
August 24, 1998
Page 5
relating to or arising from the indebtedness and liens set forth on Exhibit
A which may occur on or after the date hereof ("Future Breaches") and
hereby waives any and all rights (including, without limitation, rights in
connection with events of default) it may have in the future under this
letter agreement, the Agreement and Loan Documents as a result of such
Future Breaches, provided that said indebtedness and liens are not modified
in any way from and after the date hereof.
Except as modified hereby, all of the terms and conditions of the Agreement
and Loan Documents shall remain unaffected and in full force and effect.
To confirm your acceptance of the foregoing, your affirmation of all of
Borrower's Liabilities to the Bank under the Agreement and the Loan Documents,
and your acknowledgment that as of the date hereto, Borrower does not have any
claim, defense or set-off rights against the Bank of any nature whatsoever,
whether arising in tort, contract or otherwise, please indicate with the
authorized signature of Borrower as provided below.
Very truly yours,
COMERICA BANK
By: /s/ Timothy V. Coleman
----------------------------------
Its: Assistant Vice President
Acknowledged and agreed to
this 24th day of August, 1998:
CONTINENTAL MANAGED PHARMACY
SERVICES, INC.
By: /s/ Carl L. Jesina
-----------------------------
Its: Vice President
<PAGE>
Continental Managed Pharmacy Services, Inc.
August 24, 1998
Page 6
CONTINENTAL PHARMACY, INC.
By: /s/ Carl L. Jesina
-----------------------------
Its: President
PREFERRED RX, INC.
By: /s/ Carl L. Jesina
-----------------------------
Its: Vice President
AUTOMATED SCRIPTS, INC.
By: /s/ Carl L. Jesina
-----------------------------
Its: Vice President
VALLEY PHYSICIANS SERVICES, INC.
By: /s/ Carl L. Jesina
-----------------------------
Its: Vice President
<PAGE>
EXHIBIT A
Page 1
<TABLE>
<CAPTION>
Rank Name Type Other Party Loc Filing Pate
<S> <C> <C> <C> <C> <C>
1. CONTINENTAL MANAGED PHARMAC ORIGINAL HEWLETT-PACKAR OH 06-29-1994
2. CONTINENTAL MANAGED PHARMAC ORIGINAL COMERICA BANK OH 01-25-1995
3. CONTINENTAL MANAGED PHARMAC ORIGINAL HEWLETT-PACKAR OH 07-28-1994
4. CONTINENTAL PHARMACY INC-De AMENDMENT BANKERS LEASIN OH 03-04-1994
5. CONTINENTAL PHARMACY INC-De TERMINATIO BANKERS LEASIN OH 01-30-1995
6. CONTINENTAL PHARMACY INC-De ORIGINAL FINANCING SYST OH 02-16-1990
7. CONTINENTAL PHARMACY INC-De ORIGINAL FIRST BANK RIC OH 01-17-1997
8. CONTINENTAL PHARMACY INC-De ORIGINAL FOX MEYER DRUG OH 05-17-1993
9. CONTINENTAL PHARMACY INC-De CONTINUATI MCKESSON CORPO OH 03-06-1998
10. CONTINENTAL PHARMACY INC-De ASSIGNMENT MCKESSON CORPO OH 10-03-1997
11. CONTINENTAL PHARMACY INC-De ORIGINAL NATIONAL CITY OH 05-22-1992
12. CONTINENTAL PHARMACY INC-De TERMINATIO NATIONAL CITY OH 02-14-1995
13. CONTINENTAL PHARMACY INC-De ORIGINAL PITNEY BOWES C OH 06-20-1996
14. CONTINENTAL PHARMACY INC-De ORIGINAL SOCIETY EQUIPM OH 07-09-1991
15. CONTINENTAL PHARMACY INC-De ORIGINAL TOSHIBA AMERIC OH 12-15-1992
16. CONTINENTAL PHARMACY, INC.- ORIGINAL BANKERS LEASIN OH 01-03-1994
17. CONTINENTAL PHARMACY, INC.- ORIGINAL BANKERS LEASIN OH 01-03-1994
18. CONTINENTAL PHARMACY, INC.- ORIGINAL COMERICA BANK OH 01-25-1995
</TABLE>
Copr.(C) West 1998 No Claim to Orig. U.S. Govt. Works
January 28, 1997
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131
Gentlemen:
Reference is hereby made to that certain letter agreement dated January 24,
1995, as amended and supplemented by that certain Additional Credit Agreement
dated January 23, 1996 (collectively, the "Agreement"), by and between the Bank
and the Borrower. Terms used but not otherwise defined in this letter shall have
the meanings given to such terms in the Agreement and the Loan Documents.
Borrower has requested that Bank extend the Maturity Date of the Master
Revolving Note from February 1, 1997 to May 1, 1997.
Subject to the conditions set forth below, the Bank is willing to grant
such extension with the understanding that it has no further obligation to grant
any additional extensions of the Maturity Date, except on terms agreed to by
Bank in its sole discretion. As conditions to the extension, (i) Borrower shall
execute and deliver an Amended and Restated Master Revolving Note in form and
substance acceptable to the Bank, (ii) Michael R. Erlenbach shall execute a
Reaffirmation of Guaranty in form and substance acceptable to Bank and (iii)
Borrower shall pay to Bank all of the costs and expenses incurred by Bank in
connection with the extension.
Except as modified hereby, all of the terms and conditions of the Agreement
and the Loan Documents shall remain unaffected and in full force and effect.
To confirm your acceptance of the foregoing extension, your affirmation of
all of Borrower's Liabilities to the Bank under the Agreement and the Loan
Documents, and your acknowledgement that as of the date hereof, Borrower does
not have any claim, defense or set-off rights against the Bank of any nature
whatsoever, whether arising in tort, contract or otherwise, please indicate with
the authorized signature of Borrower as provided below.
<PAGE>
Very truly yours,
COMERICA BANK
By /s/ Timothy Coleman
----------------------------------
Its: Vice President
Acknowledged and agreed to this 28th
day of January, 1997:
CONTINENTAL MANAGED PHARMACY SERVICES, INC.
By: /s/ MICHAEL R. ERLENBACH
-----------------------------
Its: Secretary
CONTINENTAL PHARMACY, INC.
By: /s/ MICHAEL R. ERLENBACH
-----------------------------
Its: Secretary
PREFERRED RX, INC.
By: /s/ MICHAEL R. ERLENBACH
-----------------------------
Its: Secretary
AUTOMATED SCRIPTS, INC.
By: /s/ MICHAEL R. ERLENBACH
-----------------------------
Its: Secretary
VALLEY PHYSICIANS SERVICES, INC.
By: /s/ MICHAEL R. ERLENBACH
-----------------------------
Its: Secretary
January 24, 1995
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131
Gentlemen:
This letter agreement (the "Agreement") constitutes an agreement by and
between COMERICA BANK, a Michigan banking corporation ("Bank"), and CONTINENTAL
MANAGED PHARMACY SERVICES, INC. an Ohio corporation (the "Company"), pertaining
to certain loans and other credit which Bank has made or may from time to time
hereafter make available to the Company and its wholly-owned subsidiaries,
CONTINENTAL PHARMACY, INC., an Ohio corporation ("CPI"), PREFERRED RX, INC., an
Ohio corporation ("Preferred"), AUTOMATED SCRIPTS, INC., an Ohio corporation
("ASI"), and VALLEY PHYSICIANS SERVICES, INC., an Ohio corporation ("VPSI").
(CPI, Preferred, ASI and VPSI are sometimes collectively hereinafter referred to
as the "Subsidiaries") (the Company and the Subsidiaries are sometimes
collectively hereinafter referred to as "Borrower").
In consideration of all present and future loans and credit made available
by Bank to Borrower, and all present and future liabilities, obligations and
indebtedness of Borrower to Bank, howsoever created, evidenced, existing or
arising, whether direct or indirect, absolute or contingent, joint or several,
now or hereafter existing or arising, or due or to become due (herein
collectively called the "Liabilities"), Borrower covenants and agrees as
follows:
1. Each loan or other extension of credit made by Bank to or otherwise in
favor of Borrower shall be evidenced by and subject to a promissory note or
other agreement or evidence of indebtedness acceptable to Bank and executed and
delivered by Borrower and unto Bank (any and all notes, instruments, documents
and agreements at any time evidencing, governing, securing or otherwise relating
to any of the Liabilities, including this Agreement, are herein collectively
called the "Loan Documents").
<PAGE>
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 2
2. Borrower hereby represents and warrants, and such representations and
warranties shall be deemed to be continuing representations and warranties
during the entire life of this Agreement and thereafter so long as any
Liabilities remain outstanding:
(a) Each of the Company and the Subsidiaries is a corporation
duly organized and existing in good standing under the laws
of the State of Ohio; is duly qualified and authorized to
do business as a foreign corporation in each jurisdiction
where the character of its assets or the nature of its
activities makes such qualification necessary; has the
legal power and authority to own its properties and assets
and to carry out its business as now being conducted in
each such jurisdiction wherein such qualification is
necessary. The execution, delivery and performance of this
Agreement and any and all other Loan Documents by each of
the Company and the Subsidiaries are within its corporate
powers, have been duly authorized by all requisite
corporate action, are not in contravention of the terms of
each of the Company's and the Subsidiaries' Articles of
Incorporation or Code of Regulations and are not, to the
Company's and the Subsidiaries' knowledge, in violation of
law and do not require the consent or approval of any
governmental body, agency or authority; and this Agreement
and any other Loan Documents contemplated hereby, when
issued and delivered, will be valid and binding and legally
enforceable against each of the Company and the
Subsidiaries in accordance with their terms.
(b) The execution, delivery and performance of this Agreement
and any other Loan Documents required under this Agreement,
and the issuance of this Agreement and such other Loan
Documents by each of the Company and the Subsidiaries, and
the borrowings contemplated hereby, are not in
contravention or violation of the terms of any indenture,
agreement or undertaking to which each is a party or by
which it or any of its property or assets is bound, and
will not result in the creation or imposition of any lien
or encumbrance of any nature whatsoever upon any of the
property or assets of the Company or the Subsidiaries,
except to or in favor of Bank.
<PAGE>
Continental Managed Pharmacy Services. Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 3
(c) No litigation or other proceeding before any court or
administrative agency is pending, or to the knowledge of
the officers of the Company or the Subsidiaries, is
threatened against Company or the Subsidiaries, the outcome
of which could materially impair the Company's or the
Subsidiaries' financial condition or their ability to carry
on their business or their ability to pay and perform their
liabilities and obligations hereunder or otherwise in
respect of the Liabilities.
(d) There are no security interests in, or liens, mortgages, or
other encumbrances on any of the Company's or the
Subsidiaries' property or assets, except those listed on
Schedule 1 to this Agreement or to or in favor of Bank.
(e) Each of the Company and the Subsidiaries has all licenses,
permits and governmental approvals necessary to operate a
pharmacy and all such licenses, permits and approvals are
in full force and effect
(f) There exists no condition or event which constitutes, or
with the giving of notice or the passage of time, or both,
would constitute, an Event of Default (as hereinafter
defined) under any of the Liabilities.
3. So long as any Liabilities remain outstanding, Borrower covenants and
agrees that it shall:
(a) (i) Furnish annually to Bank, in form satisfactory to Bank,
and within ninety (90) days after and as of the close of
each fiscal year of each of the Company and the
Subsidiaries, a balance sheet as of the close of each such
fiscal year, statements of income and retained earnings and
changes in financial position for each such year, and such
other comments and financial details as are usually
included in similar reports; (ii) furnish in form similar
to statements previously submitted to Bank, within thirty
(30) days after and as of the close of each month of each
fiscal year of each of the Company or the Subsidiaries,
financial statements containing the balance sheets and
statements of income and retained earnings and changes in
financial position
<PAGE>
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 4
for the portion of the fiscal year up to the end of such
period; and (iii) promptly furnish Bank, in form and detail
satisfactory to Bank, such other information as Bank may
reasonably request from time to time. The annual statements
to be furnished to Bank pursuant to (i) above should be
prepared on an audited basis by independent certified
public accountants selected by Company and acceptable to
Bank, and the monthly financial statements to be furnished
to Bank pursuant to (ii) above should be certified by an
authorized officer of the Company and the Subsidiaries. All
of such financial statements should be prepared in
accordance with generally accepted accounting principles
consistent with prior periods ("GAAP").
(b) Preserve and keep in full force and effect each of the
Company's and the Subsidiaries' corporate existence in good
standing; continue to conduct and operate its business
substantially as presently conducted and operated and
maintain and protect all franchises and trade names and
preserve all the remainder of its property and assets used
or useful in the conduct of its business and keep the same
in good repair and condition.
(c) Promptly inform Bank of the occurrence of any Event of
Default, or any condition or event which, with the giving
of notice or the passage of time, or both, would constitute
an Event of Default, or of any condition or event which
could have a materially adverse effect upon the Company's
or the Subsidiaries' business, properties, financial
condition or ability to comply with their obligations
hereunder or otherwise in respect of any of the
Liabilities.
(d) Not affirmatively pledge or mortgage any of its property or
assets, whether now owned or hereafter acquired, or create,
suffer or permit to exist, any lien or security interest or
encumbrance thereon, except to or in favor of Bank,
Foxmeyer Drug Company ("Foxmeyer") or, except for leases
currently in place, for leased equipment in an amount not
to exceed $50,000 in the aggregate.
(e) Maintain in full force and effect all licenses, permits and
governmental approvals necessary to operate its business.
<PAGE>
Continental Managed Pharmacy Services. Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 5
(f) Maintain at all times a Net Worth of not less than
$4,200,000. "Net Worth" shall mean the excess of (A) the
net book value of the assets of the Company after all
appropriate deductions in accordance with GAAP (including,
without limitation, reserves for doubtful receivables,
obsolescence, depreciation and amortization), over (B) all
liabilities of Company.
(g) Maintain, at all times a Debt to Net Worth Ratio of not
more than 2.5 to 1.0. "Debt to Net Worth Ratio" shall mean
the ratio of (i) total liabilities of the Company, as
determined in accordance with GAAP, to (ii) Net Worth.
(h) Maintain at all times a current ratio of not less than 1.0
to 1.0. "Current Ratio" shall mean the ratio of (i) current
assets of the Company, as determined in accordance with
GAAP, to (ii) current liabilities of the Company, excluding
any current portion of the Liabilities owing by the
Borrower to Bank pursuant to the Master Revolving Note, as
determined in accordance with GAAP.
(i) Maintain as of December 31 of each year, commencing
December 31, 1995, a Fixed Charge Coverage for the twelve
(12) months then ended of at least two times. "Fixed Charge
Coverage" shall be determined in accordance with GAAP and
shall mean (i) operating income plus depreciation plus
amortization plus interest divided by (ii) interest and the
current maturities of all long term debt.
(j) Pay the fees incurred by Bank in auditing the Company in
connection with the Liabilities. The fees to be paid by the
Company shall not exceed $3,000 per audit and the Company
shall have no obligation to pay for more than 3 audits in
any calendar year period. Notwithstanding the foregoing,
the Bank shall not be limited in the number of additional
audits it may undertake at its own expense in any calendar
year period.
(k) Provide Bank, within thirty (30) days after the end of each
quarter during the term of this Agreement, a statement,
signed by the president or chief financial officer of the
Company, certifying that each of the Company and the
Subsidiaries is in compliance with the covenants set forth
in this Agreement.
<PAGE>
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 6
(1) Provide Bank promptly such other data and information
(financial and otherwise) as Bank, from time to time, may
reasonably require.)
4. An "Event of Default" shall be deemed to have occurred or exist under
this Agreement upon the occurrence and/or existence of any of the following
conditions or events:
(a) Borrower shall fail to pay the principal of or interest on
or shall otherwise fail to pay any other amount owing by
Borrower to Bank under any of the Liabilities, and such
default in payment shall continue unremedied or uncured for
a period of five (5) days after such payment was due;
(b) Any representation, warranty, certification or statement
made or deemed to have been made by Borrower herein or in
any certificate, financial statement or other document or
agreement delivered by Borrower to Bank, or by other on
behalf of Borrower, shall prove to be untrue in any
material respect;
(c) Borrower shall fail to observe or perform, in any material
respect, any condition, covenant or agreement of Borrower
set forth herein (other than as provided in subparagraph
(a) above), and, in the case of those covenants and
agreements set forth in paragraphs 3(a), (b), (e), (f) (g)
or (h) hereof, such default shall continue unremedied or
uncured for a period of thirty (30) days after the earlier
of the date of written notice thereof by Bank to Borrower
or the date Bank is notified, or should have been notified
by Borrower pursuant to Borrower's obligations under
paragraph 3(c) of this Agreement, of such default;
(d) Borrower shall fail to observe or perform, in any material
respect, any condition, covenant or agreement of Borrower
set forth in any other Loan Document (other than as
provided in subparagraphs (a) above), and such default
shall remain unremedied or uncured beyond any period of
grace or cure, if any, provided with respect thereto; or
<PAGE>
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 7
(e) Upon the occurrence or existence of any "Default" or "Event
of Default", as the case may be, which continues uncured
beyond the expiration of any applicable grace period set
fort in any other Loan Document including, without
limitation, the Guaranty.
5. Upon the occurrence of any Event of Default, Bank may give notice to
Borrower declaring all outstanding Liabilities to be due and payable, whereupon
all such Liabilities then outstanding shall immediately become due and payable,
without further notice or demand, and any commitment or obligation, if any, on
the part of Bank to make loans or otherwise extend credit to Borrower shall
immediately terminate, all indebtedness then outstanding under the Liabilities
shall automatically become immediately due and payable, and any such commitment
or obligation on the part of Bank, if any, shall immediately terminate, in each
case without notice or demand, which are hereby expressly waived by Borrower.
Further, upon the occurrence of any Event of Default, Bank may collect, deal
with and dispose of all or any part of any security in any manner permitted or
authorized by the Ohio Uniform Commercial Code or other applicable law
(including public or private sale) and after deducting expenses (including
reasonable attorneys' fees and expenses), Bank may apply the proceeds and any
deposits or credits in part or fall payment of any of the Liabilities, whether
due or not, in any manner or order which Bank elects. Borrower shall remain
liable for any deficiency, which it shall pay to Bank immediately upon demand.
6. Notwithstanding any other provision of this Agreement or any of the
other Loan Documents, and without affecting in any manner the rights of Bank
under the other Sections of this Agreement, it is understood and agreed that
Bank shall have no obligation to advance funds to Borrower at any time under the
Loan Documents unless and until each of the following conditions have been and
continue to be satisfied, all in form and substance satisfactory to Bank and its
counsel:
(a) Absence of Legal Actions. No legal action, proceeding,
investigation, regulation or legislation shall have been
instituted, threatened or proposed before any court,
governmental agency or legislative body which would have a
material adverse effect on the business, property or
condition of the Borrower or which seeks to enjoin,
restrain, or prohibit, or to obtain damages in respect of
this Agreement or any of the other Loan Documents or the
consummation of the transactions contemplated hereby or
thereby.
<PAGE>
Continental Managed Pharmacy Services. Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 8
(b) Representations and Warranties. The representations and
warranties of Borrower in this Agreement and any of the
other Loan Documents are true and correct in all material
respects and no Event of Default or condition which, with
notice, lapse of time or both would constitute an Event of
Default then exists.
(c) Delivery of Documents. Bank shall have received the
following documents, each to be in form and substance
satisfactory to Bank and its counsel:
(i) The Master Revolving Note duly executed by Borrower;
(ii) The Advance Formula Agreement duly executed by
Borrower;
(iii) The Variable Rate Installment Note duly executed by
Borrower;
(iv) The Guaranty duly executed by Michael R. Erlenbach
(the "Guarantor"), and the Guarantor shall not have
terminated the Guaranty;
(v) The Security Agreement (Equipment) and the Security
Agreement (Accounts and Chattel Paper) in form and
substance acceptable to Bank, duly executed by
Borrower;
(vi) Intercreditor Agreement of Foxmeyer in form and
substance acceptable to Bank;
(vii) The written opinion of counsel to Borrower and the
Guarantor as to the transactions contemplated by
this Agreement in form and substance satisfactory to
Bank and its counsel;
(viii) Copies of all filing receipts or acknowledgements or
other oral or written evidence issued by any
governmental authority to evidence any filing or
recordation
<PAGE>
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 9
necessary to perfect the liens of Bank in the
Collateral and evidence in a form acceptable to Bank
that such liens constitute valid and first priority
perfected liens;
(ix) Certified copies of the Company's and the
Subsidiaries' casualty and liability insurance
policies evidencing the existence of the insurance
coverage required pursuant to the Loan Documents,
together with all appropriate endorsements thereto
naming Bank as a loss payee and additional insured
in form and substance satisfactory to Bank;
(x) A Certificate of the Secretary or an Assistant
Secretary of each of the Company and the
Subsidiaries, dated as of the date Bank makes its
initial advance of loans pursuant to this Agreement,
certifying (a) that attached thereto is a true and
complete copy of the Articles of Incorporation and
Code of Regulations of each of the Company and the
Subsidiaries, as in effect on the date of such
certification, (b) that attached thereto is a true
and complete copy of resolutions, in form
satisfactory to Bank, adopted by the Board of
Directors of each of the Company and the
Subsidiaries, authorizing the execution, delivery
and performance of this Agreement and each of the
other Loan Documents to which it is a party and the
consummation of the transactions contemplated hereby
and thereby and that said resolutions are all
resolutions adopted with respect to said subject
matter and remain in fall force and effect without
modification, and (c) as to the incumbency and
genuineness of the signature of each officer of each
of the Company and the Subsidiaries executing this
Agreement and the other Loan Documents to which each
of the Company and the Subsidiaries is a party;
(xi) Good standing certificate for each of the Company
and the Subsidiaries issued by the Secretary of
State of Ohio;
<PAGE>
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 10
(xii) A certificate signed by the President and Chief
Executive Officer of each of the Company and the
Subsidiaries and dated as of the date Bank makes its
initial advance of loans pursuant to this Agreement,
stating that (a) the representations and warranties
set forth in Section 2 of this Agreement are true
and correct on and as of such date, (b) each of the
Company and the Subsidiaries is on such date in
compliance with all the terms and provisions set
forth in this Agreement, and (c) on such date no
event or condition has occurred or is continuing
which with the giving of notice, the lapse of time,
or both, would constitute an Event of Default;
(xiii) Delivery by the Company of a check payable to Bank
in an amount equal to the sum of the fees incurred
by Bank for legal and audit services in connection
with this transaction and a Closing Fee in the
amount of $32,000, the receipt of $10,000 in
prepayment of these sums is hereby acknowledged;
(xiv) Written instructions from each of the Company and
the Subsidiaries directing the disbursement of
proceeds of the loans made pursuant to this
Agreement; and
(xv) Such other agreements, instruments and documents
including, without limitation, assignments, security
agreements, mortgages, deeds of trust, pledges,
guaranties and consents, which Bank may require to
be executed in connection with this Agreement
7. Provided Borrower has delivered to Bank a duly executed telephone notice
authorization in the Bank's standard form, Borrower may request an advance
pursuant to the Master Revolving Note by telephone request, in accordance with
such telephone notice authorization. Each such request for an advance shall be
made to Bank by 2:00 p.m. on the proposed date of advance. Once delivered to
Bank, such request for an advance shall not be revocable by Borrower. The Bank
may require the Borrower to execute a written request for advances, in the
Bank's standard form, as a condition to advances if, on the basis of reasonable
considerations, the Bank determines that written documentation regarding the
<PAGE>
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24,1995
Page 11
request of the Borrower for advances is appropriate. Subject otherwise to the
terms hereof and the Loan Documents, Bank shall make available to Borrower the
amount of the advance so requested not later than 4:00 p.m. (Detroit time) on
the date of such advances by credit to an account of Borrower maintained with
Bank or to such other account or third party as Borrower may reasonably request.
8. No forbearance on the part of Bank in enforcing any of its rights or
remedies under this Agreement or any other Loan Document, nor any renewal,
extension or rearrangement of any payment or covenant to be made or performed by
Borrower hereunder or any such other Loan Document, shall constitute a waiver of
any of the terms of this Agreement or such Loan Document or of any such right or
remedy.
9. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Ohio. Notwithstanding the foregoing,
the parties acknowledge that the Liabilities created in and secured by the Loan
Documents were approved and made and the proceeds of the loans have been
disbursed in the State of Michigan
10. All covenants, agreements, representations and warranties made in
connection with this Agreement and any other Loan Documents shall survive the
borrowing hereunder or thereunder until such time as all of the Liabilities are
paid in full and shall be deemed to have been relied upon by Bank. All
statements contained in any certificate or other document delivered to Bank at
any time by or on behalf of the Company or the Subsidiaries pursuant hereto
shall constitute representations and warranties by the Company and the
Subsidiaries.
11. Borrower agrees that it will pay all costs and expenses in connection
with the preparation of this Agreement and any other Loan Documents contemplated
hereby, including, without limitation, reasonable attorneys' fees and
disbursements of counsel for the Bank.
12. BORROWER AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVE ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING TIE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS AGREEMENT OR THE LIABILITIES.
<PAGE>
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 12
13. This Agreement shall inure to the benefit of and shall be binding upon
the parties hereto and their respective successors and assigns; provided,
however, that Borrower shall not assign, or transfer any of its rights or
obligations hereunder or otherwise in respect of any of the Liabilities without
the prior written consent of Bank.
If the foregoing is acceptable to Company, please indicate with the
authorized signature of Company as provided below.
Very truly yours,
COMERICA BANK
By: /s/ JAMES P. HANSON
Its: Vice President
ACCEPTED AND AGREED:
CONTINENTAL MANAGED PHARMACY
SERVICES, INC.
By: /s/ MICHAEL R. ERLENBACH
Its: Executive Vice President
CONTINENTAL PHARMACY, INC.
By: /s/ MICHAEL R. ERLENBACH
Its: Executive Vice President
Dated: 1/24/95
<PAGE>
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 13
PREFERRED RX, INC.
By: /s/ MICHAEL R. ERLENBACH
Its: President
Dated: 1/24/95
AUTOMATED SCRIPTS, INC.
By: /s/ MICHAEL R. ERLENBACH
Its: President
Dated: 1/24/95
VALLEY PHYSICIANS SERVICES, INC.
By: /s/ MICHAEL R. ERLENBACH
Its: Vice President
Dated: 1/24/95
ADDITIONAL CREDIT AGREEMENT
THIS ADDITIONAL CREDIT AGREEMENT (the "Agreement") is made and entered into
as of the 23rd day of January, 1996, by and among COMERICA BANK, a Michigan
banking corporation ("Bank") and CONTINENTAL MANAGED PHARMACY SERVICES, INC., an
Ohio corporation (the "Company"), and its wholly-owned subsidiaries, CONTINENTAL
PHARMACY, INC., an Ohio corporation, PREFERRED RX, INC., an Ohio corporation,
AUTOMATED SCRIPTS, INC., an Ohio corporation, and VALLEY PHYSICIAN SERVICES,
INC., an Ohio corporation (the Company and each of its aforementioned
wholly-owned subsidiaries shall be referred to collectively hereinafter as the
"Borrower").
RECITALS
A. The Borrower and the Bank are the parties to that certain Letter
Agreement dated January 24, 1995 (the "Letter Agreement") pursuant to which,
inter alia, the Bank extended to the Borrower: (i) a revolving credit facility
in the maximum principal amount of $6,500,000; and (ii) a term credit facility
in the maximum principal amount of $750,000, subject to the terms and conditions
thereof.
B. The Borrower has requested the Bank to make available to it an
additional term credit facility in the maximum principal amount of $500,000; and
the Bank is willing to do so subject to the terms, covenants and conditions set
forth herein.
C. Capitalized terms used in this Agreement and not otherwise defined
herein shall have the meanings assigned to them in the Letter Agreement.
AGREEMENTS:
IN CONSIDERATION of the foregoing Recitals and of the mutual agreements
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. $500,000 Term Credit Facility. The Bank shall extend to the Borrower a
term credit facility in the maximum principal amount of $500,000 (the "$500,000
Term Facility"). Borrower's obligation to repay the $500,000 Term Facility shall
be evidenced by and subject to a promissory note (the "Note") in form and
substance acceptable to the Bank. The $500,000 Term Facility shall be governed
by and subject to the Note and all of the terms and conditions contained in the
Letter Agreement.
2. Effective Date; Conditions Precedent. The Bank and the Borrower's
respective obligations with respect to the $500,000 Term Facility shall be
effective as of the date of the execution of this Agreement (the "Effective
Date"); provided, however, that such effectiveness shall be subject to the
Borrower satisfying each of the following conditions precedent as of the
Effective Date:
<PAGE>
(a) There shall be no Event of Default under the Letter Agreement or
any of the Loan Documents;
(b) The Borrower shall have executed and delivered the Note to the
Bank;
(c) The Borrower shall have paid the Bank $4,000, in cash, as the
Bank's closing fee for costs incurred by it in connection with making the
$500,000 Term Facility available to the Borrower;
(d) Simultaneously with the Borrower's execution of this Agreement,
Michael R. Erlenbach shall execute a Reaffirmation of Guaranty in form and
substance acceptable to Bank; and
(e) The Borrower shall have delivered to the Bank such other
instruments and taken such other actions as the Bank or its counsel may
reasonably request.
3. The Borrower's Reaffirmation of Representations and Warranties. The
Borrower reaffirms that the representations and warranties made by it in the
Letter Agreement are true and correct in all material respects as of the
Effective Date and no Event of Default or condition now exists which, with
notice, lapse of time or both would constitute an Event of Default. The Borrower
reaffirms that its representations and warranties are deemed to be continuing
during the life of the Letter Agreement and thereafter so long as any
Liabilities including, without limitation, the $500,000 Term Facility, remain
outstanding.
4. Other Loan Documents. Any reference in any of the Loan Documents
executed and delivered pursuant to or in connection with the Letter Agreement
shall, from and after the Effective Date be deemed to refer to the Letter
Agreement and this Agreement.
5. Confirmation of Debt. (a) The Borrower hereby affirms all of its
Liabilities to the Bank under the Letter Agreement and the Loan Documents,
affirms the validity and enforceability of all liens and security interests
provided for or contemplated by the Letter Agreement and the Loan Documents, and
affirms that the Liabilities remain as outstanding obligations of the Borrower
to the Bank. The Borrower further acknowledges and agrees that as of the
Effective Date, it has no claim, defense or set-off right against the Bank, nor
any claim, defense or set-off to the enforcement by the Bank of the full amount
of the Borrower's Liabilities under the Letter Agreement and the Loan Documents.
(b) Notwithstanding anything contained herein to the contrary, to the
extent that any claim, cause of action, defense or set-off against the Bank or
its enforcement of the Letter Agreement, any of the Loan Documents or this
Agreement, of any nature whatsoever, known or unknown, fixed or contingent, does
nonetheless exist or may exist on the Effective Date, in further consideration
of the Bank's entering into this Agreement, the Borrower irrevocably and
unconditionally waives and releases fully each and every such claim, cause of
action, defense and set-off.
2
<PAGE>
6. Conflicting Terms: No Other Modifications. To the extent that any of the
terms and conditions of; this Agreement are inconsistent with the terms and
conditions of the Letter Agreement or any of the Loan Documents, the terms and
conditions of this Agreement shall prevail. Otherwise, unless expressly modified
or superseded herein, all of the terms and conditions of the Letter Agreement
and the Loan Documents shall remain unaffected and in full force and effect.
7. Binding Effect; Governing Law. This Agreement shall bind and inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns and shall be governed by and construed
in accordance with the laws of the State of Ohio.
8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when so executed and delivered, shall be an
original, and all of which counterparts together shall constitute one and the
same fully executed instrument.
IN WITNESS WHEREOF, the parties have hereunto set their hands as of the
date set forth above.
BANK:
COMERICA BANK
By: /s/[ILLEGIBLE]
Its: Vice President
BORROWER:
CONTINENTAL MANAGED PHARMACY
SERVICE, INC.
By: /s/ MICHAEL R. ERLENBACH
---------------------------
Its: Secretary
CONTINENTAL PHARMACY, INC.
By: /s/ MICHAEL R. ERLENBACH
---------------------------
3
<PAGE>
Its: Secretary
Dated: 1/24/96
PREFERRED RX, INC.
By: /s/ MICHAEL R. ERLENBACH
---------------------------
Its: Secretary
Dated: 1/24/96
AUTOMATED SCRIPTS, INC.
By: /s/ MICHAEL R. ERLENBACH
---------------------------
Its: Secretary
Dated: 1/24/96
VALLEY PHYSICIANS SERVICES, INC.
By: /s/ MICHAEL R. ERLENBACH
---------------------------
Its: Secretary
Dated: 1/24/96
GUARANTY
The undersigned, for value received, unconditionally and absolutely
guarantee(s) to Comerica Bank ("Bank"), a Michigan banking corporation of 500
Woodward Avenue, Detroit, Michigan 48226 and to the Bank's successors and
assigns, payment when due, whether by stated maturity, demand, acceleration or
otherwise, of all existing and future indebtedness to the Bank of CONTINENTAL
MANAGED PHARMACY SERVICES, INC., CONTINENTAL PHARMACY, INC., PREFERRED RX, INC.,
AUTOMATED SCRIPTS, INC. and VALLEY PHYSICIANS SERVICES, INC., each an Ohio
corporation, whose address is 1400 E. Schaaf Road, Brooklyn Heights, Ohio 44131
and also of any successor in interest, including without limit any
debtor-in-possession or trustee in bankruptcy which succeeds to the interests of
this party or person (jointly and severally the "Borrower"), however this
indebtedness has been or may be incurred or evidenced, whether absolute or
contingent, direct or indirect, voluntary or involuntary, liquidated or
unliquidated, joint or several and whether or not known to the undersigned at
the time of this Guaranty or at the time any fUture indebtedness is incurred
(the "Indebtedness").
The Indebtedness guaranteed includes without limit: (a) any and all direct
indebtedness of the Borrower to the Bank, including indebtedness evidenced by
any and all promissory notes; (b) any and all obligations or liabilities of the
Borrower to the Bank arising under any guaranty where the Borrower has
guaranteed the payment of indebtedness owing to the Bank from a third party; (c)
any and all obligations or liabilities of the Borrower to the Bank arising from
applications or agreements for the issuance of letters of credit; (d) any and
all obligations or liabilities of the Borrower to the Bank arising out of any
other agreement by the Borrower; (e) any and all indebtedness, obligations or
liabilities for which the Borrower would otherwise be liable to the Bank were it
not for the invalidity, irregularity or unenforceability of them by reason of
any bankruptcy, insolvency or other law or order of any kind, or for any other
reason, including without limit liability for interest and attorney fees on, or
in connection with, any of the Indebtedness from and after the filing by or
against the Borrower of a bankruptcy petition; (f) any and all amendments,
modifications, renewals and/or extensions of any of the above, including without
limit amendments, modifications, renewals and/or extensions which are evidenced
by new or additional instruments, documents or agreements; and (g) all costs of
collecting Indebtedness, including without limit reasonable attorney fees.
The undersigned waive(s) notice of acceptance of this Guaranty and
presentment, demand, protest, notice of protest, dishonor, notice of dishonor,
notice of default, notice of intent to accelerate or demand payment of any
Indebtedness and diligence in collecting any Indebtedness, and agree(s) that the
Bank may modify the terms of any Indebtedness, compromise, extend, increase,
accelerate, renew or forbear to enforce payment of any or all Indebtedness, or
permit the Borrower to incur additional Indebtedness, all without notice to the
undersigned and without affecting in any manner the unconditional obligation of
the undersigned under this Guaranty. The undersigned further waive(s) any and
all other notices to which the undersigned might otherwise be entitled. The
undersigned acknowledge(s) and agree(s) that the liabilities created by this
Guaranty are direct and are not conditioned upon pursuit by the Bank of any
remedy the Bank may have against the Borrower or any other person or any
security. No invalidity, irregularity or unenforceability of any part or all
<PAGE>
of the Indebtedness or any documents evidencing the same, by reason of any
bankruptcy, insolvency or other law or order of any kind or for any other
reason, and no defense or setoff available at any time to the Borrower, shall
impair, affect or be a defense or setoff to the obligations of the undersigned
under this Guaranty.
The undersigned deliver(s) this Guaranty based solely on the undersigned's
independent investigation of the financial condition of the Borrower and is not
relying on any information furnished by the Bank. The undersigned assume(s) full
responsibility for obtaining any further information concerning the Borrower's
financial condition, the status of the Indebtedness or any other matter which
the undersigned may deem necessary or appropriate from time to time. The
undersigned waive(s) any duty on the part of the Bank, and agree(s) that it is
not relying upon nor expecting the Bank to disclose to the undersigned any fact
now or later known by the Bank, whether relating to the operations or condition
of the Borrower, the existence, liabilities or financial condition of any
co-guarantor of the Indebtedness, the occurrence of any default with respect to
the Indebtedness or otherwise, notwithstanding any effect these facts may have
upon the undersigned's risk under this Guaranty or the undersigned's rights
against the Borrower. The undersigned knowingly accept(s) the full range of risk
encompassed in this Guaranty, which risk includes without limit the possibility
that the Borrower may incur Indebtedness to the Bank after the financial
condition of the Borrower, or its ability to pay its debts as they mature, has
deteriorated.
The undersigned represent(s) and warrant(s) that: (a) the Bank has made no
representation to the undersigned as to the creditworthiness of the Borrower;
and (b) the undersigned has established adequate means of obtaining from the
Borrower on a continuing basis financial and other information pertaining to the
Borrower's financial condition. The undersigned agree(s) to keep adequately
informed of any facts, events or circumstances which might in any way affect the
risks of the undersigned under this Guaranty.
The undersigned grant(s) to the Bank a security interest in and the right
of setoff as to any and all property of the undersigned now or later in the
possession of the Bank. The undersigned subordinate(s) any claim of any nature
that the undersigned now or later has (have) against the Borrower to and in
favor of all Indebtedness and, except for short-term intercompany debt arising
in the ordinary course of business paid before the occurrence of any default or
event of default under any agreement between Borrower and Bank, agree(s) not to
accept payment or satisfaction of any claim that the undersigned now or later
may have against the Borrower without the prior written consent of the Bank.
Except as stated above, should any payment, distribution, security or proceeds
be received by the undersigned upon or with respect to any claim That the
undersigned now or may later have against the Borrower, the undersigned shall
immediately deliver the same to the Bank in the form received (except for
endorsement or assignment by the undersigned where required by the Bank) for
application on the Indebtedness, whether matured or unmatured, and until
delivered the same shall be held in trust by the undersigned as the property of
the Bank. The undersigned further assign(s) to the Bank as collateral for the
obligations of the undersigned under this Guaranty all claims of any nature that
the undersigned now or later has (have) against the Borrower with full right on
the part of the Bank, in its own name or in the name of the undersigned, to
collect and enforce these claims.
2
<PAGE>
The undersigned agree(s) that no security now or later held by the Bank for
the payment of any Indebtedness, whether from the Borrower, any guarantor or
otherwise, and whether in the nature of a security interest, pledge, lien,
assignment, setoff, suretyship, guaranty, indemnity, insurance or otherwise,
shall affect in any manner the unconditional obligation of the undersigned under
this Guaranty, and the Bank, in its sole discretion, without notice to the
undersigned, may release, exchange, enforce and otherwise deal with any security
without affecting in any manner the unconditional obligation of the undersigned
under this Guaranty. The undersigned acknowledge(s) and agree(s) that the Bank
has no obligation to acquire or perfect any lien on or security interest in any
asset(s), whether realty or personalty, to secure payment of the Indebtedness,
and the undersigned is not relying upon any asset(s) in which the Bank has or
may have a lien or security interest for payment of the Indebtedness.
The undersigned acknowledge(s) that the effectiveness of this Guaranty is
not conditioned on any or all of the indebtedness being guaranteed by anyone
else.
The undersigned may terminate the obligation under this Guaranty as to
future Indebtedness (except as provided below) by (and only by) delivering
written notice of termination to an officer of the Bank and receiving from an
officer of the Bank written acknowledgment of delivery; provided, the
termination shall not be effective until the opening of business on the day
following written acknowledgment of delivery. Any termination shall not affect
in any way the unconditional obligations of the undersigned as to any
Indebtedness existing at the effective date of termination or any Indebtedness
created after that pursuant to any commitment or agreement of the Bank or any
Borrower loan with the Bank existing at the effective date of termination
(whether advances or readvances by the Bank are optional or obligatory), or any
modifications, extensions or renewals of any of this Indebtedness, whether in
whole or in part, and as to all of this Indebtedness and modifications,
extensions or renewals of it, this Guaranty shall continue effective until the
same shall have been fully paid. The undersigned shall indemnifly the Bank
against all claims, damages, costs and expenses, including without limit
reasonable attorney fees, incurred by the Bank in connection with any suit,
claim or action against the Bank arising out of any modification or termination
of a Borrower loan or any refusal by the Bank to extend additional credit in
connection with the termination of this Guaranty.
Notwithstanding any prior revocation, termination, surrender or discharge
of this Guaranty in whole or in part, the effectiveness of this Guaranty shall
automatically continue or be reinstated, as the case may be, in the event that
any payment received or credit given by the Bank in respect of the Indebtedness
is returned, disgorged or rescinded as a preference, impermissible setoff
fraudulent conveyance, diversion of trust funds, or otherwise under any
applicable state or federal law, including, without limitation, laws pertaining
to bankruptcy or insolvency, in which case this Guaranty, and all liens, pledges
and security interests securing this Guaranty, shall be enforceable against the
undersigned as if the returned, disgorged or rescinded payment or credit had not
been received or given by the Bank, and whether or not the Bank relied upon this
payment or credit or changed its position as a consequence of it. In the event
of continuation or reinstatement of this Guaranty, the undersigned agree(s) upon
demand by the Bank to execute and deliver to the Bank those documents which the
Bank determines are appropriate to further evidence (in the public records or
otherwise)
3
<PAGE>
this continuation or reinstatement, although the failure of the undersigned to
do so shall not affect in any way the reinstatement of continuation. If the
undersigned do(es) not execute and deliver to the Bank upon demand such
documents, the Bank and each Bank officer is irrevocably appointed (which
appointment is coupled with an interest) the true and lawful attorney of the
undersigned (with full power of substitution) to execute and deliver such
documents in the name and on behalf of the undersigned.
The undersigned waive(s) any right to require the Bank to: (a) proceed
against any person, including without limit the Borrower; (b) proceed against or
exhaust any security held from the Borrower or any other person; (c) give notice
of the terms, time and place of any public or private sale of personal property
security held from the Borrower or any other person, or otherwise comply with
the provisions of Section 9-504 of the Ohio or other applicable Uniform
Commercial Code; (d) pursue any other remedy in the Bank's power; or (e) make
any presentments or demands for performance, or give any notices of
nonperformance, protests, notices of protest, or notices of dishonor in
connection with any obligations or evidences of Indebtedness held by the Bank as
security, in connection with any other obligations or evidences of indebtedness
which constitute in whole or in part Indebtedness, or in connection with the
creation of new or additional Indebtedness.
The undersigned authorize(s) the Bank, either before or after termination
of this Guaranty, without notice to or demand on the undersigned and without
affecting the undersigned's liability under this Guaranty, from time to time to:
(a) apply any security held from the Borrower or any other person and direct the
order or manner of sale of it, including without limit, a non-judicial sale
permitted by the terms of the controlling security agreement, mortgage or deed
of trust, as the Bank in its discretion may determine; (b) release or substitute
any one or more of the endorsers or any other guarantors of the Indebtedness;
and (c) apply payments received by the Bank from the Borrower to any
indebtedness of the Borrower to the Bank, in such order as the Bank shall
determine in its sole discretion, whether or not this indebtedness is covered by
this Guaranty, and the undersigned waive(s) any provision of law regarding
application of payments which specifies otherwise. The Bank may without notice
assign this Guaranty in whole or in part. Upon the Bank's request, the
undersigned agree(s) to provide to the Bank copies of the undersigned's
financial statements.
The undersigned waive(s) any defense based upon or arising by reason of (a)
any disability or other defense of the Borrower or any other person; (b) the
cessation or limitation from any cause whatsoever, other than final and
irrevocable payment in full, of the Indebtedness; (c) any lack of authority of
any officer, director, partner, agent or any other person acting or purporting
to act on behalf of the Borrower which is a corporation, partnership or other
type of entity, or any defect in the formation of the Borrower; (d) the
application by the Borrower of the proceeds of any Indebtedness for purposes
other than the purposes represented by the Borrower to the Bank or intended or
understood by the Bank or the undersigned; (e) any act or omission by the Bank
which directly or indirectly results in or aids the discharge of the Borrower or
any Indebtedness by operation of law or otherwise; or (f) any modification of
the Indebtedness, in any form whatsoever including without limit any
modification made after effective termination, and including without limit the
renewal, extension, acceleration or other change in time for payment of the
Indebtedness, or other change in the terms of any Indebtedness, including
without limit increase or decrease of the interest
4
<PAGE>
rate. The undersigned waive(s) any defense the undersigned may have based upon
any election of remedies by the Bank which destroys the undersigned's
subrogation rights or the undersigned's right to proceed against the Borrower
for reimbursement, including without limit any loss of rights the undersigned
may suffer by reason of any rights, powers or remedies of the Borrower in
connection with any anti-deficiency, appraisement or valuation laws or any other
laws limiting, qualifying or discharging any Indebtedness.
The undersigned acknowledge(s) that the Bank has the right to sell, assign,
transfer, negotiate or grant participations in all or any part of the
Indebtedness and any related obligations, including, without limit, this
Guaranty. In connection with that right, the Bank may disclose any documents and
information which the Bank now or later acquires relating to the undersigned and
this Guaranty, whether furnished by the Borrower, the undersigned or otherwise.
The undersigned further agree(s) that the Bank may disclose these documents and
information to the Borrower.
This obligation shall include, IN ADDITION TO any amount of principal
guaranteed, any and all interest on all Indebtedness and any and all costs and
expenses of any kind, including without limit reasonable attorney fees, incurred
by the Bank at any time(s) for any reason in enforcing any of the duties and
obligations of the undersigned under this Guaranty or otherwise incurred by the
Bank in any way connected with this Guaranty, the Indebtedness or any other
guaranty of the Indebtedness (including without limit reasonable attorney fees
and other expenses incurred in any suit involving the conduct of the Bank, the
Borrower or the undersigned). All of these costs and expenses shall be payable
immediately by the undersigned when incurred by the Bank, without demand, and
until paid shall bear interest a the highest per annum rate applicable to any of
the Indebtedness, but not in excess of the maximum rate permitted by law. Any
reference in this Guaranty to attorney fees shall be deemed a reference to fees,
charges, costs and expenses of both in-house and outside counsel and paralegals,
whether or not a suit or action is instituted, and to court costs if a suit or
action is instituted, and whether attorney fees or court costs are incurred at
the trial court level, on appeal, in a bankruptcy, administrative or probate
proceeding or otherwise.
The undersigned unconditionally and irrevocably waive(s) each and every
defense and setoff of any nature which, under principles of guaranty or
otherwise, would operate to impair or diminish in any way the obligation of the
undersigned under this Guaranty. The undersigned acknowledge(s) that the
effectiveness of this Guaranty is subject to no conditions of any kind.
This Guaranty shall remain effective with respect to successive
transactions which shall either continue the Indebtedness, increase or decrease
it, or from time to time create any new Indebtedness after all or any prior
Indebtedness has been satisfied, until this Guaranty is terminated in the manner
and to the extent provided above.
The undersigned warrant(s) and agree(s) that each of the waivers set forth
above are made with the undersigned's full knowledge of their significance and
consequences, and that under the circumstances, the waivers are reasonable and
not contrary to public policy or law. If any of these
5
<PAGE>
waivers are determined to be contrary to any applicable law or public policy,
these waivers shall be effective only to the extent permitted by law.
This Guaranty constitutes the entire agreement of the undersigned and the
Bank with respect to the subject matter of this Guaranty. No waiver, consent,
modification or change of the terms of this Guaranty shall bind any of the
undersigned or the Bank unless in writing and signed by the waiving party or an
authorized officer of the waiving party, and then this waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given. This Guaranty shall inure to the benefit of the Bank
and its successors and assigns. This Guaranty shall be binding on the
undersigned and the undersigned's, successors and assigns including, without
limit, any debtor in possession or trustee in bankruptcy for any of the
undersigned. The undersigned has (have) knowingly and voluntarily entered into
this Guaranty in good faith for the purpose of inducing the Bank to extend
credit or make other financial accommodations to the Borrower, and the
undersigned acknowledge(s) that the terms of this Guaranty are reasonable. If
any provision of this Guaranty is unenforceable in whole or in part for any
reason, the remaining provisions shall continue to be effective. THIS GUARANTY
WAS EXECUTED IN CUYAHOGA COUNTY, OHIO AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO. NOTWITHSTANDING THE FOREGOING,
THE PARTIES ACKNOWLEDGE THAT THE INDEBTEDNESS DESCRIBED ABOVE WAS APPROVED AND
MADE AND THE PROCEEDS OF THE INDEBTEDNESS WERE DISBURSED IN THE STATE OF
MICHIGAN.
The undersigned waive any claims that Cuyahoga County, Ohio is an
inconvenient forum or an improper forum based on lack of venue.
THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS GUARANTY OR THE INDEBTEDNESS.
The undersigned hereby submits to personal jurisdiction in the State of
Ohio; waives any and all personal rights under the laws of any state or country
to object to jurisdiction within the State of Ohio for the purposes of
litigation to enforce this Guaranty; and consents to be sued in all courts of
general jurisdiction in Cuyahoga County in the State of Ohio. Nothing contained
in this Guaranty, however, shall prevent Bank from bringing any action or
exercising any rights under this Guaranty within any other state or country
having jurisdiction over the subject matter hereof Bank's initiating such
proceeding or taking such action in any other state or country shall in no event
constitute a waiver of the agreement contained in this Guaranty that the laws of
the State of Ohio shall govern the rights and obligations of the undersigned and
Bank under this Guaranty or a waiver of the submission made in this Guaranty by
the undersigned to personal jurisdiction within the State of Ohio.
6
<PAGE>
The undersigned agrees that service of process may be made, and personal
jurisdiction over the undersigned obtained, by sewing a copy of the Summons and
Complaint upon the undersigned at its address set forth in this Guaranty (or at
the last address of the undersigned which is known to Bank) in accordance with
the applicable laws of the States of Ohio and Michigan.
The undersigned hereby authorizes any attorney-at-law to appear in any
court of record in the United States, at any time after the above obligation
becomes due, either at its stated maturity or by declaration, and waives the
issuing and service of process, and confesses a judgment against the undersigned
in favor of Bank for the amount then appearing due, together with interest and
costs of suit, and thereupon to release all errors and waive all right of appeal
and stay of execution. No judgment against the undersigned shall be a bar to
subsequent judgment(s) against the undersigned. The foregoing warrant of
attorney shall survive any judgment, it being understood that should any
judgment be vacated for any reason, the foregoing warrant of attorney may
nevertheless be used to obtain additional judgments.
The undersigned has signed this Guaranty on August 24, 1998.
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
Date: August 24, 1998 GUARANTOR:
MIM Corporation
By: Robert J. Bush
---------------------------
Its: Assistant Secretary
---------------------------
7
THIRD AMENDED AND RESTATED
MASTER REVOLVING NOTE
Variable Rate-Maturity Date
================================================================================
OBLIGOR # NOTE # NOTE DATE 1/24/95 TAX IDENTIFICATION NO.
Amended and Restated
Note Date 1/28/97
Second Amended and Restated
Note Date 4/9/97
Third Amended and Restated
Note Date 8/24/98
- - --------------------------------------------------------------------------------
AMOUNT MATURITY DATE May 1, 1999
$6,500,000 Cleveland, OH
================================================================================
On the Maturity Date, as stated above, for value received, the undersigned
promise(s) to pay to the order of Comerica Bank ("Bank"), at any office of the
Bank in the State of Michigan, Six Million Five Hundred Thousand Dollars (U.S.)
($6,500,000) (or that portion of it advanced by the Bank and not repaid as later
provided) with interest until maturity, whether by acceleration or otherwise, at
a per annum rate equal to the Bank's prime rate from time to time in effect,
plus .75% until the later of the date hereof or September 1, 1998 at which time
the rate shall be reduced to the Bank's prime rate from time to time in effect,
and after an Event of Default (as hereafter defined) at a rate equal to the rate
of interest otherwise prevailing under this Note plus 3% per annum (but in no
event in excess of the maximum rate permitted by law). The Bank's "prime rate"
is that annual rate of interest so designated by the Bank and which is changed
by the Bank from time to time. Interest rate changes will be effective for
interest computation purposes as and when the Bank's prime rate changes.
Interest shall be calculated for the actual number of days the principal is
outstanding on the basis of a 360-day year. Accrued interest on this Note shall
be payable on the 1st day of each month commencing March 1, 1995, until the
Maturity Date when all amounts outstanding under this Note shall be due and
payable in full. If any payment of principal or interest under this Note shall
be payable on a day other than a day on which the Bank is open for business,
this payment shall be extended to the next succeeding business day and interest
shall be payable at the rate specified in this Note during this extension. A
late payment charge equal to 5% of each late payment may be charged on any
payment not received by the Bank within 10 calendar days after the payment due
date, but acceptance of payment of this charge shall not waive any Default under
this Note.
The principal amount payable under this Note shall be the sum of all advances
made by the Bank to or at the request of the undersigned, less principal
payments actually received in cash by the Bank. The books and records of the
Bank shall be the best evidence of the principal amount and the unpaid interest
amount owing at any time under this Note and shall be conclusive absent manifest
error. No interest shall accrue under this Note until the date of the first
advance made by the Bank; after that interest on all advances shall accrue and
be computed on the principal balance outstanding from time to time under this
Note until the same is paid in full.
<PAGE>
In consideration of the revolving credit facility being established pursuant
hereto, the undersigned shall pay to the Bank a fee (the "Revolving Credit Fee")
calculated at the rate of one-quarter percent (1/4%) per annum (based on a year
having 360 days and calculated for the actual number of days elapsed during the
computation period) on the difference between (i) Six Million Five Hundred
Thousand Dollars ($6,500,000) and (ii) the average daily unpaid balance of the
Indebtedness (as defined below) each calendar month (or portion thereof) during
the term of this Note. The Revolving Credit Fee shall be due on the first day of
each month commencing March 1, 1995 (for the immediately preceding month).
The undersigned may terminate this Note prior to the maturity date set forth
above upon not less than 60 days prior written notice to the Bank, provided that
the undersigned shall pay and perform all obligations to be performed at, on or
prior to such date of termination and provided further the undersigned shall pay
to the Bank no later than such date a termination fee equal to the greater of
(i) Sixteen Thousand Two Hundred Fifty Dollars ($16,250.00) or (ii) one quarter
of one percent (.25%) of the maximum principal amount which may be borrowed
under this Note, as the same may be amended, if terminated prior to the Maturity
Date of this Note.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"Indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every guaranty,
mortgage, security agreement, pledge, assignment and other security or
collateral agreement which has been, or will at any time(s) later be, executed
by any of the undersigned or by any guarantor (as defined below) to or for (or
all) the benefit of the Bank (collectively "Collateral").
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the Indebtedness ("guarantor") (a) fail(s) to pay any of the
Indebtedness within 5 days when due, by maturity, acceleration or otherwise, or
fail(s) to pay any Indebtedness owing on a demand basis upon demand; or (b)
fail(s) to comply with any of the terms or provisions of any agreement between
the undersigned (or any of them) or any such guarantor and the Bank; or (c)
become(s) insolvent or the subject of a voluntary or involuntary proceeding in
bankruptcy, or a reorganization, arrangement or creditor composition proceeding
(if a business entity) cease(s) doing business as a going concern, (if a natural
person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any
general partner of it dies, becomes incompetent or becomes the subject of a
bankruptcy proceeding or (if a corporation) is the subject of a dissolution,
merger or consolidation; or (d) if any warranty or representation made by any of
the undersigned or any guarantor in connection with this Note or any of the
Indebtedness shall be discovered to be untrue or incomplete; or (e) if there is
any termination,
-2-
<PAGE>
notice of termination, or breach of any guaranty, pledge, collateral assignment
or subordination agreement relating to all or any part of the Indebtedness; or
(f) if there is any failure by any of the undersigned or any guarantor to pay
when due any of its indebtedness (other than to the Bank) or in the observance
or performance of any term, covenant or condition in any document evidencing,
securing or relating to such indebtedness, and such failure gives rise to an
immediate right of acceleration of such indebtedness; or (g) if there is filed
or issued a levy or writ of attachment or garnishment or other like judicial
process upon the undersigned (or any of them) or any guarantor or any of the
Collateral, including without limit, any accounts of the undersigned (or any of
them) or any guarantor with the Bank, then the Bank, upon the occurrence of any
of these events (each a "Default"), and subject to the terms of the Letter
Agreement among the parties of even date herewith, may declare any or all of the
Indebtedness to be immediately due and payable (notwithstanding any provisions
contained in the evidence of it to the contrary), sell or liquidate all or any
portion of the Collateral, set off against the Indebtedness any amounts owing by
the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relevant Indebtedness and exercise
any one or more of the rights and remedies granted to the Bank by any agreement
with the undersigned (or any of them) or given to it under applicable law. All
payments under this Note shall be in immediately available United States funds,
without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accomodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigneds' respective successors and permitted assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-606 of the Uniform Commercial Code
and waive(s) all other suretyship defenses or right to discharge. The
undersigned agree(s) that the Bank has the right to sell, assign, or grant
participations, or any interest, in any or all of the Indebtedness, and that, in
connection with this right, but without limiting its ability to make other
disclosures to the full extent allowable, the Bank may disclose all documents
and information which the Bank now or later has relating to the undersigned or
the Indebtedness.
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal expenses
and reasonable attorney fees, whether inside or outside counsel is used, whether
or not suit is instituted and, if suit is instituted, whether at the trial court
level, appellate level, in a bankruptcy, probate or administrative proceeding or
-3-
<PAGE>
otherwise) incurred in collecting or attempting to collect this Note or incurred
in any other matter or proceeding relating to this Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE WAS EXECUTED IN CUYAHOGA COUNTY AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO. NOTWITHSTANDING
THE FOREGOING, THE PARTIES ACKNOWLEDGE THAT THE INDEBTEDNESS EVIDENCED HEREBY
WAS APPROVED AND MADE AND THE PROCEEDS OF THE LOAN EVIDENCED HEREBY WERE
DISBURSED IN THE STATE OF MICHIGAN.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY
JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR
IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
The undersigned hereby submits to personal jurisdiction in the State of Ohio;
waives any and all personal rights under the laws of any state or country to
object to personal jurisdiction within the State of Ohio for the purposes of
litigation to enforce this Note or any other related loan document; and consents
to be sued in all courts of general jurisdiction in Cuyahoga County in the State
of Ohio. The undersigned waives any claim that Cuyahoga County, Ohio is an
inconvenient forum or an improper forum based on lack of venue. Nothing
contained in this Note, however, shall prevent Bank from bringing any action or
exercising any rights under this Note within any other state or country having
jurisdiction over the subject matter hereof The Bank's initiating such
proceeding or taking such action in any other state or country shall in no event
constitute a waiver of the agreement contained in this Note that the laws of the
State of Ohio shall govern the rights and obligations of the undersigned and the
Bank under this Note or a waiver of the submission made in this Note by the
undersigned to personal jurisdiction within the State of Ohio. The undersigned
agrees that service of process may be made, and personal jurisdiction over the
undersigned obtained, by serving a copy of the Summons and Complaint upon the
undersigned at its address set forth in this Note (or at the last address of the
undersigned which is known to the Bank) in accordance with the applicable laws
of the State of Ohio.
-4-
<PAGE>
The undersigned hereby authorizes any attorney-at-law to appear in any court of
record in the United States, at any time after the above obligation becomes due,
either at its stated maturity or by acceleration, and does hereby waive the
issuing and service of process, and confess a judgment against the undersigned
in favor of the Bank for the amount then appearing due, together with interest
and costs of suit and thereupon to release all errors and waive all right of
appear and stay of execution. No judgment against the undersigned shall be a bar
to subsequent judgment(s) against the undersigned. The foregoing warrant of
attorney shall survive any judgment, it being understood that should any
judgment be vacated for any reason, the foregoing warrant of attorney may
nevertheless be used to obtain additional judgments.
The undersigned has executed and delivered this Note on the day and year first
above written.
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
CONTINENTAL MANAGED CONTINENTAL MANAGED
PHARMACY SERVICES, INC. PHARMACY SERVICES, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131
By: /s/ Carl L. Jesina
-----------------------------
Its: Vice President
-----------------------------
CONTINENTAL PHARMACY, INC. CONTINENTAL PHARMACY, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131
By: /s/ Carl L. Jesina
-----------------------------
Its: President
-----------------------------
-5-
<PAGE>
PREFERRED RX, INC. PREFERRED RX, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131
By: /s/ Carl L. Jesina
-----------------------------
Its: Vice President
-----------------------------
AUTOMATED SCRIPTS, INC. AUTOMATED SCRIPTS, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131
By: /s/ Carl L. Jesina
-----------------------------
Its: Vice President
-----------------------------
VALLEY PHYSICIANS VALLEY PHYSICIANS
SERVICES, INC. SERVICES, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131
By: /s/ Carl L. Jesina
-----------------------------
Its: Vice President
-----------------------------
-6-
VARIABLE RATE-INSTALLMENT NOTE
================================================================================
OBLIGOR NOTE # NOTE DATE TAX IDENTIFICATION NO.
- - --------------------------------------------------------------------------------
AMOUNT MATURITY DATE
$750,000 Cleveland, OH February 1, 2000
================================================================================
FOR VALUE RECEIVED, the undersigned promise(s) to pay to the order of COMERICA
BANK ("Bank"), at any office of the Bank in the State of Michigan, Seven Hundred
Fifty Thousand Dollars (U.S.) ($750,000) in installments of $8,928 each, plus
interest on the unpaid balance from the date of this Note at a per annum rate
equal to the Bank's prime rate from time to time in effect plus 1.25% per annum
until maturity, whether by acceleration or otherwise, or until Default, as later
defined, and after that at a default rate equal to the rate of interest
otherwise prevailing under this Note plus 3% per annum (but in no event in
excess of the maximum rate permitted by law). Interest shall be calculated for
the actual number of days the principal is outstanding on the basis of a 360-day
year. The Bank's "prime rate" is that annual rate of interest so designated by
the Bank and which is changed by the Bank from time to time. Interest rate
changes will be effective for interest computation purposes as and when the
Bank's prime rate changes. Installments of principal and accrued interest due
under this Note shall be payable on the 1st day of each month, commencing March
1, 1995, and the entire remaining unpaid balance of principal and accrued
interest shall be payable on February 1, 2000 (the "Maturity Date").
If this Note or any installment under this Note shall become payable on a day
other than a day on which the Bank is open for business, this payment may be
extended to the next succeeding business day and interest shall be payable at
the rate specified in this Note during this extension. Any payments of principal
in excess of the installment payments required under this Note need not be
accepted by the Bank (except as required under applicable law), but if accepted
shall apply to the installments last falling due. A late installment charge
equal to 5% of each late installment may be charged on any installment payment
not received by the Bank within 10 calendar days after the installment due date,
but acceptance of payment of this charge shall not waive any default under this
Note.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"Indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the
<PAGE>
possession of the Bank and by any other collateral, rights and properties
described in each and every guaranty, mortgage, security agreement, pledge,
assignment and other agreement which has been, or will at any time(s) later be,
executed by any (or all) of the undersigned or any guarantor (as defined below)
to or for the benefit of the Bank (collectively "Collateral").
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the Indebtedness ("guarantor") (a) fail(s) to pay this Note or any of
the Indebtedness within 5 days when due, by maturity, acceleration or otherwise,
or fail(s) to pay any Indebtedness owing on a demand basis upon demand; or (b)
fail(s) to comply with any of the terms or provisions of any agreement between
the undersigned (or any of them) or any guarantor and the Bank; or (c) become(s)
insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy,
or a reorganization, arrangement or creditor composition proceeding, (if a
business entity) cease(s) doing business as a going concern, (if a natural
person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any
general partner of it dies, becomes incompetent or becomes the subject of a
bankruptcy proceeding or (if a corporation) is the subject of a dissolution,
merger or consolidation; or (d) if any warranty or representation made by any of
the undersigned or any guarantor in connection with this Note or any of the
Indebtedness shall be discovered to be untrue or incomplete; or (e) if there is
any termination, notice of termination, or breach of any guaranty, pledge,
collateral assignment or subordination agreement relating to all or any part of
the Indebtedness; or (f) if there is any failure by any of the undersigned or
any guarantor to pay when due any of its indebtedness (other than to the Bank)
or in the observance or performance of any term, covenant or condition in any
document evidencing, securing or relating to such indebtedness, and such failure
gives rise to an immediate right of acceleration of such indebtedness; or (g) if
there is filed or issued a levy or writ of attachment or garnishment or other
like judicial process upon the undersigned (or any of them) or any guarantor or
any of the Collateral, including without limit, any accounts of the undersigned
(or any of them) or any guarantor with the Bank, then the Bank, upon the
occurrence of any of these events (each a "Default"), and subject to the terms
of the Letter Agreement among the parties of even date herewith, may at its
option declare any or all of the Indebtedness to be immediately due and payable
(notwithstanding any provisions contained in the evidence thereof to the
contrary), sell or liquidate all or any portion of the Collateral, set off
against the Indebtedness any amounts owing by the Bank to the undersigned (or
any of them), charge interest at the default rate provided in the document
evidencing the relevant Indebtedness and exercise any one or more of the rights
and remedies granted to the Bank by any agreement with the undersigned (or any
of them) or given to it under applicable law. All payments under this Note shall
be in immediately available United States funds, without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise),
2
<PAGE>
the obligations and undertakings under this Note shall be that of all and any
two or more jointly and also of each severally. This Note shall bind the
undersigned, and the undersigneds' respective successors and permitted assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-606 of the Uniform Commercial Code
and waive(s) all other suretyship defenses or right to discharge. The
undersigned agree(s) that the Bank has the right to sell, assign, or grant
participations, or any interest, in any or all of the Indebtedness, and that, in
connection with this right, but without limiting its ability to make other
disclosures to the full extent allowable under applicable law, the Bank may
disclose all documents and information which the Bank now or later has relating
to the undersigned or the Indebtedness.
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal expenses
and reasonable attorney fees, whether inside or outside counsel is used, whether
or not suit is instituted and, if suit is instituted, whether at the trial court
level, appellate level, in a bankruptcy, probate or administrative proceeding or
otherwise) incurred in collecting or attempting to collect this Note or incurred
in any other matter or proceeding relating to this Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE WAS EXECUTED IN CUYAHOGA COUNTY, OHIO AND SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO.
NOTWITHSTANDING THE FOREGOING, THE PARTIES ACKNOWLEDGE THAT THE INDEBTEDNESS
EVIDENCED HEREBY WAS APPROVED AND MADE AND THE PROCEEDS OF THE LOAN EVIDENCED
HEREBY WERE DISBURSED IN THE STATE OF MICHIGAN.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. THE UNDERSIGNED AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO
3
<PAGE>
CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR
MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION
REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE
OR THE INDEBTEDNESS.
The undersigned hereby submits to personal jurisdiction in the state of Ohio;
waives any and all personal rights under the laws of any state or country to
object to jurisdiction within the State of Ohio for the purposes of litigation
to enforce this Note, or any other related loan document; and consents to be
sued in all courts of general jurisdiction in Cuyahoga County in the State of
Ohio. The undersigned waives any claim that Cuyahoga County, Ohio, is an
inconvenient forum or an improper forum based on lack of venue. Nothing
contained in this Note, however, shall prevent Bank from bringing any action or
exercising any rights under this Note within any other state or country having
jurisdiction over the subject matter hereof. Bank's initiating such proceeding
or taking such action in any other state or country shall in no event constitute
a waiver of the agreement contained in this Note that the laws of the State of
Ohio shall govern the rights and obligations of the undersigned and Bank under
this Note or a waiver of the submission made in this Note by the undersigned to
personal jurisdiction within the State of Ohio. The undersigned agrees that
service of process may be made, and personal jurisdiction over the undersigned
obtained, by serving a copy of the Summons and Complaint upon the undersigned at
its address set forth in this Note (or at the last address of the undersigned
which is known to Bank) in accordance with the applicable laws of the State of
Ohio.
The undersigned hereby authorizes any attorney-at-law to appear in any court of
record in the United States, at any time after the above obligation becomes due,
either at its stated maturity or by acceleration, and waive the issuing and
service of process, and confess a judgment against the undersigned in favor of
Bank for the amount then appearing due, together with interest and costs of
suit, and thereupon to release all errors and waive all right of appear and stay
of execution. No judgment against the undersigned shall be a bar to subsequent
judgment(s) against the undersigned. The foregoing warrant of attorney shall
survive any judgment, it being understood that should any judgment be vacated
for any reason, the foregoing warrant of attorney may nevertheless be used to
obtain additional judgments.
The undersigned has executed and delivered this Note on the day and year first
above written.
4
<PAGE>
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU fly HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
CONTINENTAL MANAGED CONTINENTAL MANAGED
PHARMACY SERVICES, INC. PHARMACY SERVICES, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131
By: MICHAEL R. ERLENBACH
----------------------------
Its: Secretary
By: MICHAEL R. ERLENBACH
-----------------------------
Its: Secretary
CONTINENTAL PHARMACY, INC. CONTINENTAL PHARMACY, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131 By: MICHAEL R. ERLENBACH
-----------------------------
Its: Secretary
PREFERRED RX, INC. PREFERRED RX, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131 By: MICHAEL R. ERLENBACH
-----------------------------
Its: Secretary
AUTOMATED SCRIPTS, INC. AUTOMATED SCRIPTS, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131 By: MICHAEL R. ERLENBACH
-----------------------------
Its: Secretary
VALLEY PHYSICIANS VALLEY PHYSICIANS
SERVICES, INC. SERVICES, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131 By: MICHAEL R. ERLENBACH
-----------------------------
Its: Secretary
5
VARIABLE RATE-INSTALLMENT NOTE
================================================================================
OBLIGOR # NOTE # NOTE DATE TAX IDENTIFICATION NO.
1819404597 1/26/96 34-1733505
- - --------------------------------------------------------------------------------
AMOUNT MATURITY DATE
$500,000 Cleveland, OH February 28, 1999
================================================================================
FOR VALUE RECEIVED, the undersigned promises(s) to pay to the order of COMERICA
BANK ("Bank"), at any office of the Bank in the State of Michigan, Five Hundred
Thousand Dollars (U.S.) ($500,000) in installments of $13,888.89 each, plus
interest on the unpaid balance from the date of this Note at a per annum rate
equal to the Bank's prime rate from time to time in effect plus 1.25% per annum
until maturity, whether by acceleration or otherwise, or until Default, as later
defined, and after that at a default rate equal to the rate of interest
otherwise prevailing: under this Note plus 3% per annum (but in no event in
excess of the maximum rate permitted by law). Interest shall be calculated for
the actual number of days the principal is outstanding on the basis of a 360-day
year. The Bank's "prime rate" is that annual rate of interest so designated by
the Bank and which is changed by the Bank from time to time. Interest rate
changes will be effective for interest computation purposes as and when the
Bank's prime rate changes. Installments of principal and accrued interest due
under this Note shall be payable on the 1st day of each month, commencing March
1, 1996, and the entire remaining unpaid balance of principal and accrued
interest shall be payable on February 28, 1999 (the "Maturity Date").
If this Note or any installment under this Note shall become payable on a day
other than a day on which the Bank is open for business, this payment may be
extended to the next succeeding business day and interest shall be payable at
the rate specified in this Note during this extension. Any payments of principal
in excess of the installment payments required under this Note need not be
accepted by the Bank (except as required under applicable law), but if accepted
shall apply to the installments last falling due. A late installment charge
equal to 5% of each late installment may be charged on any installment payment
not received by the Bank within 10 calendar days after the installment due date,
but acceptance of payment of this charge shall not waive any default under this
Note.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"Indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all
<PAGE>
property of any of the undersigned from time to time in the possession of the
Bank and by any other collateral, rights and properties described in each and
every guaranty, mortgage, security agreement, pledge, assignment and other
agreement which has been, or will at any time(s) later be, executed by any (or
all) of the undersigned or any guarantor (as defined below) to or for the
benefit of the Bank (collectively "Collateral")
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the Indebtedness ("guarantor") (a) fail(s) to pay this Note or any of
the Indebtedness within 5 days when due, by maturity, acceleration or otherwise,
or fail(s) to pay any Indebtedness owing on a demand basis upon demand; or (b)
fail(s) to comply with any of the terms or provisions of any agreement between
the undersigned (or any of them) or any guarantor and the Bank; or (c) become(s)
insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy,
or a reorganization, arrangement or creditor composition proceeding, (if a
business entity) cease(s) doing business as a going concern, (if a natural
person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any
general partner of it dies, becomes incompetent or becomes the subject of a
bankruptcy proceeding or (if a corporation) is the subject of a dissolution,
merger or consolidation; or (d) if any warranty or representation made by any of
the undersigned or any guarantor in connection with this Note or any of the
Indebtedness shall be discovered to be untrue or incomplete; or (e) if there is
any termination, notice of termination, or breach of any guaranty, pledge,
collateral assignment or subordination agreement relating to all or any part of
the Indebtedness; or (f) if there is any failure by any of the undersigned or
any guarantor to pay when due any of its indebtedness (other than to the Bank)
or in the observance or performance of any term, covenant or condition in any
document evidencing, securing or relating to such indebtedness, and such failure
gives rise to an immediate right of acceleration of such indebtedness; or (g) if
there is filed or issued a levy or writ of attachment or garnishment or other
like judicial process upon the undersigned (or any of them) or any guarantor or
any of the Collateral, including without limit, any accounts of the undersigned
(or any of them) or any guarantor with the Bank, then the Bank, upon the
occurrence of any of these events (each a "Default"), and subject to the terms
of the Letter Agreement among the parties dated January 24, 1995, may at its
option declare any or all of the Indebtedness to be immediately due and payable
(notwithstanding any provisions contained in the evidence thereof to the
contrary), sell or liquidate all or any portion of the Collateral, set off
against the Indebtedness any amounts owing by the Bank to the undersigned (or
any of them), charge interest at the default rate provided in the document
evidencing the relevant Indebtedness and exercise any one or more of the rights
and remedies granted to the Bank by any agreement with the undersigned (or any
of them) or given to it under applicable law. All payments under this Note shall
be in immediately available United States funds, without setoff or counterclaim.
2
<PAGE>
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise) the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigneds' respective successors and permitted assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-606 of the Uniform Commercial Code
and waive(s) all other suretyship defenses or right to discharge. The
undersigned agree(s) that the Bank has the right to sell, assign, or grant
participations, or any interest, in any or all of the Indebtedness, and that, in
connection with this right, but without limiting its ability to make other
disclosures to the full extent allowable under applicable law, the Bank may
disclose all documents and information which the Bank now or later has relating
to the undersigned or the Indebtedness.
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal expenses
and reasonable attorney fees, whether inside or outside counsel is used, whether
or not suit is instituted and, if suit is instituted, whether at the trial court
level, appellate level, in a bankruptcy, probate or administrative proceeding or
otherwise) incurred in collecting or attempting to collect this Note or incurred
in any other matter or proceeding relating to this Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE WAS EXECUTED IN CUYAHOGA COUNTY, OHIO AND SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO.
NOTWITHSTANDING THE FOREGOING, THE PARTIES ACKNOWLEDGE THAT THE INDEBTEDNESS
EVIDENCED HEREBY WAS APPROVED AND MADE AND THE PROCEEDS OF THE LOAN EVIDENCED
HEREBY WERE DISBURSED IN THE STATE OF MICHIGAN.
3
<PAGE>
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. THE UNDERSIGNED AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
The undersigned hereby submits to personal jurisdiction in the State of Ohio;
waives any and all personal rights under the laws of any state or country to
object to jurisdiction within the State of Ohio for the purposes of litigation
to enforce this Note, or any other related loan document; and consents to be
sued in all courts of general jurisdiction in Cuyahoga County in the State of
Ohio. The undersigned waives any claim that Cuyahoga County, Ohio, is an
inconvenient forum or an improper forum based on lack of venue. Nothing
contained in this Note, however, shall prevent Bank from bringing any action or
exercising any rights under this Note within any other state or country having
jurisdiction over the subject matter hereof. Bank's initiating such proceeding
or taking such action in any other state or country shall in no event constitute
a waiver of the agreement contained in this Note that the laws of the State of
Ohio shall govern the rights and obligations of the undersigned and Bank under
this Note or a waiver of the submission made in this Note by the undersigned to
personal jurisdiction within the State of Ohio. The undersigned agrees that
service of process may be made, and personal jurisdiction over the undersigned
obtained, by serving a copy of the Summons and Complaint upon the undersigned at
its address set forth in this Note (or at the last address of the undersigned
which is known to Bank) in accordance with the applicable laws of the State of
Ohio.
THE UNDERSIGNED HEREBY AUTHORIZES ANY ATTORNEY-AT-LAW TO APPEAR IN ANY COURT OF
RECORD IN THE UNITED STATES, AT ANY TIME AFTER THE ABOVE OBLIGATION BECOMES DUE,
EITHER AT ITS STATED MATURITY OR BY ACCELERATION, AND WAIVE THE ISSUING AND
SERVICE OF PROCESS, AND CONFESS A JUDGMENT AGAINST THE UNDERSIGNED IN FAVOR OF
BANK FOR THE AMOUNT THEN APPEARING DUE, TOGETHER WITH INTEREST AND COSTS OF
SUIT, AND THEREUPON TO RELEASE ALL ERRORS AND WAIVE ALL RIGHT OF APPEAL AND STAY
OF EXECUTION. No judgment against the undersigned shall be a bar to subsequent
judgment(s) against the undersigned. The foregoing warrant of attorney shall
survive any judgment, it being understood that should any judgment be vacated
for any reason, the foregoing warrant of attorney may nevertheless be used to
obtain additional judgments.
The undersigned has executed and delivered this Note on the day and year first
above written.
4
<PAGE>
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
CONTINENTAL MANAGED CONTINENTAL MANAGED
PHARMACY SERVICES, INC. PHARMACY SERVICES, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131
By: /s/ MICHAEL R. ERLENBACH
-----------------------------------
Its: Secretary
-----------------------------------
CONTINENTAL PHARMACY, INC. CONTINENTAL PHARMACY, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131
By: /s/ MICHAEL R. ERLENBACH
-----------------------------------
Its: Secretary
-----------------------------------
PREFERRED RX, INC. PREFERRED RX, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131
By: /s/ MICHAEL R. ERLENBACH
-----------------------------------
Its: Secretary
-----------------------------------
AUTOMATED SCRIPTS, INC. AUTOMATED SCRIPTS, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131
By: /s/ MICHAEL R. ERLENBACH
-----------------------------------
Its: Secretary
-----------------------------------
VALLEY PHYSICIANS VALLEY PHYSICIANS
SERVICES, INC. SERVICES, INC.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131
By: /s/ MICHAEL R. ERLENBACH
-----------------------------------
Its: Secretary
-----------------------------------
5
SECURITY AGREEMENT
(Equipment)
For value received, the undersigned ("Debtor") grants to Comerica Bank, a
Michigan banking corporation, whose address is 500 Woodward Avenue, Detroit,
Michigan 48226 ("Bank"), a security interest in all Equipment and Fixtures of
Debtor wherever located, now owned or later acquired, and also in (a) all other
similar property, wherever located, now owned or later acquired by Debtor, (b)
all additions, attachments, accessions, parts, replacements, substitutions and
renewals of or for all Equipment and Fixtures of Debtor, wherever located, now
owned or later acquired, (c) all of Debtor's Property in Possession of Bank, and
(d) the Proceeds and products of all of the above, to secure payment of any and
all sums, indebtedness and liabilities of any and every kind now owing or later
to become due to the Bank from Debtor or from Continental Pharmacy, Inc.
("CPI"), Preferred Rx, Inc. ("Preferred"), Automated Scripts, Inc. ("ASI"), or
Valley Physicians Services, Inc. ("VPSI") (Debtor, CPI, Preferred, ASI and VPSI
are sometimes collectively hereinafter referred to as the "Borrower") or any or
all of them, during the term of this Agreement, however created, incurred,
evidenced, acquired or arising, whether under any note(s), guaranty(ies), letter
of credit agreement(s), evidence(s) of indebtedness or under any other
instrument, obligation, guaranty, contract or agreement or dealing of any and
every kind now existing or later entered into between the Debtor or the Borrower
and the Bank, or otherwise, and whether direct, indirect, primary, secondary,
fixed, contingent, joint or several, due or to become due, together with
interest and charges, and including, without limit, all present and future
indebtedness or obligations of third parties to the Bank which is guaranteed by
the Debtor or the Borrower or any or all of them and the present or future
indebtedness originally owing by the Debtor or the Borrower or any or all of
them to third parties and assigned by third parties to the Bank, and any and all
renewals, extensions or modifications of any of them (the "Indebtedness").
1. Definitions. As used in this Agreement:
1.1 "Collateral" means any and all property of Debtor in which Bank
now has or by this Agreement now or later acquires a security
interest.
1.2 "Debtor's Property in Possession of Bank" means goods,
instruments, documents, policies and certificates of insurance,
deposits, money or other property now owned or later acquired by
Debtor or in which Debtor now has or later acquires an interest
and which are now or later in possession of Bank or as to which
Bank now or later controls possession by documents or otherwise.
<PAGE>
1.3 "Environmental Law" means any laws, ordinances, directives,
orders, statutes, or regulations an object of which is to regulate
or improve health, safety, or the environment, including, without
limit, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 USC 9601 et seq.), and the
Resource Conservation and Recovery Act, as amended (42 USC 6901 et
seq.).
1.4 "Equipment" and "Fixtures" each have the respective meaning
assigned it in Article 9 and/or Chapter 1309 of the Uniform
Commercial Code, as of the date of this Agreement.
1.5 "Proceeds" has the meaning assigned it in Article 9 of the Uniform
Commercial Code, as of the date of this Agreement, and also
includes without limit cash or other property which were proceeds
and are recovered by a bankruptcy trustee or otherwise as a
preferential transfer by Debtor.
1.6 "Uniform Commercial Code" means Chapters 1301 through 1310 of the
Ohio Revised Code, as amended.
1.7 Except as otherwise provided in this Agreement, all terms used in
this Agreement have the meanings assigned to them in Chapter 1309
(or, absent definition in Chapter 1309, in any other Article) of
the Uniform Commercial Code, as of the date of this Agreement.
2. Warranties, Covenants and Agreements. Debtor warrants, covenants and
agrees as follows:
2.1 The Collateral has been acquired (or will be acquired) for use
primarily in business. Bank at its option may disburse loan
proceeds directly to the seller of any Collateral to be acquired
with proceeds of loans from Bank.
2.2 All items constituting a part of the Collateral which are Fixtures
under applicable law or which are in fact attached to real estate
are described in attached Schedule A (if any) (but the failure by
Debtor to attach a Schedule A to this Agreement shall not in any
way affect or impair Bank's security interest in Fixtures). There
is also set forth in Schedule A (if any) a description of the real
estate upon which all these items are located and the name(s) and
address(es) of the owner(s) and mortgagee(s) of the real estate.
Debtor upon demand of Bank shall furnish Bank with consents or
disclaimers filed by all persons having an interest in the real
estate (including without limit owners, mortgage
2
<PAGE>
holders and lessees) consenting to Bank's security interest and
acknowledging its priority or disclaiming any interest in the
Collateral.
2.3 At the time any Collateral becomes, or is represented to be,
subject to a security interest in favor of Bank, Debtor shall be
deemed to have warranted that (a) Debtor is the lawful owner of
the Collateral and has the right and authority to subject the same
to a security interest granted to Bank and (b) except for leases
currently in place, none of the Collateral is subject to any
security interest other than that in favor of Bank and the lien of
Foxmeyer Drug Co. ("Foxmeyer") and there are no financing
statements on file other than in favor of such parties.
2.4 Debtor will keep the Collateral free at all times from any and all
claims, liens, security interests and encumbrances other than
those in favor of Bank and except for leases currently in place
and for leased equipment in an amount not to exceed $50,000.
Debtor will not, without the prior written consent of Bank, sell,
transfer or lease, or permit or suffer to be sold, transferred or
leased any or all of the Collateral. Bank or its agents or
attorneys may at all reasonable times inspect the Collateral and
may enter upon all premises where the Collateral is kept or might
be located. Debtor shall allow Bank to examine, inspect and make
abstracts from, or copy any of Debtor's books and records
(relating to the Collateral or otherwise).
2.5 Debtor will do all acts and things, and will execute all writings
requested by Bank to establish, maintain and continue a perfected
and first security interest of Bank in the Collateral, and will
pay on demand all costs and expenses of searches, filing and
recording deemed necessary by Bank to establish, determine or
continue the validity and the priority of Bank's security
interest.
2.6 If Bank, acting in its sole discretion, redelivers Collateral to
Debtor or Debtor's designee for the purpose of
(a) the ultimate sale or exchange thereof, or
(b) presentation, collection, renewal, or registration of
transfer thereof, or
(c) loading, unloading, storing, shipping, transshipping,
manufacturing, processing or otherwise dealing therewith
preliminary to sale or exchange,
3
<PAGE>
such redelivery shall be in trust for the benefit of Bank and
shall not constitute a release of Bank's security interest therein
or in the proceeds or products thereof unless Bank specifically so
agrees in writing. If Debtor requests any such redelivery, Debtor
will deliver with such request a duly executed financing statement
in form and substance satisfactory to Bank. Any proceeds of
Collateral coming into Debtor's possession as a result of any such
redelivery shall be held in trust for Bank and forthwith delivered
to Bank for application on the Indebtedness. Bank may (if, in its
sole discretion, it elects to do so) deliver the Collateral or any
part of the Collateral to Debtor, and such delivery by Bank shall
discharge Bank from any and all liability or responsibility for
such Collateral.
2.7 Debtor acknowledges and agrees that the Bank has no obligation to
acquire or perfect any lien on or security interest in any
asset(s), whether realty or personalty, to secure payment of the
Indebtedness, and Debtor is not relying upon assets in which the
Bank has or may have a lien or security interest for payment of
the Indebtedness.
2.8 Debtor will pay promptly and within the time that they can be paid
without interest or penalty all taxes, assessments and similar
imposts and charges which at any time are or may become, a lien,
charge, or encumbrance upon any of the Collateral, except to the
extent contested in good faith in a manner satisfactory to Bank.
If Debtor fails to pay any of these taxes, assessments, or other
charges in the time provided above, Bank has the option (but not
the obligation) to do so and Debtor agrees to repay all amounts so
expended by Bank immediately upon demand, together with interest
at the highest default rate which could be charged by Bank to
Debtor on any Indebtedness.
2.9 Debtor will keep the Collateral in good condition and will
safeguard and protect it from loss, damage or deterioration from
any cause. Debtor has and will maintain at all times (a) with
respect to the Collateral, insurance against fire and other risks
customarily insured against under an "all risk" policy and such
other risks customarily insured against by persons engaged in
similar business to that of Debtor, and (b) public liability
insurance and other insurance as may be required by law or
reasonably required by Bank, all of which insurance shall be in
amount, form and content, and written by companies as may be
satisfactory to Bank, naming Bank as sole payee as to the
Collateral. Debtor will deliver to Bank evidence satisfactory to
Bank that
4
<PAGE>
the required insurance has been procured. If Debtor fails to
maintain satisfactory insurance, Bank has the option (but not the
obligation) to do so and Debtor agrees to repay all amounts so
expended by Bank immediately upon demand, together with interest
at the highest default rate which could be charged by Bank to
Debtor on any Indebtedness.
2.10 If any of the Collateral (or any records concerning the
Collateral) is located or kept by Debtor on leased premises,
Debtor will: (a) provide a complete and correct copy of all
applicable leases to Bank, (b) furnish or cause to be furnished to
Bank from each landlord under such leases a lessor's
acknowledgment and subordination in form satisfactory to Bank
authorizing, on Default, Bank's entry on such premises to enforce
its rights and remedies under this Agreement and (c) comply with
all such leases. Debtor's rights under all such leases shall
further be part of the Collateral, and included in the security
interest granted to Bank hereunder.
2.11 Debtor agrees to reimburse Bank upon demand for all fees and
expenses incurred by Bank (a) in seeking to collect the
Indebtedness or any part of it (through formal or informal
collection actions, workouts or otherwise), in defending the
validity or priority of its security interest, or in pursuing its
rights and remedies under this Agreement or under any other
agreement between Bank and Debtor; (b) in connection with any
proceeding (including, without limit, bankruptcy, insolvency,
administrative, appellate, or probate proceedings or any lawsuit)
in which Bank at any time is involved as a result of any lending
relationship or other financial accommodation involving Bank and
Debtor; or (c) incurred by Bank during the continuance of an Event
of Default, which fees and expenses relate to or would not have
been incurred but for any lending relationship or other financial
accommodation involving Bank and Debtor. The fees and expenses
include, without limit, court costs, legal expenses, reasonable
attorneys' fees, paralegal fees, internal transfer charges for
in-house attorneys and paralegals and other services, and audit
expenses.
2.12 Debtor at all times shall be in strict compliance with all
applicable laws.
2.13 Debtor is and shall be in strict compliance with all Environmental
Laws.
2.14 Debtor acknowledges and agrees that if any Guaranty is executed by
the Debtor in connection with or related to this Agreement, all
waivers contained in that Guaranty
5
<PAGE>
shall be and are incorporated by reference into this Agreement.
3. Defaults, Enforcement and Application of Proceeds.
3.1 Upon the occurrence of any of the following events (each an "Event
of Default"), Debtor shall be in default under this Agreement:
(a) Any failure or neglect to comply with, or breach of, any of
the terms, provisions, warranties or covenants of this
Agreement, or any other agreement or commitment between
Debtor or the Borrower or any or all of them or any
guarantor of any of the Indebtedness ("guarantor") and
Bank; or
(b) Any failure to pay the Indebtedness within five (5) days
when due, or such portion of it as may be due, by
acceleration or otherwise; or
(c) If the Collateral or any part of it ceases to be personal
property unless shown to the contrary in this Agreement;
(d) Any warranty, representation, financial statement or other
information made, given or furnished to Bank by or on
behalf of Debtor or the Borrower or any or all of them or
any guarantor shall be, or shall prove to have been, false
or materially misleading when made, given, or furnished; or
(e) Any loss, theft, substantial damage or destruction to or of
any of the Collateral, or the issuance or filing of any
attachment, levy, garnishment or the commencement of any
proceeding in connection with any of the Collateral or of
any other judicial process of, upon or in respect of Debtor
or the Borrower or any or all of them or any guarantor or
any of the Collateral; or
(f) Sale or other disposition by Debtor or the Borrower or any
or all of them or any guarantor of any substantial portion
of its assets or property without replacing such assets or
property with property of a similar nature and quality, or
voluntary suspension of the transaction of business by
Debtor or Borrower or any or all of them or any guarantor,
or death, dissolution, termination of existence, merger,
consolidation, insolvency, business failure, or assignment
for the benefit of creditors of or by Debtor or Borrower or
any or all of them or any guarantor; or commencement of any
6
<PAGE>
proceedings under any state or federal bankruptcy or
insolvency laws or laws for the relief of debtors by or
against Debtor or Borrower or any or all of them or any
guarantor; or the appointment of a receiver, trustee, court
appointee, sequestrator or otherwise, for all or any part
of the property of Debtor or Borrower or any or all of them
or any guarantor; or
(g) Any termination or notice of termination of any guaranty of
collection or payment of, or any breach, termination or
notice of termination of any subordination agreement,
pledge, or collateral assignment relating to, all or any
part of the Indebtedness; or
(h) Any failure by Debtor or Borrower or any or all of them or
any guarantor to pay when due any of its indebtedness
(other than to Bank) or in the observance or performance of
any term, covenant or condition in any agreement
evidencing, securing or relating to that indebtedness, and
such failure gives rise to an immediate right of
acceleration of such indebtedness.
3.2 Upon the occurrence of any Event of Default, Bank may at its
discretion and without prior notice to Debtor declare any or all
of the Indebtedness to be immediately due and payable, and shall
have and may exercise any one or more of the following rights and
remedies:
(a) exercise all the rights and remedies upon default, in
foreclosure and otherwise, available to secured parties
under the provisions of the Uniform Commercial Code and
other applicable law;
(b) institute legal proceedings to foreclose upon and against
the lien and security interest granted by this Agreement,
to recover judgment for all amounts then due and owing as
Indebtedness, and to collect the same out of any of the
Collateral or proceeds of any sale of it;
(c) institute legal proceedings for the sale, under the
judgment or decree of any court of competent jurisdiction,
of any or all of the Collateral; and/or
(d) personally or by agents, attorneys or appointment of a
receiver, enter upon any premises where the Collateral or
any part of it may then be located, and take possession of
all or any part of it and/or
7
<PAGE>
render it unusable, and without being responsible for loss
or damage to such Collateral, except for loss or damage
caused by Bank's gross negligence or willful misconduct,
(i) hold, store, and keep idle, or lease, operate,
remove or otherwise use or permit the use of, the
Collateral or any part of it, for that time and upon
those terms as Bank, in its sole discretion, deems
to be in its own best interest, and demand, collect
and retain all resulting earnings and other sums due
and to become due from any party, accounting only
for net earnings, if any (unless the Collateral is
retained in satisfaction of the Indebtedness, in
which case no accounting will be necessary) arising
from that use (which net earnings may be applied
against the Indebtedness) and charging against all
receipts from the use of the Collateral or from its
sale, by court proceedings or pursuant to subsection
(ii) below, all other costs, expenses, charges,
damages and other losses resulting from that use;
and/or
(ii) sell, lease or dispose of, or cause to be sold,
leased or disposed of, all or any part of the
Collateral at one or more public or private sales,
leasings or other dispositions, at places and times
and on terms and conditions as Bank may deem fit,
without any previous demand or advertisement and,
except as provided in this Agreement, all notice of
sale, lease or other disposition, and advertisement,
and other notice or demand, any right or equity of
redemption, and any obligation of a prospective
purchaser or lessee to inquire as to the power and
authority of Bank to sell, lease or otherwise
dispose of the Collateral or as to the application
by Bank of the proceeds of sale or otherwise, which
would otherwise be required by, or available to
Debtor under, applicable law are expressly waived by
Debtor to the fullest extent permitted.
At any sale pursuant to this Section 3.2, whether under the
power of sale, by virtue of judicial proceedings or
otherwise, it shall not be necessary for Bank or a public
officer under order of a court to have present physical or
constructive possession of the Collateral to be sold. The
recitals
8
<PAGE>
contained in any conveyances and receipts made and given by
Bank or the public officer to any purchaser at any sale
made pursuant to this Agreement shall, to the extent
permitted by applicable law, conclusively establish the
truth and accuracy of the matters stated (including,
without limit, as to the amounts of the principal of and
interest on the Indebtedness, the accrual and nonpayment of
it and advertisement and conduct of the sale); and all
prerequisites to the sale shall be presumed to have been
satisfied and performed. Upon any sale of any of the
Collateral, the receipt of the officer making the sale
under judicial proceedings or of Bank shall be sufficient
discharge to the purchaser for the purchase money, and the
purchaser shall not be obligated to see to the application
of the money. Any sale of any of the Collateral under this
Agreement shall be a perpetual bar against Debtor with
respect to that Collateral.
3.3 The proceeds of any sale or other disposition of Collateral
authorized by this Agreement shall be applied by Bank first upon
all expenses authorized by the Uniform Commercial Code and all
reasonable attorney fees and legal expenses incurred by Bank; the
balance of the proceeds of the sale or other disposition shall be
applied in the payment of the Indebtedness, first to interest,
then to principal, then to remaining Indebtedness, if any, and the
surplus, if any, shall be paid over to Debtor or to such other
person(s) as may be entitled to it under applicable law. Debtor
shall remain liable for any deficiency, which it shall pay to Bank
immediately upon demand.
3.4 Nothing in this Agreement is intended, nor shall it be construed,
to preclude Bank from pursuing any other remedy provided by law
for the collection of any or all of the Indebtedness or for the
recovery of any other sum to which Bank may be or become entitled
for the breach of this Agreement by Debtor. Nothing in this
Agreement shall reduce or release in any way any rights or
security interests of Bank contained in any existing agreement
between Debtor and Bank, nor shall anything in this Agreement
modify the terms of any Indebtedness owing to Bank on a demand
basis.
3.5 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized officer of
Bank. No waiver of any default or forbearance on the part of Bank
in enforcing any of its rights under this Agreement shall operate
as a waiver of
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<PAGE>
any other default or of the same default on a future occasion or
of any rights.
3.6 Debtor irrevocably appoints (which appointment is coupled with an
interest) Bank or any employee or agent of Bank the true and
lawful attorney of Debtor (with full power of substitution) in the
name, place and stead of, and at the expense of, Debtor:
(a) to give any necessary receipts or acquittances for amounts
collected or received under this Agreement;
(b) to make all necessary transfers of all or any part of the
Collateral in connection with any sale, lease or other
disposition made pursuant to this Agreement;
(c) to adjust and compromise any insurance loss on the
Collateral and to endorse checks or drafts payable to
Debtor in connection with the insurance;
(d) to execute and deliver for value all necessary or
appropriate bills of sale, assignments and other
instruments in connection with any permitted sale, lease or
other disposition of the Collateral. Debtor ratifies and
confirms all that its said attorney (or any substitute)
shall lawfully do under this Agreement. Nevertheless, if
requested by Bank or a purchaser or lessee, Debtor shall
ratify and confirm any such sale, lease or other
disposition by executing and delivering to Bank or the
purchaser or lessee all proper bills of sale, assignments,
releases, leases and other instruments as may be designated
in any such request; and
(e) to execute and file in the name of and on behalf of Debtor
all financing statements or other filings deemed necessary
or desirable by Bank to evidence, perfect or continue the
security interests granted in this Agreement.
3.7 Upon the occurrence of an Event of Default, Debtor also agrees,
upon request of Bank, to assemble the Collateral and make it
available to Bank at any place designated by Bank which is
reasonably convenient to Bank and Debtor.
4. Miscellaneous.
4.1 This Agreement shall in all respects be governed by and construed
in accordance with the laws of the State of Ohio. Notwithstanding
the foregoing, the parties acknowledge that the Indebtedness
secured hereby was
10
<PAGE>
approved and made and the proceeds of the Indebtedness were
disbursed in the State of Michigan.
4.2 This Agreement shall be terminated only by the filing of a
termination statement in accordance with the applicable provisions
of the Uniform Commercial Code, but the obligations contained in
Section 2.13 of this Agreement shall survive termination. Until
terminated, the security interest created by this Agreement shall
continue in full force and effect and shall secure and be
applicable to all advances now or later made by Bank to Debtor,
whether or not Debtor is indebted to Bank immediately prior to the
time of any advance, and to all other Indebtedness.
4.3 Notwithstanding any prior revocation, termination, surrender or
discharge of this Agreement, the effectiveness of this Agreement
shall automatically continue or be reinstated, as the case may be,
in the event that (a) any payment received or credit given by the
Bank in respect of the Indebtedness is returned, disgorged or
rescinded as a preference, impermissible setoff, fraudulent
conveyance, diversion of trust funds, or otherwise under any
applicable state or federal law, including, without limitation,
laws pertaining to bankruptcy or insolvency, in which case this
Agreement shall be enforceable against Debtor as if the returned,
disgorged or rescinded payment or credit had not been received or
given, whether or not the Bank relied upon this payment or credit
or changed its position as a consequence of it; or (b) any
liability is imposed, or sought to be imposed, against the Bank
relating to Debtor's failure to comply with all Environmental
Laws, (excluding only conditions which arise after any acquisition
by the Bank of any such Property, by foreclosure, in lieu of
foreclosure or otherwise, to the extent due to the wrongful act or
omission of the Bank), in which case this Agreement shall be
enforceable to the extent of all liability, costs and expenses
(including without limit reasonable attorney fees) incurred by the
Bank as the direct or indirect result of such failure. In the
event of continuation or reinstatement of this Agreement, Debtor
agree(s) upon demand by the Bank to execute and deliver to the
Bank those documents which the Bank determines are appropriate to
further evidence (in the public records or otherwise) this
continuation or reinstatement, although the failure of Debtor to
do so shall not affect in any way the reinstatement or
continuation. If Debtor does not execute and deliver to the Bank
upon demand such documents, the Bank and each Bank officer is
irrevocably appointed (which appointment is coupled with an
interest) the true and lawful attorney
11
<PAGE>
of Debtor (with full power of substitution) to execute and deliver
such documents in the name and on behalf of Debtor.
4.4 This Agreement and all the rights and remedies of Bank under this
Agreement shall inure to the benefit of Bank's successors and
assigns and to any other holder who derives from Bank title to or
an interest in the Indebtedness or any portion of it, and shall
bind Debtor and the successors and permitted assigns of Debtor.
4.5 If there is more than one Debtor, all undertakings, warranties and
covenants made by Debtor and all rights, powers and authorities
given to or conferred upon Bank are made or given jointly and
severally.
4.6 In addition to Bank's other rights, any indebtedness owing from
Bank to Debtor can be set off and applied by Bank on any
Indebtedness at any time(s) either before or after maturity or
demand without notice to anyone.
4.7 In the event that applicable law shall obligate Bank to give prior
notice to Debtor of any action to be taken under this Agreement,
Debtor agrees that a written notice given to it at least five days
before the date of the act shall be reasonable notice of the act
and, specifically, reasonable notification of the time and place
of any public sale or of the time after which any private sale,
lease, or other disposition is to be made, unless a shorter notice
period is reasonable under the circumstances. A notice shall be
deemed to be given under this Agreement when delivered to Debtor
or when placed in an envelope addressed to Debtor and deposited,
with postage prepaid, in a post office or official depository
under the exclusive care and custody of the United States Postal
Service. The mailing shall be registered, certified or first class
mail.
4.8 A carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement under the Uniform
Commercial Code and may be filed by Bank in any filing office.
4.9 No single or partial exercise, or delay in the exercise, of any
right or power under this Agreement, shall preclude other or
further exercise of the rights and powers under this Agreement.
4.10 The unenforceability of any provision of this Agreement shall not
affect the enforceability of the remainder of this Agreement.
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<PAGE>
4.11 No amendment or modification of this Agreement shall be effective
unless the same shall be in writing and signed by Debtor and an
authorized officer of Bank.
4.12 This Agreement constitutes the entire agreement of Debtor and Bank
with respect to the subject matter of this Agreement.
4.13 To the extent that any of the Indebtedness is payable upon demand,
nothing contained in this Agreement shall modify the terms and
conditions of that Indebtedness nor shall anything contained in
this Agreement prevent Bank from making demand, without notice and
with or without reason, for immediate payment of any or all of
that Indebtedness at any time(s), whether or not an Event of
Default has occurred.
5. Statement of Business Name, Residence and Location of Collateral. Debtor
warrants, covenants and agrees as follows:
5.1 Debtor's chief executive office is located in the County of
Cuyahoga.
Mailing Address: 1400 E. Schaaf Road, Brooklyn Heights, Ohio 44131
------------------------------------------------------
No. and Street City State Zip Code
This location is (check one box):
[_] Owned [x] Leased by the Debtor.
5.2 Any other places of business and/or residences of Debtor are
indicated below: 1350 West State Street, Alliance, Ohio 44601
5.3 Debtor's correct legal name is set forth at the end of this
Agreement. During the past five years, Debtor has not conducted
business under any other name except as set forth in any
appropriately labeled schedule attached to this Agreement.
5.4 Until Bank is advised in writing by Debtor to the contrary, all
notices, requests and demands required under this Agreement or by
law shall be given to, or made upon, Debtor at the address
indicated in Section 5.1 above.
5.5 Debtor will give Bank not less than 90 days prior written notice
of all contemplated changes in Debtor's name, identity, corporate
structure, and/or any of the above addresses, but the giving of
this notice shall not cure any default caused by this change.
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<PAGE>
6. Jury Waiver.
6.1 DEBTOR aND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL
OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF
LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY
WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.
7. Special Provisions Applicable to this Agreement. (*None, if left blank)
Dated and delivered on:
January 24, 1995 CONTINENTAL MANAGED PHARMACY
- - ------------------------ SERVICES, INC.
Debtor
at Cleveland, Ohio By: /s/ MICHAEL R. ERLENBACH
----------------------------------
Signature of
Its: Executive Vice President
------------------------------
Title (if applicable)
By: /s/ [ILLEGIBLE]
----------------------------------
Signature of
Its: Vice President, Treasurer
------------------------------
Title (if applicable)
14
SECURITY AGREEMENT
(Accounts and Chattel Paper)
For value received, the undersigned ("Debtor") grants to Comerica Bank, a
Michigan banking corporation, whose address is 500 Woodward Avenue, Detroit,
Michigan 48226 ("Bank"), a continuing security interest in (a) Debtor's Accounts
Receivable, (b) Debtor's interest in the proceeds and products of Debtor's goods
which has given rise to any Account Receivable, (c) Debtor's Property in
Possession of Bank, (d) the Proceeds and products of Debtor's Inventory, and (e)
the proceeds and products of all the above, to secure payment of any and all
sums, indebtedness and liabilities of any and every kind now owing or later to
become due to the Bank from Debtor or from Continental Pharmacy, Inc. ("CPI"),
Preferred RX, Inc. ("Preferred"), Automated Scripts, Inc. ("ASI"), or Valley
Physicians Services, Inc. ("VPSI") (Debtor, CPI, Preferred, ASI and VPSI are
sometimes collectively referred to as the "Borrower") or any or all of them
during the term of this Agreement, however created, incurred, evidenced,
acquired or arising, whether under any note(s), guaranty(ies), letter of credit
agreement(s), evidence(s) of indebtedness or under any other instrument,
obligation, guaranty, contract or agreement or dealing of any and every kind now
existing or later entered into between the Debtor or the Borrower and the Bank,
or otherwise, and whether direct, indirect, primary, secondary, fixed,
contingent, joint or several, due or to become due, together with interest and
charges, and including, without limit, all present and future indebtedness or
obligations of third parties to the Bank which is guaranteed by the Debtor or
the Borrower or any of them and the present or future indebtedness originally
owing by the Debtor or the Borrower or any of them to third parties and assigned
by third parties to the Bank, and any and all renewals, extensions or
modifications of any of them (the "Indebtedness").
1. Definitions. As used in this Agreement:
1.1 "Account(s) Receivable" or "Debtor's Account(s) Receivable" means
all of the following now owned or later acquired by Debtor
wherever located: all accounts, general intangibles (including,
without limit, Tax Refunds, trade names, trade styles and
goodwill, trademarks, copyrights and patents, and applications for
them, trade and proprietary secrets, formulae, designs, blueprints
and plans, customer lists, software programs, literary rights,
licenses and permits, insurance policies, insurance proceeds,
beneficial interests in trusts, and minute books and other books
and records), chattel paper, contract rights, deposit accounts,
documents and instruments.
1.2 "Collateral" means any and all property of Debtor in which Bank
now has or by this Agreement now or later acquires a security
interest.
<PAGE>
1.3 "Debtor's Property in Possession of Bank" means goods,
instruments, documents, policies and certificates of insurance,
deposits, money or other property now owned or later acquired by
Debtor or in which Debtor now has or later acquires an interest
and which are now or later in possession of Bank, or as to which
Bank now or later controls possession by documents or otherwise.
1.4 "Environmental Law" means any laws, ordinances, directives,
orders, statutes, or regulations an object of which is to regulate
or improve health, safety, or the environment, including, without
limit, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 USC 9601 et seq.), and the
Resource Conservation and Recovery Act, as amended (42 USC 6091 et
seq.).
1.5 "Inventory" or "Debtor's Inventory" means all goods wherever
located, now owned or later acquired by Debtor, which are held for
sale or lease or furnished or to be furnished under any contract
of service (including, without limit, any such goods which are
returned to or repossessed by Debtor), or which are raw materials,
work in process or. materials used or consumed in Debtor's
business and any other property constituting "inventory" under the
Uniform Commercial Code.
1.6 "Proceeds" has the meaning assigned it in Article 9 and/or chapter
1309 of the Uniform Commercial Code, as of the date of this
Agreement, and also includes, without limit, cash or other
property which were proceeds and are recovered by a bankruptcy
trustee or otherwise as a preferential transfer by Debtor.
1.7 "Tax Refunds" means refunds or claims for refunds of any taxes at
any time paid by Debtor to the United States of America, any
state, city, county or any other governmental entity.
1.8 "Uniform Commercial Code" means chapters 1301 through 1310 of the
Ohio Revised Code, as amended.
1.9 Except as otherwise provided in this Agreement, all terms in this
Agreement have the meanings assigned to them in Chapter 1309 (or,
absent definition in Chapter 1309, in any other Article) of the
Uniform Commercial Code, as of the date of this Agreement.
3. Warranties, Covenants and Agreements. Debtor warrants, covenants and
agrees as follows:
2
<PAGE>
2.1 Bank at its option may disburse loan proceeds directly to the
seller of any collateral to be acquired with proceeds of loans
from Bank.
2.2 Debtor shall (a) keep adequate records of the Collateral and other
records as Bank shall determine to be appropriate; and (b) allow
Bank to examine, inspect and make abstracts from, or copy any of
Debtor's books and records (relating to the Collateral or
otherwise and whether printed or in magnetic tape or discs or in
other machine readable form), and arrange for verification of
Accounts Receivable directly with account debtors or by other
methods acceptable to Bank.
2.3 Debtor shall at the request of Bank deliver to Bank all accounting
and other records pertaining to, and all writings evidencing, the
Collateral or any portion of it, together with all books, records
and documents of Debtor related to it in whatever form kept by
Debtor, whether printed or in magnetic tape or discs or in other
machine readable form or otherwise, and all forms, programs,
software and other materials and instructions necessary or useful
to Bank, to monitor the Collateral or enforce its rights under
this Agreement.
2.4 At the time any Collateral becomes, or is represented to be,
subject to a security interest in favor of Bank, Debtor shall be
deemed to have warranted that (a) Debtor is the lawful owner of
the Collateral and has the right and authority to subject it to a
security interest granted to Bank; (b) except for leases currently
in place, none of the Collateral is subject to any security
interest other than that in favor of Bank and the lien of Foxmeyer
Drug Co. ("Foxmeyer") and there are no financing statements on
file, other than in favor of such parties; and (c) Debtor acquired
its rights in the Collateral in the ordinary course of its
business.
2.5 On each occasion on which Debtor evidences to Bank the account
balances on and the nature and extent of Debtor's Accounts
Receivable, Debtor shall be deemed to have warranted that except
as otherwise indicated (a) each of those Accounts Receivable is
valid and enforceable without performance by Debtor of any act;
(b) each of those account balances are in fact owing, (c) there
are no setoffs, recoupments, credits, contra accounts,
counterclaims or defenses against any of those Accounts
Receivable, (d) as to any Accounts Receivable represented by a
note, trade acceptance, draft or other instrument or by any
chattel paper or document, the same have been endorsed and/or
delivered by Debtor to Bank, (e) Debtor has not received with
respect to any Account Receivable, any notice of the death of the
related account debtor,
3
<PAGE>
nor of the dissolution, liquidation, termination of existence,
insolvency, business failure, appointment of a receiver for
assignment for the benefit of creditors by, or filing of a
petition in bankruptcy by or against, the account debtor, and (f)
as to each Account Receivable, the account debtor is not an
affiliate of Debtor, the United States of America or any
department, agency or instrumentality of it, or a citizen or
resident of any jurisdiction outside of the United States.
2.6 Debtor will keep the Collateral free at all times from any and all
claims, liens, security interests and encumbrances other than
those in favor of Bank or Foxmayer and except leases currently in
place and for leased equipment in an amount not to exceed $50,000.
Debtor will not, without the prior written consent of Bank, sell,
transfer or lease, or permit or suffer to be sold, transferred or
leased, any or all of the Collateral, except for Inventory in the
ordinary course of its business and will not return any Inventory
to its supplier. Bank or its agents or attorneys may at all
reasonable times inspect the Collateral and may enter upon all
premises where the Collateral is kept or might be located.
2.7 If Bank, acting in its sole discretion, redelivers Collateral to
Debtor or Debtor's designee for the purpose of
(a) the ultimate sale or exchange thereof, or
(b) presentation, collection, renewal, or registration of
transfer thereof, or
(c) loading, unloading, storing, shipping, transshipping,
manufacturing, processing or otherwise dealing therewith
preliminary to sale or exchange,
such redelivery shall be in trust for the benefit of Bank and
shall not constitute a release of Bank's security interest therein
or in the proceeds or products thereof unless Bank specifically so
agrees in writing. If Debtor requests any such redelivery, Debtor
will deliver with such request a duly executed financing statement
in form and substance satisfactory to Bank. Any proceeds of
Collateral coming into Debtor's possession as a result of any such
redelivery shall be held in trust for Bank and forthwith delivered
to Bank for application on the Indebtedness. Bank may (if, in its
sole discretion, it elects to do so) deliver the Collateral or any
part of the Collateral to Debtor, and such delivery by Bank shall
discharge Bank from any and all liability or responsibility for
such Collateral.
4
<PAGE>
2.8 Debtor acknowledges and agrees that the Bank has no obligation to
acquire or perfect any lien on or security interest in any
asset(s), whether realty or personalty, to secure payment of the
Indebtedness, and Debtor is not relying upon assets in which the
Bank has or may have a lien or security interest for payment of
the Indebtedness.
2.9 Debtor will do all acts and things, and will execute all writings
requested by Bank to establish, maintain and continue a perfected
and first security interest of Bank in the Collateral, and will
pay on demand all costs and expenses of searches, filing and
recording deemed necessary by Bank to establish, determine or
continue the validity and the priority of Bank's security
interest.
2.10 Debtor will pay promptly and within the time that they can be paid
without interest or penalty all taxes, assessments and similar
imposts and charges which at any time are or may become a lien,
charge, or encumbrance upon any of the Collateral, except to the
extent contested in good faith in a manner satisfactory to Bank.
If Debtor fails to pay any of these taxes, assessments, or other
charges in the time provided above, Bank has the option (but not
the obligation) to do so and Debtor agrees to repay all amounts so
expended by Bank immediately upon demand, together with interest
at the highest default rate which could be charged by Bank to
Debtor on any Indebtedness.
2.11 If any of the Collateral (or any records concerning the
Collateral) is located or kept by Debtor on leased premises,
Debtor will: (a) provide a complete and correct copy of all
applicable leases to Bank, (b) furnish or cause to be furnished to
Bank from each landlord under such leases a lessor's
acknowledgment and subordination in form satisfactory to Bank
authorizing, on Default, Bank's entry on such premises to enforce
its rights and remedies under this Agreement and (c) comply with
all such leases. Debtor's rights under all such leases shall
further be part of the Collateral, and included in the security
interest granted to Bank hereunder.
2.12 Debtor shall neither make nor permit any modification, compromise
or substitution for any Account Receivable without the prior
written consent of Bank.
2.13 Debtor agrees to reimburse Bank upon demand for all fees and
expenses incurred by Bank (a) in seeking to collect the
Indebtedness or any part of it (through formal or informal
collection actions, workouts or otherwise), in defending the
validity or priority of its security interest, or in pursuing its
rights and remedies under
5
<PAGE>
this Agreement or under any other agreement between Bank and Debtor; (b)
in connection with any proceeding (including, without limit, bankruptcy,
insolvency, administrative, appellate, or probate proceedings or any
lawsuit) in which Bank at any time is involved as a result of any lending
relationship or other financial accommodation involving Bank and Debtor;
or (c) incurred by Bank during the continuance of an Event of Default,
which fees and expenses relate to or would not have been incurred but for
any lending relationship or other financial accommodation involving Bank
and Debtor. The fees and expenses include, without limit, court costs,
legal expenses, reasonable attorneys' fees, paralegal fees, internal
transfer charges for in-house attorneys and paralegals and other
services, and audit expenses.
2.14 Debtor at all times shall be in strict compliance with all
applicable laws.
2.15 Debtor is and shall be in strict compliance with all Environmental
Laws.
2.16 Debtor acknowledges and agrees that if any Guaranty is executed by
the Debtor in connection with or related to this Agreement, all
waivers contained in that Guaranty shall be and are incorporated
by reference into this Agreement.
3. Collection of Proceeds.
3.1 Debtor agrees to collect and enforce payment of all Accounts
Receivable until Bank shall direct Debtor to the contrary and,
from and after this direction, Debtor agrees to fully and promptly
cooperate and assist Bank (or any other person as Bank shall
designate) in the collection and enforcement of all Accounts
Receivable.
3.2 Debtor irrevocably authorizes Bank or any Bank employee or agent
to endorse the name of Debtor upon any checks or other items which
are received in payment of any Account Receivable or for any
Inventory, and to do any and all things necessary in order to
reduce these items to money.
3.3 Bank shall have no duty as to the collection or protection of
Collateral or the proceeds of it, nor as to the Preservation of
any related rights, beyond the use of reasonable care in the
custody and preservation of Collateral in the possession of Bank.
Debtor agrees to take all steps necessary to preserve rights
against prior Parties with respect to Debtor's Property in
Possession of Bank.
6
<PAGE>
3.4 For the purpose of calculating interest on the Indebtedness,
Debtor understands that Bank imposes a minimum one business day
delay in crediting payments received by Bank on Accounts
Receivable against the Indebtedness to allow time for collection
and Debtor agrees that Bank may, at Bank's option, make such
credits only when payments are actually collected by Bank in
immediately available funds. Any credit of payment by Bank prior
to receipt by Bank of immediately available funds is conditional
upon Bank's receipt of those funds. For the purpose of calculating
the principal amount which Debtor may request to borrow from Bank
under any borrowing arrangements with Bank, Debtor understands
that Bank may, at Bank's option, use a method different from that
used for the purpose of calculating interest.
4. Defaults, Enforcement and Application of Proceeds.
4.1 Upon the occurrence of any of the following events (each an "Event
of Default"), Debtor shall be in default under this Agreement:
(a) Any failure or neglect to comply with, or breach of, any of
the terms, provisions, warranties or covenants of this
Agreement, or any other agreement or commitment between
Debtor or the Borrower or any or all of them or any
guarantor of any of the Indebtedness ("guarantor") and
Bank; or
(b) Any failure to pay the Indebtedness within five days when
due, or such portion of it as may be due, by acceleration
or otherwise; or
(c) Any warranty, representation, financial statement or other
information made, given or furnished to Bank by or on
behalf of Debtor or the Borrower or any or all of them or
any guarantor shall be, or shall prove to have been, false
or materially misleading when made, given, or furnished; or
(d) Any loss, theft, substantial damage or destruction to or of
any of the Collateral, or the issuance or filing of any
attachment, levy, garnishment or the commencement of any
proceeding in connection with any of the Collateral or of
any other judicial process of, upon or in respect of Debtor
or the Borrower or any or all of them or any guarantor or
any of the Collateral; or
(e) Sale or other disposition by Debtor or the Borrower or any
or all of them or guarantor of any substantial Portion of
its assets or property without replacing such assets or
property with property of
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a similar nature and quality or voluntary suspension of the
transaction of business by Debtor or the Borrower or any or
all of them or any guarantor, or death, dissolution,
termination of existence, merger, consolidation,
insolvency, business failure or assignment for the benefit
of creditors of or by Debtor or the Borrower or any or all
of them or any guarantor; or commencement of any
proceedings under any state or federal bankruptcy or
insolvency laws or laws for the relief of debtors by or
against Debtor or the Borrower or any or all of them or any
guarantor; or the appointment of a receiver, trustee, court
appointee, sequestrator or otherwise, for all or any part
of the property of Debtor or the Borrower or any or all of
them or any guarantor; or
(f) Any termination or notice of termination of any guaranty of
collection or payment of, or any breach, termination or
notice of termination of any subordination agreement,
pledge, or collateral assignment relating to, all or any
part of the Indebtedness; or
(g) Any failure by Debtor or the Borrower or any or all of them
or any guarantor to pay when due any of its indebtedness
(other than to Bank) or in the observance or performance of
any term, covenant or condition in any agreement
evidencing, securing or relating to that indebtedness, and
such failure gives rise to an immediate right of
acceleration of such indebtedness.
4.2 Upon the occurrence of any Event of Default, Bank may at its
discretion and without prior notice to Debtor declare any or all
of the Indebtedness to be immediately due and payable, and shall
have and may exercise any one or more of the following rights and
remedies:
(a) exercise all the rights and remedies upon default, in
foreclosure and otherwise, available to secured Parties
under the provisions of the Uniform Commercial Code and
other applicable law;
(b) institute legal proceedings to foreclose upon and against
the lien and security interest granted by this Agreement,
to recover judgment for all amounts then due and owing as
Indebtedness, and to collect the Same out of any of the
Collateral or the proceeds of any sale of it;
8
<PAGE>
(c) institute legal proceedings for the sale, under the
judgment or decree of any court of competent jurisdiction,
of any or all of the Collateral; and/or
(d) personally or by agents, attorneys, or appointment of a
receiver, enter upon any premises where the Collateral or
any part of it may then be located, and take possession of
all or any part of it and/or render it unusable; and
without being responsible for loss or damage to such
Collateral, except for loss or damage caused by Bank's
gross negligence or willful misconduct,
(i) hold, store, and keep idle, or lease, operate,
remove or otherwise use or permit the use of the
Collateral or any part of it, for that time and upon
those terms as Bank, in its sole discretion, deems
to be in its own best interest, and demand, collect
and retain all resulting earnings and other sums due
and to become due from any party, accounting only
for net earnings, if any (unless the Collateral is
retained in satisfaction of the Indebtedness, in
which case no accounting will be necessary), arising
from that use (which net earnings may be applied
against the Indebtedness) and charging against all
receipts from the use of the Collateral or from its
sale, by court proceedings or pursuant to subsection
(ii) below, all other costs, expenses, charges,
damages and other losses resulting from that use;
and/or
(ii) sell, lease, dispose of, or cause to be sold, leased
or disposed of, all or any part of the Collateral at
one or more public or private sales, leasings or
other dispositions, at places and times and on terms
and conditions as Bank may deem fit, without any
previous demand or advertisement; and except as
provided in this Agreement, all notice of sale,
lease or other disposition, and advertisement, and
other notice or demand, any right or equity of
redemption, and any obligation of a prospective
purchaser or lessee to inquire as to the power and
authority of Bank to sell, lease or otherwise
dispose of the Collateral or as to the application
by Bank of the proceeds of sale or otherwise, which
would otherwise be required by, or available to
Debtor under, applicable law are expressly waived by
Debtor to the fullest extent permitted.
9
<PAGE>
At any sale pursuant to this Section 4.2, whether
under the power of sale, by virtue of judicial
proceedings or otherwise, it shall not be necessary
for Bank or a public officer under order of a court
to have present physical or constructive possession
of the Collateral to be sold. The recitals contained
in any conveyances and receipts made and given by
Bank or the public officer to any purchaser at any
sale made pursuant to this Agreement shall, to the
extent permitted by applicable law, conclusively
establish the truth and accuracy of the matters
stated (including, without limit, as to the amounts
of the principal of and interest on the
Indebtedness, the accrual and nonpayment of it and
advertisement and conduct of the sale); and all
prerequisites to the sale shall be presumed to have
been satisfied and performed. Upon any sale of any
of the Collateral, the receipt of the officer making
the sale under judicial proceedings or of Bank shall
be sufficient discharge to the purchaser for the
purchase money, and the purchaser shall not be
obligated to see to the application of the money.
Any sale of any of the Collateral under this
Agreement shall be a perpetual bar against Debtor
with respect to that Collateral.
4.3 Debtor shall (upon the occurrence of any Event of Default) at the
request of Bank, notify the account debtors or obligors of the
security interest of Bank in any Accounts Receivable and direct
payment of it to Bank. Bank may, itself, upon the occurrence of
any Event of Default so notify and direct any account debtor or
obligor and may take control of any proceeds to which it may be
entitled under this Agreement.
4.4 The proceeds of any sale or other disposition of Collateral
authorized by this Agreement shall be applied by Bank first upon
all expenses authorized by the Uniform Commercial Code and all
reasonable attorney fees and legal expenses incurred by Bank; the
balance of the proceeds of the sale or other disposition shall be
applied in the payment of the Indebtedness, first to interest,
then to principal, then to remaining Indebtedness and the surplus,
if any, shall be paid over to Debtor or to such other person(s) as
may be entitled to it under applicable law. Debtor shall remain
liable for any deficiency, which it shall pay to Bank immediately
upon demand.
4.5 Nothing in this Agreement is intended, nor shall it be to preclude
Bank from pursuing any other remedy provided by law for the
collection of any or all the Indebtedness or for the recovery of
any other sum
10
<PAGE>
to which Bank may be or become entitled for the breach of this
Agreement by Debtor. Nothing in this Agreement shall reduce or
release in any way any rights or security interests of Bank
contained in any existing agreement between Debtor and Bank, nor
shall anything in this Agreement modify the terms of any
Indebtedness owing to Bank on a demand basis.
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized officer of
Bank. No waiver of any default or forbearance on the part of Bank
in enforcing any of its rights under this Agreement shall operate
as a waiver of any other default or of the same default on a
future occasion or of any rights.
4.7 Debtor irrevocably appoints Bank or any employee or agent of Bank
(which appointment is coupled with an interest) the true and
lawful attorney of Debtor (with full power of substitution) in the
name, place and stead of, and at the expense of, Debtor:
(a) to demand, receive, sue for and give receipts or
acquittance for any moneys due or to become due on any
Account Receivable and to endorse any item representing any
payment on or proceeds of the Collateral;
(b) with respect to any Collateral, to assent to any or all
extensions or postponements of the time of its payment or
any other indulgence in connection with it, to the
substitution, exchange, or release of Collateral, to the
addition or release of any party primarily or secondarily
liable, to the acceptance of partial payments on it and the
settlement, compromise or adjustment of it, all in a manner
and at times as Bank shall deem advisable;
(c) to make all necessary transfers of all or any part of the
Collateral in connection with any sale, lease or other
disposition made pursuant to this Agreement;
(d) to adjust and compromise any insurance loss on the
Inventory and to endorse checks or drafts payable to Debtor
in connection with the insurance;
(e) to execute and deliver for value all necessary or
appropriate bills of sale, assignments and other
instruments in connection with any sale, lease or other
disposition of the Collateral. Debtor ratifies and confirms
all that its said attorney (or any substitute) shall
lawfully do under this Agree-
11
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ment. Nevertheless, if requested by Bank or a purchaser or
lessee, Debtor shall ratify and confirm any sale, lease or
other disposition by executing and delivering to Bank or
the purchaser or lessee all proper bills of sale,
assignments, releases, leases and other instruments as may
be designated in any request; and
(f) to execute and file in the name of and on behalf of Debtor
all financing statements or other filings deemed necessary
or desirable by Bank to evidence, perfect or continue the
security interests granted in this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also agrees,
upon request of Bank, to assemble the Collateral and make it
available to Bank at any place designated by Bank which is
reasonably convenient to Bank and Debtor.
5. Miscellaneous.
5.1 This Agreement shall in all respects be governed by and construed
in accordance with the laws of the State of Ohio. Notwithstanding
the foregoing, the parties acknowledge that the Indebtedness
secured hereby was approved and made and the proceeds of the
Indebtedness were disbursed in the State of Michigan.
5.2 This Agreement shall be terminated only by the filing of a
termination statement in accordance with the applicable provisions
of the Uniform Commercial Code, but the obligations contained in
Section 2.15 of this Agreement shall survive termination. Until
terminated, the security interest created by this Agreement shall
continue in full force and effect and shall secure and be
applicable to all advances now or later made by Bank to Debtor,
whether or not Debtor is indebted to Bank immediately prior to the
time of any advance, and to all other Indebtedness.
5.3 Notwithstanding any prior revocation, termination, surrender or
discharge of this Agreement, the effectiveness of this Agreement
shall automatically continue or be reinstated, as the case may be,
in the event that (a) any payment received or credit given by the
Bank in respect of the Indebtedness is returned, disgorged or
rescinded as a preference, impermissible setoff, fraudulent
conveyance, diversion of trust funds, or otherwise under any
applicable state or federal law, including, without limitation,
laws pertaining to bankruptcy or insolvency, in which case this
Agreement shall be enforceable against Debtor as if the returned,
disgorged or rescinded payment or credit had not been received or
given, whether or not
12
<PAGE>
the Bank relied upon this payment or credit or changed its
position as a consequence of it; or (b) any liability is imposed,
or sought to be imposed, against the Bank relating to Debtor's
failure to comply with all Environmental Laws, (excluding only
conditions which arise after any acquisition by the Bank of any
such Property, by foreclosure, in lieu of foreclosure or
otherwise, to the extent due to the wrongful act or omission of
the Bank), in which case this Agreement shall be enforceable to
the extent of all liability, costs and expenses (including without
limit reasonable attorney fees) incurred by the Bank as the direct
or indirect result of any such failure. In the event of
continuation or reinstatement of this Agreement, Debtor agree(s)
upon demand by the Bank to execute and deliver to the Bank those
documents which the Bank determines are appropriate to further
evidence (in the public records or otherwise) this continuation or
reinstatement, although the failure of Debtor to do so shall not
affect in any way the reinstatement or continuation. If Debtor
does not execute and deliver to the Bank upon demand such
documents, the Bank and each Bank officer is irrevocably appointed
(which appointment is coupled with an interest) the true and
lawful attorney of Debtor (with full power of substitution) to
execute and deliver such documents in the name and on behalf of
Debtor.
5.4 This Agreement and all the rights and remedies of Bank under this
Agreement shall inure to the benefit of Bank's successors and
assigns and to any other holder who derives from Bank title to or
an interest in the Indebtedness or any portion of it, and shall
bind Debtor and the heirs, legal representatives, successors and
assigns of Debtor.
5.5 It there is more than one Debtor, all undertakings, warranties and
covenants made by Debtor and all rights, powers and authorities
given to or conferred upon Bank are made or given jointly and
severally.
5.6 In addition to Bank's other rights, any indebtedness owing from
Bank to Debtor can be set off and applied by Bank of any
Indebtedness at any time(s) either before or after maturity or
demand without notice to anyone.
5.7 Banks assumes no duty of performance or other responsibility under
any contracts contained within the Collateral.
5.8 In the event that applicable law shall obligate Bank to give
prior notice to Debtor of any action to be taken under this
Agreement, Debtor agrees that a written notice given to it at
least five days before the date of the act shall be reasonable
notice of the act and, specifically,
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<PAGE>
reasonable notification of the time and place of any public sale
or of the time after which any private sale, lease or other
disposition is to be made, unless a shorter notice period is
reasonable under the circumstances. A notice shall be deemed to be
given under this Agreement when delivered to Debtor or when placed
in an envelope addressed to Debtor and deposited, with postage
prepaid, in a post office or official depository under the
exclusive care and custody of the United States Postal Service.
The mailing shall be registered, certified, or first class mail.
5.9 A carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement under the Uniform
Commercial Code and may be filed by Bank in any filing office.
5.10 No single or partial exercise, or delay in the exercise, of any
right or power under this Agreement, shall preclude other or
further exercise of the rights and powers under this Agreement.
5.11 The unenforceability of any provision of this Agreement shall not
affect the enforceability of the remainder of this Agreement.
5.12 No amendment or modification of this Agreement shall be effective
unless the same shall be in writing and signed by Debtor and an
authorized officer of Bank.
5.13 This Agreement constitutes the entire agreement of Debtor and Bank
with respect to the subject matter of this Agreement.
5.14 To the extent that any of the Indebtedness is payable upon demand,
nothing contained in this Agreement shall modify the terms and
conditions of that Indebtedness nor shall anything contained in
this Agreement prevent Bank from making demand, without notice and
with or without reason, for immediate payment of any or all of
that Indebtedness at any time(s), whether or not an Event of
Default has occurred.
6. Statement of Business Name, Residence and Location of Collateral. Debtor
warrants, covenants and agrees as follows:
6.1 Debtor's chief executive office is located in the County of
Cuyahoga.
Mailing Address: 1400 E. Schaaf Road, Brooklyn Hts., Ohio 44131.
No. and Street City State Zip Code
This location is (check one box):
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<PAGE>
[_] Owned [X] Leased by the Debtor.
6.2 Any other places of business and/or residences of Debtor are
indicated below: 1350 West State Street, Alliance, Ohio 44601
6.3 Debtor's correct legal name is set forth at the end of this
Agreement. During the past five years, Debtor has not conducted
business under any other name except as set forth in any
appropriately labeled schedule attached to this Agreement.
6.4 Until Bank is advised in writing by Debtor to the contrary, all
notices, requests and demands required under this Agreement or by
law shall be given to, or made upon, Debtor at the address
indicated in Section 6.1 above.
6.5 Debtor will give Bank not less than 90 days prior written notice
of all contemplated changes in Debtor's name, identity, corporate
structure, and/or any of the above addresses, but the giving of
this notice shall not cure any default caused by this change.
7. Jury Waiver.
7.1 DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL
OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF
LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY
WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.
5. Special Provisions Applicable to this Agreement. (*None, if left blank)
15
<PAGE>
Dated and delivered on:
January 24, 1995 CONTINENTAL MANAGED PHARMACY
SERVICES, INC.
at Cleveland, Ohio By: /S/ MICHAEL R. ERLENBACH
-------------------------
Signature of
Its: Executive Vice President
--------------------------
Title (if applicable)
By: [illegible]
--------------------------
Signature of
Its: Vice President Treasurer
--------------------------
Title (if applicable)
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT ("Agreement") is made and entered into as of
this 24th day of January 1995, by and between FOXMEYER DRUG COMPANY, a Kansas
corporation (together with its successors and assigns, the "Creditor"), COMERICA
BANK, a Michigan banking corporation (together with its successors and assigns,
the "Lender") and CONTINENTAL PHARMACY, INC., an Ohio corporation together with
its successors and assigns, the "Borrower").
RECITALS:
A. Creditor is a Supplier of pharmaceutical drugs and other goods
(collectively, the "Inventory") to Borrower. Creditor supplies such Inventory to
Borrower on an open account basis, pursuant to which Borrower is indebted to the
Creditor from time to time (all such indebtedness, together with all interest
and other charges payable in connection therewith, from time to time owing by
the Borrower to the Creditor being referred to herein as the "Supplier
Indebtedness"). Payment of the Supplier Indebtedness is secured by a security
interest (such security interest, as the same may be renewed, extended or
modified, and any security interest granted in replacement thereof or
substitution therefor, being referred to herein as the "Supplier Security
Interest") in certain assets of the Borrower, including without limitation,
Borrower's accounts, inventory and equipment.
B. Lender has agreed, and may otherwise hereafter agree, to extend credit
and other financial accommodations to Borrower secured by a security interest in
certain of Borrower's assets, including, without limitation, substantially all
of the assets subject to the Supplier Security Interest. In connection
therewith, Borrower and Lender have entered into a certain Letter Agreement
dated January _, 1995 which, together with certain of the other "Loan Documents"
(as defined herein) sets forth the terms and conditions pursuant to which Lender
will make certain of such credit and other financial accommodations available to
the Borrower (said Letter Agreement, together with all promissory notes and
security agreements related thereto, in each instance as amended, supplemented
or modified from time to time, are collectively referred to herein as the "Loan
Agreement" and, together with each other agreement, instrument or other document
executed in connection with any such financing arrangements as may exist from
time to time to which Lender and Borrower are parties, are referred to herein as
the "Loan Documents").
C. Lender, as a condition precedent to extending to Borrower the credit and
other financial accommodations provided for pursuant to the Loan Agreement,
requires the execution of this Agreement by Creditor and Borrower so as to
establish the relative priorities, rights and claims of the Creditor and Lender
in and to the assets of the Borrower otherwise subject to the Supplier Security
Interest and the amounts realized from the collection, sale, liquidation or
other disposition thereof.
<PAGE>
D. It is to the direct benefit and advantage of Creditor for Lender to
enter into the Loan Agreement with Borrower and to extend to Borrower the credit
and other financial accommodations contemplated thereby.
PROVISIONS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby expressly acknowledged, in order to induce
Lender, at its option now and from time to time hereafter, to make loans or
extend credit or any other financial accommodations to or for the benefit of
Borrower, including, without limitation, under or pursuant to the provisions of
the Loan Agreement and the other Loan Documents, and to better secure Lender in
respect of the foregoing, the parties hereby agree as follows:
1. Certain Definitions. In addition to the terms defined in the recitals
hereto, the terms set forth below shall have the following meanings for the
purposes of this Agreement:
"Lender Collateral" shall mean the "Collateral" as defined in the
Loan Agreement.
"Lender Lien" shall mean the security interest in and lien upon
the Lender Collateral to the extent granted by Borrower in favor of
Lender pursuant to the Loan Agreement or any of the other Loan Documents.
"Lien" shall mean, in the case of the Lender, the Lender Lien and,
in the case of the Creditor, the Supplier Lien.
"Liens" shall mean the Lender Lien and Supplier Lien, collectively.
"Supplier Lien" shall mean the Supplier Security Interest and any
other security interest in or lien upon any property of the Borrower, or
Borrower's interest in any property, howsoever arising, securing the
repayment of the Supplier Indebtedness, or any part thereof.
"Senior Debt" shall mean all indebtedness, obligations and
liabilities of Borrower (including, without limitation, principal,
interest, fees, costs, expenses and reasonable attorneys' fees),
howsoever arising or incurred, now or hereafter owed by Borrower to
Lender.
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<PAGE>
2. Enforcement Standstill Provisions.
(a) Creditor agrees that, notwithstanding any default by Borrower with
respect to payment of any Supplier Indebtedness, it will not attempt to levy
foreclose or otherwise realize upon, or otherwise exercise any right or remedy
that it may have with respect to, any of the Lender Collateral, unless and until
the Senior Debt shall have been fully paid and satisfied and all financing
arrangements between Borrower and Lender have been terminated in writing,
provided, however, that the foregoing shall not in any manner be deemed to
preclude the Creditor from otherwise exercising any such other rights, or taking
such other action, as it may deem necessary or appropriate to enforce payment of
the Supplier Indebtedness to the extent not involving recourse of any nature
against the Lender Collateral.
(b) If the Creditor takes, commences or otherwise initiates any action in
violation of Section 2(a) above, including, without limitation, any action to
enforce the Supplier Lien or otherwise realize upon any of the Lender
Collateral, Borrower or Lender may interpose as a defense or plea the making of
this Agreement and Lender may intervene and interpose such defense in its name
or in the name of Borrower, and either Borrower or Lender may by virtue of this
Agreement restrain the enforcement thereof in the name of Borrower or Lender.
3. Agreements Concerning Lender collateral.
(a) The Supplier Lien in or with respect to any Lender Collateral shall, so
long as any Senior Debt remains outstanding and until all of the financing
arrangements between Borrower and Lender have been terminated in writing, be
fully subordinate in all respects, and junior in right and priority, to the
Lender Lien. In furtherance of the foregoing, the Creditor acknowledges and
agrees that all amounts realized from the enforcement of any Lien against the
Lender Collateral shall be subject to application to the payment in full of the
Senior Debt prior to the application of any part thereof to the payment of the
Supplier Indebtedness in accordance with the provisions of Section 4 hereof.
(b) The priorities specified in Section 3(a) are applicable irrespective of
the time or order of attachment or perfection of the Liens or the time or order
of recording or filing of security agreements, other agreements or financing
statements, the giving or failure to give notice of the attachment of either
Lien and the taking of any other steps to perfect the Liens. Each of the Lender
and the Creditor consents to the filing or recording by the other of financing
statements with respect to its Lien.
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<PAGE>
(c) The Creditor agrees that, so long as any Senior Debt remains
outstanding and until all financing arrangements between the Borrower and Lender
have been terminated in writing, the Lender may, without the requirement of any
notice to Creditor, other than as may be provided in subsection (e) below, make
all determinations and take or omit to take all actions and exercise or refrain
from exercising all rights and remedies that the Lender is permitted to make or
take under the Loan Agreement or any of the other Loan Documents or by law with
respect to the Lender Collateral, without any participation by or joinder or
consent of the Creditor, without any consideration of the interest of the
Creditor and without Liability to the Creditor. Without limiting the foregoing,
Creditor acknowledges and agrees that Lender shall, except as above provided
have the full right and authority, without requirement of any notice to, or the
consent of, the Creditor, to settle, compromise or waive any claims made with
respect to amounts due in respect of any accounts receivable of the Borrower, as
Lender may, in its sole and absolute discretion, determine appropriate,
including, without limitation, to discount any amounts due in respect thereof to
the extent deemed appropriate by Lender for any reason whatsoever, including for
purposes of facilitating payment and avoiding the costs of litigation or
collection efforts.
(d) If the Lender determines to exercise any right or remedy with respect
to the Lender Collateral as permitted by paragraph (c) of this Section 3, the
Creditor will take all action requested by the Lender to assist the Lender in
exercising such right or remedy, including, but not limited to, executing and
delivering such agreements, documents, instruments and releases as shall be
required to permit the collection, settlement, compromise, release, foreclosure,
sale or other disposition of the Lender Collateral free and clear of the
Supplier Lien.
(e) If, following the occurrence of any event of default under the Loan
Documents and Lender's making of demand for repayment of the Senior Debt, Lender
elects to terminate its financing arrangements with the Borrower and exercise
its rights to foreclose on the Lender Collateral and apply the proceeds thereof
to the payment of the Senior Debt, Lender will give Creditor prompt written
notice of its exercise of such right, provided, however, that the foregoing
provisions shall not be deemed to require such notice to creditor merely by
reason of Lender's collection, and application to payment of the Senior Debt, of
amounts payable in respect or accounts receivable of the Borrower received by
Lender, so long as Lender has not expressly agreed to discount or otherwise
compromise the amounts due in respect thereof and release the account debtor
from any further liability thereon.
(f) The Creditor hereby expressly waives any and all right, or rights, to
contest the validity, perfection, priority or enforceability of the Lender Lien
and any and all rights to affect the method, or to challenge the appropriateness
or commercial
-4-
<PAGE>
reasonableness, of any action taken, or omitted to be taken, by the Lender with
respect to the Lender Collateral and the enforcement of the rights of the Lender
therein, including, but not limited to, any right, objection or challenge based
upon or involving the marshalling of assets or liens. Without limiting the
foregoing, Creditor acknowledges and agrees that (i) Lender shall not have any
duty to the Creditor as to any Lender Collateral in its possession or control or
in the possession or control of any agent or nominee of it or as to any proceeds
therefrom or income thereon or as to the preservation of rights against prior
parties or any other rights pertaining thereto and (ii) Lender shall be under no
duty to take any action or measures to protect the value of the Lender
Collateral for the benefit of the Creditor, including, without 1imitation, any
duty to commence, institute or otherwise pursue any litigation, collection
proceedings or other collection measures, including the engagement of any
collection agency, for the purpose of collecting amounts due in respect of, or
otherwise realizing upon, any Lender Collateral.
(g) Each of the Lender and the Creditor acknowledges that this Agreement
shall constitute notice of their respective interests in the Lender Collateral
as provided in Section 9-504 of the Uniform Commercial Code. The Creditor agrees
to execute, and deliver to Lender, such instruments or documents as Lender may
reasonably require to evidence the subordinated nature of the Supplier Lien,
including, if required by Lender, the execution of appropriate forms of UCC
financing statements, or amendments to existing financing statements of record
in favor of Creditor, evidencing the subordination of the Supplier Lien to the
Lender Lien for filing in the appropriate UCC filing records.
4. Payments or Distributions Received. So long as this Agreement is in
effect and until all of the Senior Debt has been fully paid and satisfied and
all of the financing arrangements between the Borrower and Lender have been
terminated in writing, all sums of money and property realized upon the
enforcement of any Lien against the Lender Collateral, and all distributions
which may be made in connection therewith, shall be paid or distributed directly
to the Lender. Should any such payment or distribution be received by Creditor
prior to the satisfaction of all Senior Debt and the termination of all
financing arrangements between Borrower and Lender, Creditor shall receive and
hold the same in trust, as trustee, for the benefit of Lender and shall
forthwith deliver the same to Lender in precisely the same form received (except
for the endorsement or assignment of Creditor where necessary). The Lender shall
apply all such sums of money and property, together with any sums of money and
property which may otherwise be realized upon the enforcement of the Lender Lien
on the Lender Collateral, as provided in the Loan Agreement.
-5-
<PAGE>
5. Assignment of Supplier Lien. Creditor agrees that, until the Senior Debt
has been paid in full and satisfied and all financing arrangements between
Borrower and Lender have been terminated in writing, the existence of this
Agreement shall be fully disclosed in connection with any assignment or transfer
by Creditor of the Supplier Lien, whether in whole or in part, and the rights of
any such assignee shall be made expressly subject to this Agreement in a manner
reasonably satisfactory to Lender.
6. Term. This Agreement shall constitute a continuing agreement between
Borrower, Creditor and Lender, and Lender may continue, without notice to the
Creditor, to lend monies, extend credit and make other accommodations to or for
the account of Borrower on the face hereof. This Agreement shall be irrevocable
by Creditor until all of the Senior Debt shall have been paid and fully
satisfied and all financing arrangements between Borrower and Lender have been
terminated in writing.
7. Additional Agreements Between Lender and Borrower. Lender, at any time
and from time to time, may enter into such agreement or agreements with Borrower
as Lender may deem proper, extending the time of payment of or renewing or
otherwise altering the terms of all or any of the Senior Debt or affecting the
security underlying any or all of the Senior Debt, and may exchange, sell,
release, surrender or otherwise deal with any such security without in any way
impairing or affecting this Agreement.
8. Waivers of Creditor. All of the Senior Debt shall be deemed to have been
made or incurred in reliance upon this Agreement, and Creditor expressly waives
all notice of the acceptance by Lender of the subordination and other provisions
of this Agreement, notice of the incurring of Senior Debt from time to time and
all other notices not specifically required pursuant to the terms of this
Agreement or by law. Creditor expressly waives reliance by Lender upon the
subordination and other provisions as herein provided.
9. Waivers of Parties. No waiver shall be deemed to be made by any party of
any of its rights hereunder, unless the same shall be in writing signed in
behalf of such party, and each waiver, if any, shall be a waiver only with
respect to the specific instance involved and shall in no way impair the rights
of such party or the obligations of the other parties in any other respect at
any other time.
10. Borrower's Agreement. The Borrower hereby acknowledges its consent to
the intercreditor and subordination arrangements effected hereby and agrees to
be bound by the terms hereof.
11. Benefit of Agreement. Except as otherwise expressly set forth herein,
the provisions of this Agreement are solely for the benefit of the parties
hereto and are intended to regulate their
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<PAGE>
rights and obligations between themselves, and said provisions shall not limit,
enlarge or in any way affect the obligations of the Borrower to any person not a
party hereto.
12. Notices. Any notice, demand or other communication required or
permitted under the terms of this Agreement shall be in writing and shall be
made by telegram, telex or electronic transmitter or certified or registered
mail, return receipt requested, and shall be deemed to be received by the
addressee one (1) business day after sending, if sent by telegram, telex or
electronic transmitter, and three (3) business days after mailing, if sent by
certified or registered mail. Notices shall be addressed as provided below:
(a) If to Creditor: Foxmeyer Drug Company
1220 Senlac Drive
Carrollton, Texas 75006
Attn: Mr. Jeff Flynn
(b) If to Lender: Comerica Bank
One Detroit Center
500 Woodward Avenue
Detroit, Michigan 48226
Attn: Mr. Andrew Hanson
(c) If to Borrower: Continental Pharmacy, Inc.
1400 S. Schaaf Road
Cleveland, Ohio 44131
Attn: Mr. Edward Boehmer
or at such other address as any party may designate by notice to the other
parties in accordance with the provisions hereof.
13. No Partnership. Neither the execution of this Agreement, nor any action
or transaction contemplated hereby, shall be construed to be the formation or
creation of a partnership or joint venture between or among the Lender and the
Creditor or the Borrower.
14. No Oral Modification. None of the terms and provisions of this
Agreement may be waived, altered, modified or amended except by an instrument in
writing, duly executed by each of the Lender and the Creditor and, if its rights
would be adversely affected thereby, the Borrower.
15. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
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<PAGE>
16. Counterparts. This Agreement may be executed by one or more of the
parties on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
17. Waiver of Trial by Jury. EACH PARTY HERETO HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVES (TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING
UNDER OR RELATING TO THIS AGREEMENT AND AGREES THAT ANY SUCH DISPUTE SHALL BE
TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
18. Governing Law. This Agreement shall be interpreted, and the rights and
liabilities of the parties hereto determined, in accordance with the laws and
decisions of the State of Ohio.
19. Parties. This Agreement shall be binding upon, and inure to the benefit
of, the Creditor, the Lender and the Borrower and their respective heirs,
personal representatives, successors and assigns, including, without limitation,
any subsequent holder of Senior Debt. Successors and assigns of Borrower shall
include, but not be limited to, a receiver, trustee, custodian or debtor-in-
possession.
20. Section Titles. The section titles contained in this Agreement are and
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the Agreement between the parties hereto.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the day and year first above written.
FOXMEYER DRUG COMPANY COMERICA BANK
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
------------------------------ ---------------------------
Title: Senior Vice President Title: Vice President
--------------------------- ------------------------
CONTINENTAL PHARMACY, INC.
By: /s/ MICHAEL R. ERLENBACH
------------------------------
Title: Executive Vice President
---------------------------
mee2861 (Comerica/CPI)
-8-
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT, dated August 13, 1998 (the "Agreement"), by
and among MIM Corporation, a Delaware corporation (together with Continental (as
defined below) and its other subsidiaries, the "Indemnitee"), and Roulston
Investment Trust L.P., Roulston Ventures L.P. and Michael R. Erlenbach
(together, the "Stockholders").
RECITALS
A. The Stockholders have agreed to perform certain indemnification
obligations arising hereunder as specified herein.
B. Pursuant to a merger agreement dated as of January 27, 1998, as amended
to date, by and among MIM Corporation, Continental Managed Pharmacy Services,
Inc. (together with its subsidiaries, "Continental") and the other parties
listed on the signature pages thereto, Continental will become a wholly-owned
subsidiary of MIM Corporation as a result of a merger (the "Merger") which is
scheduled to close on August 24, 1998.
C. The Stockholders own common shares of Continental's capital stock and as
such will receive shares (the "Shares") of MIM Corporation's common stock, par
value $.0001 per share (the "Common Stock"), in the Merger.
D. Billing, accounting and sales and marketing practices of Continental
have led to the threat of litigation and to claims against Continental by
MetraHealth Insurance Company, Inc., The Travelers Insurance Company,
Metropolitan Life Insurance Company and Aetna U.S. Healthcare ("Aetna").
E. The Stockholders and the Indemnitee recognize the risk of litigation and
other claims and/or demands being asserted against the Indemnitee after the
Merger in respect of the billing, accounting and/or sales and marketing
practices of Continental prior to the Merger of waiving, or otherwise not
pursuing, the collection of co-payments from persons covered by Continental's
pharmacy benefit programs in connection with claims submitted to Aetna.
THEREFORE, in consideration of and in reliance upon the terms, covenants,
conditions and representations contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Certain Definitions.
(a) Claim. The term "Claim" shall mean any claim or demand made upon
Indemnitee for, or dispute involving Indemnitee (including a dispute which forms
the basis of a breach of the representations and warranties set forth in Section
7 of this Agreement) with respect to, the payment of amounts that would
constitute Indemnifiable Expenses or any threatened, pending or completed
Proceeding, or any inquiry, correspondence or investigation that the Indemnitee
in good faith believes is reasonably likely to lead to the institution or threat
of any Proceeding.
<PAGE>
(b) Claim Notice. The term "Claim Notice" shall mean written notification
of a Claim, as to which indemnification under this Agreement is sought by
Indemnitee, enclosing a copy of all papers served, if any, and specifying the
nature of and basis for the Indemnitee's claim for indemnification by the
Stockholders, together with the amount or, if not then reasonably ascertainable,
the estimated amount, determined in good faith by Indemnitee, of such Claim.
(c) Dispute Period. The term "Dispute Period" shall mean the period
commencing upon receipt of a Claim Notice by the Stockholders and ending twenty
(20) calendar days following receipt by the Stockholders of such Claim Notice.
(d) Indemnifiable Event. The term "Indemnifiable Event" shall mean (1) any
of Continental's billing, accounting and sales and marketing practices in effect
prior to the Merger, relating to the waiving, or otherwise not pursuing the
collection of, co-payments from persons covered by Continental's pharmacy
benefit programs, but only insofar as such practices affected claims submitted
by Continental to Aetna and (2) any breach of the representations and warranties
set forth in Section 7 of this Agreement.
(e) Indemnifiable Expenses. The term "Indemnifiable Expenses" shall mean
any and all costs, charges and expenses, including, without limitation,
attorneys' fees and expenses and other fees and expenses, in connection with the
investigation, negotiation, defense or appeal of or response to any Claim, as
well as judgments, fines and amounts paid in settlement in connection with a
Claim (including all interest, assessments and other charges paid or payable in
connection with or in respect of any such attorneys' fees and expenses and other
fees and expenses, judgments, fines or amounts paid in settlement), in each case
actually and reasonably incurred by the Indemnitee in connection with such
Claim. In addition, Indemnifiable Expenses include all expenses actually
incurred by Indemnitee in enforcing its rights under this Agreement.
(f) Proceeding. The term "Proceeding" shall mean any threatened, pending or
completed action, suit or other proceeding, whether civil, criminal,
administrative, investigative or of any other type whatsoever.
2. Basic Indemnification Arrangement.
(a) If the Indemnitee becomes a party to or other participant in, or is
threatened to be made a party to or other participant in, a Claim, or if
Indemnitee receives notice of, or demand in connection with, a Claim or other
threatened action, whether prior to or following the Merger, directly or
indirectly, by reason of (or arising in whole or in part out of) an
Indemnifiable Event, the Stockholders shall indemnify the Indemnitee for any and
all Indemnifiable Expenses in connection therewith. Notwithstanding the
generality of the foregoing and subject to Section 2(c), the Stockholders hereby
agree to indemnify Indemnitee against all Indemnifiable Expenses relating to the
Claim (in whatever form it may take in the future) represented by the letter of
July 13, 1998 from Aetna to Continental attached hereto as Exhibit A ("Aetna
Claim").
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<PAGE>
(b) All Indemnifiable Expenses incurred by the Indemnitee in connection
with a Claim shall be paid by the Stockholders in cash at the time the
Indemnitee incurs such Indemnifiable Expenses in accordance with the procedures
set forth in Section 3.
(c) Notwithstanding any provision in this Agreement to the contrary, the
obligation of the Stockholders to indemnify the Indemnitee for Indemnifiable
Expenses shall become operative only after the total amount of such claims for
indemnification of Indemnifiable Expenses by Indemnitee exceed One Hundred
Thousand Dollars ($100,000).
(d) Notwithstanding any provision in this Agreement to the contrary, the
obligations of the Stockholders shall be several and not joint, and each and
every Indemnifiable Expense shall be allocated among the Stockholders in the
proportions set out below, and the obligations of each Stockholder under this
Agreement shall be limited to the amounts so allocated to them, respectively:
(i) Roulston Investment Trust L.P. -- one-sixth (1/6)
(ii) Roulston Ventures L.P. -- one-sixth (1/6)
(iii) Michael R. Erlenbach -- two-thirds (2/3)
3. Certain Procedures Relating to Indemnification. All claims for
indemnification by Indemnitee under this Agreement will be asserted and resolved
as follows:
(i) If any Claim in respect of which Indemnitee may seek indemnification
under this Agreement is asserted against or sought to be collected from
Indemnitee, the Indemnitee shall deliver a Claim Notice with reasonable
promptness to the Stockholders. If the Indemnitee fails to provide the Claim
Notice with reasonable promptness after the Indemnitee receives notice of such
Claim, the Stockholders will not be obligated to indemnify the Indemnitee with
respect to such Claim to the extent that the Stockholders' ability to defend has
been irreparably prejudiced by such failure of the Indemnitee but only to the
extent of Indemnifiable Expenses which would not have been incurred but for such
failure to notify. The Stockholders will notify the Indemnitee as soon as
practicable within the Dispute Period whether the Stockholders dispute their
liability to the Indemnitee under this Agreement and whether the Stockholders
desire, at their sole cost and expense (subject to the provisions of Section
2(c)), to defend the Indemnitee against such Claim; provided, however, that the
Stockholders hereby irrevocably acknowledge their liability (subject to the
provisions of Section 2(c)) to Indemnitee for Indemnifiable Expenses in
connection with the Aetna Claim.
(a) If the Stockholders notify the Indemnitee within the Dispute
Period that the Stockholders desire to defend the Indemnitee with respect
to the Claim pursuant to this Section 3(i), then the Stockholders will have
the right to defend, with counsel reasonably satisfactory to the
Indemnitee, at the sole cost and expense of the Stockholders, such Claim by
all appropriate proceedings, which proceedings will be vigorously and
diligently prosecuted by the Stockholders to a final conclusion or will be
settled at the discretion of the Stockholders (but only with the prior
written consent of the Indemnitee in the case of any settlement that
provides for any relief other than the payment of monetary damages or that
provides for the payment of monetary damages as to which the Indemnitee
will not be indemnified in full (otherwise than as provided in Section
2(c))
3
<PAGE>
pursuant to this Agreement). If the Stockholders so elect to defend
Indemnitee with respect to a Claim, they will have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnitee, at the sole cost and expense of the
Indemnitee, at any time prior to the Stockholders' delivery of the notice
referred to in the first sentence of this clause (a), may file any motion,
answer or other pleadings or take any other action that the Indemnitee
reasonably believes to be necessary or appropriate to protect its
interests; and provided further, that if requested by the Stockholders, the
Indemnitee, at the sole cost and expense of the Stockholders, will provide
reasonable cooperation to the Stockholders in contesting any Claim that the
Stockholders elect to contest. The Indemnitee may participate in, but not
control, any defense or settlement of any Claim controlled by the
Stockholders pursuant to this clause (a), and except as provided in the
preceding sentence, the Indemnitee will bear its own costs and expenses
with respect to such participation. Notwithstanding the foregoing, the
Indemnitee may take over the control of the defense or settlement of a
Claim at any time if it irrevocably waives its right to indemnity under
this Agreement with respect to such Claim.
(b) If the Stockholders notify the Indemnitee within the Dispute
Period that the Stockholders do not desire to defend the Claim pursuant to
Section 3(i), or if the Stockholders give notice within the Dispute Period
that they desire to defend the Claim, but fail to prosecute such Claim
vigorously and diligently to a final conclusion or to settle the Claim, or
if the Stockholders fail to give any notice whatsoever within the Dispute
Period, then the Indemnitee will have the right to defend, at the sole cost
and expense of the Stockholders, the Claim by all appropriate proceedings,
which proceedings will be prosecuted by the Indemnitee in a reasonable
manner and in good faith or will be settled at the discretion of the
Indemnitee (with the prior written consent of the Stockholders, which
consent will not be unreasonably withheld). The Indemnitee will have full
control of such defense and proceedings, including any compromise or
settlement thereof; provided, however, that if requested by the Indemnitee,
the Stockholders will, at the sole cost and expense of the Stockholders,
provide reasonable cooperation to the Indemnitee and its counsel in
contesting any Claim which the Indemnitee is contesting. Notwithstanding
the foregoing provisions of this clause (b), if the Stockholders have
notified the Indemnitee within the Dispute Period that the Stockholders
dispute their liability hereunder to the Indemnitee with respect to such
Claim and if such dispute is resolved in favor of the Stockholders in the
manner provided in clause (c) below, the Stockholders will not be required
to bear the costs and expenses of the Indemnitee's defense pursuant to this
clause (b) or of the Stockholders' participation therein at the
Indemnitee's request. The Stockholders may participate in, but not control,
any defense or settlement controlled by the Indemnitee pursuant to this
clause (b), and the Stockholders will bear their own costs and expenses
with respect to such participation.
(c) If the Stockholders notify the Indemnitee that they do not dispute
their liability to the Indemnitee with respect to the Claim under this
Agreement or fail to notify the Indemnitee within the Dispute Period
whether they dispute their liability to the Indemnitee with respect to such
Claim, the Indemnifiable Expenses
4
<PAGE>
arising out of such Claim will be conclusively deemed a liability of the
Stockholders under this Agreement and the Stockholders shall pay the amount
of such Indemnifiable Expenses to the Indemnitee on demand as incurred by
Indemnitee. If the Stockholders have timely disputed their liability with
respect to such Claim, the Stockholders and the Indemnitee will proceed in
good faith to negotiate a resolution of such dispute, and if not resolved
through negotiations within the ten (10) business days after the end of the
Dispute Period, such dispute shall be resolved by arbitration in accordance
with paragraph (ii) of this Section 3.
(ii) Any dispute submitted to arbitration pursuant to this Section 3 shall
be finally and conclusively determined by the decision of a board of arbitration
consisting of three (3) members (hereinafter sometimes called the "Board of
Arbitration") selected as hereinafter provided. The Indemnitee shall select one
member and the Stockholders (acting together) shall select one member, and the
third member shall be selected by mutual agreement of the other two members, or
if the other members fail to reach agreement on a third member within twenty
(20) days after their selection, such third member shall thereafter be selected
by the American Arbitration Association upon application made to it for such
purpose by the Indemnitee. The Board of Arbitration shall meet in New York City,
New York or such other place as a majority of the members of the Board of
Arbitration determines more appropriate, and shall reach and render a decision
in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the liability of the Stockholders to the Indemnitee
for Indemnifiable Expenses in connection with the Claim and/or the amount, if
any, which the Stockholders are required to pay to the Indemnitee in respect of
Indemnifiable Expenses in connection with a Claim made against the Indemnitee.
In connection with rendering its decisions, the Board of Arbitration shall adopt
and follow such rules and procedures as a majority of the members of the Board
of Arbitration deems necessary or appropriate. To the extent practical,
decisions of the Board of Arbitration shall be rendered no more than thirty (30)
calendar days following commencement of proceedings with respect thereto. The
Board of Arbitration shall cause its written decision to be delivered to the
Indemnitee and the Stockholders. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
period) shall be final, binding and conclusive on the Indemnitee and the
Stockholders and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction. Each party to any
arbitration shall bear its own expense in relation thereto, including but not
limited to such party's attorneys' fees, if any, and the expenses and fees of
the member of the Board of Arbitration appointed by such party, provided,
however, that the expenses and fees of the third member of the Board of
Arbitration and any other expenses of the Board of Arbitration not capable of
being attributed to any one member shall be borne in equal parts by the
Stockholders and the Indemnitee.
4. Partial Indemnity. If the Indemnitee is entitled under this Agreement to
indemnification by the Stockholders for some or a portion of the Indemnifiable
Expenses related to a Claim but not, however, for all of the total amount paid
in respect thereof, the Stockholders shall nevertheless indemnify the Indemnitee
for the portion thereof to which the Indemnitee is entitled.
5. No Presumption. For purposes of this Agreement, the termination of any
Claim by judgment, order or settlement (whether with or without court approval)
shall not create a presumption that the Indemnitee did not meet any particular
standard of conduct or have any
5
<PAGE>
particular belief or that a court has determined that the indemnification
provided for hereunder is not permitted by applicable law.
6. Further Assurances. The Stockholders will execute a pledge agreement
dated of even date hereof pledging to Indemnitee Continental common shares and
proceeds therefrom (including Shares to be received by the Stockholders in the
Merger) having a total aggregate value (determined at the time of the closing of
the Merger based on the average closing price of a share of the Common Stock on
the Nasdaq for the 20 trading days prior to such closing) equal to at least $2.5
million, and will execute such further documents and instruments and take such
further actions as may be reasonably requested by the Indemnitee to effect the
purposes of the pledge agreement or this Agreement.
7. Representation and Warranty Regarding Litigation and other Claims. The
Stockholders hereby represent and warrant to the Indemnitee that: (i) set forth
on Schedule 7A attached hereto, are all claims or demands which were presented
to, and disputes involving, Continental prior to December 1, 1995 arising out of
Continental's billing, accounting and sales and marketing practices relating to
waiving, or otherwise not pursuing the collection of, co-payments from persons
covered by Continental's pharmacy benefit programs (the "Identified Claims");
(ii) except for the Aetna Claim, since December 1, 1995, there has been no claim
or demand upon Continental or dispute involving Continental arising out of
Continental's billing, accounting and sales and marketing practices relating to
waiving, or otherwise not pursuing the collection of, co-payments from persons
covered by Continental's pharmacy benefit programs and there is no threatened or
pending Proceeding relating thereto, or any inquiry, correspondence or
investigation that the Stockholders believe is likely to lead to the institution
or threat of any such Proceeding arising therefrom; (iii) such billing,
accounting and sales and marketing practices were revised prior to December 1,
1995 such that co-payments were not at any time after such date and are not
waived (or intentionally not pursued) except in accordance with applicable law
and regulations; (iv) except for the Aetna Claim, there has been no inquiry,
correspondence, communication or other form of contact by the respective
insurers in any way relating to the Identified Claims ("Lack of Notice") and (A)
the claim made by MetraHealth (as defined on Schedule 7A) has been formally
settled and (B) based upon informal communications during late 1995 between
Continental or its counsel and the respective insurers or their counsel and/or
based upon the Lack of Notice described above, Continental has no reason to
believe any other Identified Claims (other than the Aetna Claim) will be further
pursued by such insurers; and (v) the information set forth on Schedule 7B
attached hereto regarding (A) the percentage of Continental's total revenues in
1996 represented by the individual indemnitee business, (B) the percentage of
Continental's 1996 individual indemnitee business revenues represented by the
five largest insurers to which Continental submitted claims in 1996 and (C) the
percentage of Continental's 1996 total revenues represented by the five largest
insurers to which Continental submitted claims in 1996 is true, correct and
complete.
8. Severability. If any provision of this Agreement or the application of
any provision hereof to any person or circumstance is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstance shall not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal shall be reformed to the extent (and only to the extent) necessary, to
make it enforceable, valid or legal.
6
<PAGE>
9. Successors and Binding Agreement.
(a) This Agreement shall inure to the benefit of and be enforceable by the
Indemnitee's successors (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise), and shall be binding on the
Stockholders' successors and assigns (including by operation of law or
otherwise).
(b) This Agreement is personal in nature and neither of the parties hereto
may, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
Section 9(a).
10. Notices. For all purposes of this Agreement, all communications,
including, without limitation, notices, consents, requests or approvals,
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given when hand delivered or dispatched by electronic
facsimile transmission (with receipt thereof orally confirmed), or five calendar
days after having been mailed by United States registered or certified mail,
return receipt requested, postage prepaid, or one business day after having been
sent for next-day delivery by a nationally recognized overnight courier service
such as Federal Express, addressed as specified on the signature pages hereto,
or to such other address as any party may have furnished to the others in
writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
11. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be exclusively governed by and construed in
accordance with the internal laws of the State of New York without reference to
its conflicts of law rules or principles.
12. Consent to Jurisdiction. The Indemnitee and the Stockholders each
hereby irrevocably consents to the jurisdiction of the courts of the State of
New York for all purposes in connection with any action or proceeding which
arises out of or relates to the enforcement of this Agreement, but not for any
other purpose.
13. Duration of Agreement. This Agreement and the Stockholders'
indemnification obligations hereunder shall continue until and terminate on
December 31, 1999, except that this Agreement shall continue to govern all
Claims specified in a Claim Notice which is delivered to the Stockholders prior
to such date.
14. Entire Agreement; Amendments. No provision of this Agreement may be
waived, modified or discharged unless such waiver, modification or discharge is
agreed to in writing by the Indemnitee and each of the Stockholders. No waiver
by any party hereto at any time of any breach by another party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreement or
representation, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by any party which is not set forth
expressly in this Agreement.
15. Section Headings. The Section headings of this Agreement are included
for purposes of convenience only and shall not affect in any way the
construction or interpretation of any of the provisions of the Agreement.
7
<PAGE>
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
MIM CORPORATION
By: /S/ BARRY A. POSNER
---------------------------------------
Name: Barry A. Posner
Title: Vice President and General Counsel
Address:
One Blue Hill Plaza, 15th Floor
Pearl River, New York 10965
Attention: General Counsel
Phone: (914) 735-3555
Facsimile: (914) 735-3599
ROULSTON INVESTMENT TRUST L.P.
By: THOMAS H. ROULSTON, its general partner
/S/ THOMAS H. ROULSTON
---------------------------------------
Thomas H. Roulston, General Partner
Address:
4000 Chester Avenue
Cleveland, Ohio 44103
Phone: (216) 431-3841
Facsimile: (216) 431-3631
ROULSTON VENTURES L.P.
By: THOMAS H. ROULSTON, its general partner
/S/ THOMAS H. ROULSTON
---------------------------------------
Thomas H. Roulston, General Partner
Address:
4000 Chester Avenue
Cleveland, Ohio 44103
Phone: (216) 431-3841
Facsimile: (216) 431-3631
MICHAEL R. ERLENBACH
/S/ MICHAEL R. ERLENBACH
---------------------------------------
Address:
9
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (the "Agreement"), dated as of August 13, 1998, by
and among Roulston Investment Trust L.P. ("Roulston Investment"), Roulston
Ventures L.P. ("Roulston Ventures") and Michael R. Erlenbach ("Erlenbach"),
collectively as pledgor (each a "Pledgor" and together the "Pledgors"), and MIM
Corporation, a Delaware corporation, together with its subsidiaries, as secured
party (collectively, the "Secured Party").
WHEREAS, each Pledgor is a shareholder of Continental Managed Pharmacy
Services, Inc. (together with its subsidiaries, "Continental"); and
WHEREAS, each Pledgor is a party to that certain merger agreement dated as
of January 27, 1998, as amended to date, by and among MIM Corporation,
Continental and the other parties listed on the signature pages thereto (the
"Merger Agreement"); and
WHEREAS, pursuant to the Merger Agreement, a wholly-owned subsidiary of MIM
Corporation will be merged (the "Merger") with and into Continental and
Continental will become a wholly-owned subsidiary of MIM Corporation as a result
of the Merger; and
WHEREAS, each Pledgor presently owns beneficially and of record the
following number of Continental's common shares (the "Continental Shares"):
Roulston Investment: 1,565 Continental Shares; Roulston Ventures: 1,565
Continental Shares; and Erlenbach: 6,260 Continental Shares; and such
Continental Shares will be converted into the following number of shares of
common stock, par value $.0001 per share (the "MIM Common Stock"), of MIM
Corporation as a result of the Merger: Roulston Investment: 512,678 shares;
Roulston Ventures: 512,678 shares; and Erlenbach: 2,050,713 shares; and
WHEREAS, each Pledgor has entered into that certain Indemnification
Agreement dated August 10, 1998 (the "Indemnification Agreement") with MIM
Corporation, as a material inducement to MIM Corporation to consummate the
Merger; and
WHEREAS, in order to secure the obligations of each Pledgor under the
Indemnification Agreement, each Pledgor has agreed to pledge, assign and
hypothecate to the Secured Party the following number of Continental Shares
owned by such Pledgor (collectively, the "Pledged Shares"): Roulston Investment:
248 Continental Shares; Roulston Ventures: 248 Continental Shares; and
Erlenbach: 992 Continental Shares.
NOW, THEREFORE, in consideration of the foregoing and of covenants and
agreements herein provided, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
mutually agree as follows:
SECTION 1. Definitions. Except as otherwise defined herein, all capitalized
terms shall have the respective meanings given to such terms in the
Indemnification Agreement.
SECTION 2. Grant of Security Interest. Each Pledgor hereby pledges,
assigns, hypothecates, delivers and sets over to the Secured Party and grants to
the Secured Party a
<PAGE>
continuing perfected first priority lien on and security interest in the Pledged
Shares and in all Proceeds (as defined below) therefrom (collectively, the
"Collateral") as collateral security for the prompt and complete payment and
performance when due of its respective obligations and liabilities, whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, arising under, out of, or in connection with the
Indemnification Agreement or this Agreement as the same, from time to time, may
be amended, restated, replaced, extended, supplemented or otherwise modified
(the "Obligations"). For purposes of this Agreement, "Proceeds" means all
"proceeds" as such term is defined in Section 9-306(1) of the Uniform Commercial
Code on the date hereof and, in any event, shall include, without limitation,
all dividends or other income from the Pledged Shares, collections thereon or
distributions with respect thereto (including, without limitation, the receipt
by the Pledgors of MIM Common Stock as a result of the Merger).
SECTION 3. Registration of Pledge. Each Pledgor shall execute and deliver
to the Secured Party all stock certificates, proxies, stock powers and other
instruments representing or related to the Pledged Shares and the MIM Common
Stock constituting Proceeds thereof, duly endorsed or subscribed by Pledgor or
accompanied by appropriate instruments of transfer or assignment, duly executed
in blank by Pledgor, as additional Collateral. All such instruments or
certificates shall be held by the Secured Party.
SECTION 4. Power of Attorney. Each Pledgor hereby constitutes and
irrevocably appoints the Secured Party, with full power of substitution and
revocation by the Secured Party, as its true and lawful attorney-in-fact, to the
fullest extent permitted by law, for the purpose of taking any action and
executing any instrument that the Secured Party deems necessary or advisable to
accomplish the purposes of the Indemnification Agreement or this Agreement,
including, without limitation, to affix to certificates and documents
representing any Collateral the endorsements or other instruments of transfer or
assignment delivered with respect thereto and to transfer or cause the transfer
of the Collateral, or any part thereof, on the books of Continental or MIM
Corporation, as the case may be. The power of attorney granted pursuant to this
Agreement and all authority hereby conferred are granted and conferred solely to
protect the Secured Party's interest in the Collateral and shall not impose any
duty upon the Secured Party to exercise any power. This power of attorney shall
be irrevocable as one coupled with an interest until the Obligations have been
paid in full and the Indemnification Agreement has been terminated.
SECTION 5. Obligations of Pledgor. Each Pledgor represents, warrants, and
covenants to the Secured Party that:
(a) It is the sole legal, record and beneficial owner of, and has good and
marketable title to, the respective Pledged Shares and the respective Collateral
set forth in the recitals, and will upon consummation of the Merger have sole
legal, record and beneficial ownership of the number of shares of MIM Common
Stock set forth in the recitals. The Collateral described herein is subject to
no mortgage, pledge, assignment, hypothecation, security interest, encumbrance,
lien, charge, option, warrant or other encumbrance whatsoever (each, a "Lien"),
or other interest (including, without limitation, any contract or other
agreement to sell or otherwise transfer), except for the Lien created by this
Agreement. The Pledged Shares have been duly authorized, validly issued, fully
paid and are nonassessable.
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(b) It has the requisite power and authority and the legal right to
execute, deliver and perform this Agreement and the Indemnification Agreement
and any other document, instrument or agreement to be executed and delivered by
such Pledgor pursuant hereto or thereto and to create a security interest in the
respective Collateral pursuant to this Agreement.
(c) This Agreement is effective to create a legal, valid and enforceable
perfected first priority Lien on the respective Collateral, subject to no prior
Lien or to any agreement purporting to grant to any third party a security
interest in the property or assets of such Pledgor which would include the
respective Collateral. All action necessary to perfect the Lien granted by this
Agreement has been duly taken.
(d) This Agreement and the Indemnification Agreement have been duly
authorized, executed and delivered by such Pledgor and constitute valid and
legally binding obligations of such Pledgor, enforceable in accordance with
their respective terms.
(e) No security agreements or any other Lien instruments have been executed
and delivered, and no financing statements or any other notice of any Lien have
been filed in any jurisdiction, granting or purporting to grant a security
interest in or create a Lien on the respective Collateral to any party other
than the Secured Party.
(f) No consent, license, approval or authorization of, exemption by, or
registration, filing or declaration with, any governmental authority and no
consent of any other individual, partnership, firm, corporation, limited
liability company, association, joint venture, trust or other entity, or any
government or political subdivision or agency, department or instrumentality
thereof ("Person") is required to be obtained in connection with (i) the
execution, delivery, performance, validity or enforcement or priority of this
Agreement and the Indemnification Agreement or any other document, instrument or
agreement to be executed and delivered by such Pledgor pursuant hereto or
thereto, (ii) the pledge by such Pledgor of the respective Collateral to the
Secured Party pursuant to this Agreement, or (iii) the exercise by the Secured
Party of the rights provided for in this Agreement or the remedies in respect of
the respective Collateral pursuant to this Agreement; provided, however, that
Pledgors make no representation or warranty with respect to the requirements of
the Securities Act of 1933 or state securities laws.
(g) The execution, delivery and performance of this Agreement and the
Indemnification Agreement and any other document, instrument or agreement to be
executed and delivered by such Pledgor pursuant hereto or thereto, does not
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, or result in a violation of any provision of any
applicable law or regulation or of any order, judgment, writ, award or decree of
any court, arbitrator or governmental authority (domestic or foreign) or of any
bond, note, indenture, mortgage, deed of trust, contract, agreement, loan
agreement, lease or other undertaking to which such Pledgor is a party or which
purports to be binding upon such Pledgor and will not result in the creation or
imposition of any Lien on any of the assets of such Pledgor, except as expressly
provided by this Agreement.
(h) There is no suit, action, proceeding, arbitration, investigation or
inquiry pending or threatened against such Pledgor with respect to this
Agreement or the Indemnification
3
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Agreement or any other document, instrument or agreement to be executed and
delivered by such Pledgor pursuant hereto or thereto, or the pledging of the
respective Collateral pursuant to this Agreement.
(i) It will not directly or indirectly sell, transfer, convey or otherwise
dispose of any interest in the Collateral.
(j) It will not suffer or permit to exist any Lien on or with respect to
the Collateral, except the Lien created under this Agreement.
(k) It will indemnify the Secured Party from and against any and all
claims, losses and liabilities growing out of or resulting from this Agreement
(including, without limitation, enforcement of this Agreement), except claims,
losses, or liabilities resulting from the Secured Party's bad faith, willful
misconduct or gross negligence. The Pledgors will, upon demand, pay to the
Secured Party the amount of any and all reasonable expenses, including the
reasonable fees and expenses of counsel and of any experts and agents, which the
Secured Party may incur in connection with (i) the administration and
enforcement of this Agreement, (ii) the custody or preservation of, or the sale
of, collection from, or other realization upon, any of the Pledged Shares or
Proceeds therefrom, (iii) the exercise or enforcement of any of the rights of
the Secured Party hereunder, or (iv) the failure by any Pledgor to perform or
observe any of the provisions hereof.
(l) It will, promptly upon the reasonable request of Secured Party, do,
make, procure, execute and deliver all acts, things, writings, assurances and
other documents as may be reasonably requested by Secured Party to further
enhance, preserve, establish, demonstrate, perfect or enforce the Secured
Party's rights, interests and remedies created by, provided in or emanating from
this Agreement.
(m) It shall notify Secured Party promptly and in reasonable detail of any
Lien or claim made or asserted against the respective Collateral or any portion
of the respective Collateral and of all notices received by such Pledgor with
respect to events which would be likely to have a material adverse impact on the
respective Collateral.
SECTION 6. Rights of Pledgor. (a) So long as no Pledgor is in breach of the
Indemnification Agreement or this Agreement (a "Breach"), each Pledgor shall be
entitled to vote or consent with respect to the Collateral constituting
Continental Shares or MIM Common Stock in any manner not inconsistent with this
Agreement. Upon the occurrence and during the continuance of a Breach by any
Pledgor, the Secured Party shall have the exclusive right to vote all of the
Collateral. Each Pledgor hereby grants to the Secured Party an irrevocable proxy
to vote the Collateral, which proxy shall be effective immediately upon the
occurrence of and during the continuance of a Breach by any Pledgor, and upon
request of the Secured Party, each Pledgor agrees to deliver to the Secured
Party such further evidence of such irrevocable proxy or such further
irrevocable proxy to vote the Collateral as the Secured Party may request.
(b) So long as no Breach by any Pledgor shall have occurred and be
continuing, each Pledgor shall be entitled to receive and retain any and all
cash dividends and distributions paid in respect of the respective Collateral.
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<PAGE>
SECTION 7. Rights of the Secured Party. (a) If any Pledgor fails to perform
any agreement contained herein, the Secured Party may (but shall not be
obligated or required to) perform, or cause the performance, of such agreement.
(b) At any time upon and during the continuance of a Breach by any Pledgor,
the Secured Party may (but shall not be obligated or required to):
(i) Cause all of the Collateral to be transferred to its name or to
the name of its nominee or nominees.
(ii) Ask for, demand, collect, sue for, recover, compromise, receive
and give acquittances and receipts for monies due or to become due under or
in respect of any of the Collateral and hold the same as part of the
Collateral, or apply the same to any of the Obligations in such manner as
the Secured Party may direct in its sole discretion;
(iii) Receive, endorse and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (ii) above
(including, without limitation, all instruments representing dividends or
other distributions in respect of the Collateral or any part thereof and
give full discharge for the same);
(iv) File any claims or take any actions or institute any proceedings
that the Secured Party may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce compliance with the rights
of the Secured Party with respect to any of the Collateral; and
(v) Discharge any taxes or liens levied on the Collateral or pay for
the maintenance and preservation of the Collateral; the amount of such
payments, plus any and all fees, costs and expenses of the Secured Party
(including reasonable attorneys' fees and disbursements) in connection
therewith, shall, at the Secured Party's option, be reimbursed by the
Pledgors on demand.
SECTION 8. Breach; Remedies. Upon and during the continuance of a Breach by
any Pledgor:
(a) The Secured Party shall have all the rights and remedies of a secured
party under the Uniform Commercial Code with respect to all of the Collateral.
In addition, the Secured Party shall have the right, without demand of
performance or other demand, advertisement or notice of any kind, except as
specified below, to or upon Pledgor or any other Person (all and each of which
demands, advertisements and/or notices are hereby expressly waived to the extent
permitted by law), to proceed forthwith to collect, receive, appropriate and
realize upon the Collateral, or any part thereof and to proceed forthwith to
sell, assign, give an option or options to purchase, contract to sell, or
otherwise dispose of and deliver the Collateral or any part thereof in one or
more parcels at public or private sale or sales at any stock exchange, broker's
board or at any of the Secured Party's offices or elsewhere at such prices and
on such terms and restrictions (including, without limitation, a requirement
that any purchaser of all or any part of the Collateral shall be required to
purchase any securities constituting the Collateral solely for investment and
without any intention to make a distribution thereof) as the Secured Party may
deem appropriate without any liability for any loss due to decrease in the
market value
5
<PAGE>
of the Collateral during the period held. If any notification to Pledgor of the
intended disposition of the Collateral is required by law, such notification
shall be deemed reasonable and properly given if hand delivered or made by
facsimile at least three business days' prior to such disposition to the address
of each Pledgor indicated below. Any disposition of the Collateral or any part
thereof may be for cash or on credit or for future delivery without assumption
of any credit risk, with the right to the Secured Party to purchase all or any
part of the Collateral so sold at any such sale or sales, public or private,
free of any equity or right of redemption, which right or equity is, to the
extent permitted by applicable law, hereby expressly waived and released by each
Pledgor.
(b) All of the Secured Party's rights and remedies under this Agreement and
under applicable law, including but not limited to the foregoing, shall be
cumulative and not exclusive and shall be enforceable alternatively,
successively or concurrently as the Secured Party may deem expedient.
(c) If any consent, approval or authorization of, or filing with, any
governmental authority or any other person shall be necessary to effectuate any
sale or other disposition of the Collateral, or any partial disposition of the
Collateral, including, without limitation, under any federal or state securities
laws, each Pledgor agrees to execute all such applications, registrations and
other documents and instruments as may be required in connection with securing
any such consent, approval or authorization, and will otherwise use its best
efforts to secure the same. Each Pledgor further agrees to use its best efforts
to effectuate such sale or other disposition of the Collateral as the Secured
Party may deem necessary pursuant to the terms of this Agreement.
(d) Upon any sale or other disposition, the Secured Party shall have the
right to deliver, endorse, assign and transfer to the purchaser thereof the
Collateral so sold or disposed of. Each purchaser at any such sale or other
disposition, including the Secured Party, shall hold the Collateral free from
any claim or right of whatever kind, including any equity or right of
redemption. Each Pledgor specifically waives, to the extent permitted by
applicable law, all rights of stay or appraisal which Pledgor had or may have
under any rule of law or statute now existing or hereafter adopted.
(e) The Secured Party shall not be obligated to make any sale or other
disposition unless the terms thereof shall be satisfactory to it. The Secured
Party may, without notice or publication, adjourn any private or public sale,
and, upon three business days' prior notice to each Pledgor, hold such sale at
any time or place to which the same may be so adjourned. In case of any sale of
all or any part of the Collateral, on credit or future delivery, the Collateral
so sold may be retained by the Secured Party until the selling price is paid by
the purchaser thereof, but the Secured Party shall incur no liability in case of
the failure of such purchaser to take up and pay for the property so sold and,
in case of any such failure, such property may again be sold as herein provided.
SECTION 9. Disposition of Proceeds. The proceeds of any sale or disposition
of all or any part of the Collateral shall be applied (after payment of any
amounts payable to the Secured Party pursuant to Section 11 hereof) by the
Secured Party to the payment of the Obligations in such order as the Secured
Party may elect. Any surplus thereafter remaining shall be paid to the
6
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Pledgors, subject to the rights of any holder of a lien on the Collateral of
which the Secured Party has actual notice. If the proceeds from the sale of the
Collateral are insufficient to satisfy the Obligations, each Pledgor shall
remain liable for any deficiency.
SECTION 10. Termination. This Agreement shall:
(a) create a continuing security interest in the Collateral;
(b) remain in full force and effect until the payment in full of all
Obligations hereunder or under the Indemnification Agreement; provided, however,
that this Agreement shall terminate upon the final resolution of the Aetna
Claim, unless there is then outstanding at least one other unresolved Claim
Notice, in which case this Agreement shall then terminate upon the final
resolution of said unresolved Claim Notice;
(c) be binding upon each Pledgor and its permitted successors and assigns;
and
(d) inure to the benefit of the Secured Party and its successors,
transferees and assigns.
SECTION 11. Expenses of the Secured Party. All expenses (including, without
limitation, reasonable attorneys' fees and disbursements) actually incurred by
the Secured Party in connection with the failure by any Pledgor to perform or
observe any provision of this Agreement, the exercise or enforcement of any
rights of the Secured Party under this Agreement and the custody or preservation
of any of the Collateral and any actual or attempted sale or exchange of, or any
enforcement, collection, compromise or settlement respecting, the Collateral, or
any other action taken by the Secured Party hereunder whether directly or as
attorney-in-fact pursuant to the power of attorney or other authorization herein
conferred, shall be deemed an obligation of such Pledgor and shall be deemed an
Obligation for all purposes of this Agreement and the Secured Party may apply
the Collateral to payment of or reimbursement of itself for such liability.
SECTION 12. Secured Party's Duty. The Secured Party shall not be required
to take any action hereunder in respect of a Breach. The Secured Party shall not
be liable for any acts, omissions, errors of judgment or mistakes of fact or law
including, without limitation, acts, omissions, errors or mistakes with respect
to the Collateral, except for those arising out of or in connection with the
Secured Party's (i) gross negligence or willful misconduct, or (ii) failure to
use reasonable care with respect to the safe custody of any certificate or
instrument evidencing any of the Collateral which is in the physical possession
of the Secured Party. The Secured Party shall be under no obligation to take any
steps necessary to preserve rights in the Collateral against any prior parties
but may do so at its option, and all expenses incurred in connection therewith
shall be for the account of the Pledgors, and shall be added to the Obligations
secured hereby. The Secured Party agrees that upon termination of this
Agreement, it will execute and deliver all documents reasonably requested by any
Pledgor or any third party to evidence the release and termination of the pledge
of the Pledged Shares hereunder.
SECTION 13. Further Assurances. Each Pledgor further agrees that, at any
time and from time to time, upon written request of Secured Party, such Pledgor
will execute and deliver
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such further documents and do such further acts and things as Secured Party may
reasonably request in order to effect the purposes of this Agreement.
SECTION 14. Adjustment of Collateral. At the closing of the Merger, the
number of Pledged Shares constituting the Collateral shall be adjusted by either
adding additional shares of MIM Common Stock to the pledge hereunder, or
releasing shares of MIM Common Stock from the pledge hereunder, so that the
shares of MIM Common Stock constituting the Collateral at such time is the whole
number of shares having an aggregate value as close as possible to, and no less
than, $2.5 million (determined based on the average closing price of the MIM
Common Stock on the Nasdaq for the 20 trading days prior to the closing of the
Merger). This Agreement shall be amended at the time of the closing of the
Merger to effect the adjustment contemplated in the preceding sentence.
SECTION 15. Legends. Any certificate or other document issued in respect of
shares of MIM Common Stock which constitute Collateral shall be endorsed with
the legend set forth below:
"THESE SECURITIES ARE SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN
PLEDGE AGREEMENT DATED AS OF AUGUST 13, 1998, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICES OF MIM CORPORATION."
SECTION 16. General Provisions. (a) No failure on the part of the Secured
Party to exercise, and no delay in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise by the Secured Party of any right, power or remedy hereunder preclude
any other or future exercise thereof, or the exercise of any other right, power
or remedy. The representations, covenants and agreements of each Pledgor herein
contained shall survive the date hereof.
(b) The obligations of each Pledgor under this Agreement shall remain in
full force and effect without regard to, and shall not be impaired or affected
by:
(i) any amendment or modification or addition or supplement to the
Indemnification Agreement, any document or instrument delivered in
connection therewith or any assignment or transfer thereof;
(ii) any exercise, non-exercise or waiver by the Secured Party of any
right, remedy, power or privilege under or in respect of the
Indemnification Agreement;
(iii) any waiver, consent, extension, indulgence or other action or
inaction in respect of the Indemnification Agreement or any assignment or
transfer of any thereof; or
(iv) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like, of any Pledgor or any
other Person;
in all cases, whether or not the Pledgors shall have notice or knowledge of any
of the foregoing.
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(c) No amendment or waiver of any provision of this Agreement nor consent
to any departure by any Pledgor herefrom nor release of all or any part of the
Collateral shall in any event be effective unless the same shall be in writing,
signed by the Secured Party and each Pledgor. Any such waiver or consent or
release shall be effective only in the specific instance and for the specific
purpose for which it is given.
(d) All notices under this Agreement shall be deemed given when made in
accordance with the provisions of the Indemnification Agreement.
(e) THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
CONFLICTS OF LAW PROVISIONS THEREOF. EACH OF THE SECURED PARTY AND EACH PLEDGOR
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT.
(f) Each Pledgor hereby consents to the non-exclusive jurisdiction of the
Supreme Court of the State of New York for New York County and the United States
District Court for the Southern District of New York with respect to any suit,
claim, action or proceeding arising out of or related to this Agreement or the
transactions contemplated hereby and hereby waives any objection which it may
have now or hereafter to the venue of any suit, claim, action or proceeding
arising out of or related to this Agreement or the transactions contemplated
hereby and brought in the courts specified above and also hereby waives any
claim that any such suit, claim, action or proceeding has been brought in an
inconvenient forum. Each Pledgor hereby agrees that service of process in any
such action or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to its address set forth in the Indemnification Agreement or at
such other address of which the Secured Party shall have been notified pursuant
to the Indemnification Agreement and agrees that nothing herein shall affect the
right to effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction.
(g) If any provision of this Agreement is determined by a court of
competent jurisdiction to be unenforceable, such provision shall be
automatically reformed and construed so as to be valid, operative and
enforceable to the maximum extent permitted by the law while most nearly
preserving its original intent. The invalidity of any part of this Agreement
shall not render invalid the remainder of the Agreement.
(h) This Agreement may be executed in counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
taken together shall constitute but one and the same instrument.
(i) The section headings in this Agreement are for convenience of reference
only and shall not affect the interpretation hereof.
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(j) Notwithstanding any provision of this Agreement to the contrary, the
obligations of each Pledgor under this Agreement shall be several and not joint
and shall be allocated based upon the respective obligations of the Pledgors
under the Indemnification Agreement and enforced against the Collateral only in
accordance with such allocation. By way of example, if any obligation of
Erlenbach under the Indemnification Agreement is to be satisfied by action under
this Agreement, action shall be taken only against the Collateral pledged by
Erlenbach. Expenses and other obligations of Pledgors arising under this
Agreement with respect to the Collateral shall be allocated among the Pledgors
based upon specific Collateral, to the extent possible, and, to the extent such
allocation is not possible, shall be allocated among the Pledgors in proportion
to the value of Collateral pledged by each and continuing to be held as
Collateral pursuant to this Agreement. Upon satisfaction of all obligations of
any Pledgor under both the Indemnification Agreement and this Agreement, the
Collateral pledged by such Pledgor shall be released from this Agreement
notwithstanding the fact that any other Pledgor remains obligated under the
Indemnification Agreement or this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Pledge
Agreement as of the date first above written.
MIM CORPORATION
By: /S/ BARRY A. POSNER
-----------------------------------
Name: Barry A. Posner
Title: Vice President and General Counsel
ROULSTON INVESTMENT TRUST L.P.
By: THOMAS H. ROULSTON, its general partner
/S/ THOMAS H. ROULSTON
---------------------------------------
Thomas H. Roulston, General Partner
ROULSTON VENTURES L.P.
By: THOMAS H. ROULSTON, its general partner
/S/ THOMAS H. ROULSTON
---------------------------------------
Thomas H. Roulston, General Partner
MICHAEL R. ERLENBACH
/S/ MICHAEL R. ERLENBACH
---------------------------------------
11
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of February 9, 1999 (the "Agreement") by
and between MIM CORPORATION, a Delaware corporation (the "Company"), and E.
DAVID CORVESE (the "Seller").
WHEREAS, the Company desires to purchase, and the Seller desires to sell
and transfer to the Company, One Hundred Thousand (100,000) shares of the issued
and outstanding common stock, par value $.0001 per share, of the Company owned
by the Seller (the "Shares") upon the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth herein, the parties agree as follows:
1. Purchase and Sale of Shares. Effective upon the date of this Agreement,
the Seller hereby agrees to sell and the Company hereby agrees to purchase all
of the Seller's right, title and interest in and to the Shares, free and clear
of all liens, charges and security interests. Each party represents, warrants
and covenants with the other party that the purchase and sale of the Shares
contemplated by this Agreement will be effected privately and will not be
reported on the NASDAQ.
2. Purchase Price. The purchase price (the "Purchase Price") for the Shares
shall be Three Dollars and Thirty-Seven and One-Half Cents ($3.375) per Share,
for an aggregate of Three Hundred Thirty-Seven Thousand Five Hundred Dollars
($337,500.00) cash, which shall be paid by the Company to the Seller by wire
transfer of immediately available funds, together with an additional Six
Thousand Two Hundred Fifty Dollars ($6,250.00) which the Company has agreed to
pay Warburg Dillon Read LLC as a brokerage commission on behalf of the Company,
pursuant to wire instructions to be provided by Warburg Dillon Read LLC. In
addition, Warburg Dillon Read LLC shall retain Six Thousand Two Hundred Fifty
Dollars ($6,250.00) from the Purchase Price received by the Seller, as a
brokerage commission on behalf of the Seller. Warburg Dillon Read LLC shall
promptly disburse the remainder of the Purchase Price (a net amount of $331,250)
to the Seller.
3. Representations and Warranties of Seller. The Seller represents,
warrants and covenants to the Company that it owns (beneficially and of record)
the Shares, free and clear of all liens, charges, security interests and other
encumbrances, and that the execution, delivery and performance of this Agreement
by the Seller, and the consummation of the transactions contemplated hereby, (i)
does not require the consent, approval, waiver, license or authorization of, or
filing or registration with, any person or entity (including governmental
entity), (ii) will not violate any law, government rule or regulation, or
applicable order, judgment or decree, (iii) result in the breach of, or a
default under, any agreement, contract or other document to which the Seller is
a party or by which the Seller is bound, or (iv) give rise to any lien, charge,
security interest or other encumbrance on the Shares.
4. Representations and Warranties of the Company. The Company hereby
represents, warrants and covenants to Seller that: (i) the Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware; and (ii) the execution, delivery and performance of
this Agreement by the Company, and the consummation of the transactions
contemplated hereby, have been duly and validly authorized by all necessary
corporate action on the part of the Company and will not violate any law,
government rule or regulation or applicable order, judgment or decree, or the
certificate of incorporation or bylaws of the Company, or result in the breach
of or a default under any agreement, contract or other document to which the
Company is a party or by which the Company is bound.
<PAGE>
5. Settlement. The purchase and sale of the Shares shall be settled not
later than 5:00 p.m. on March 12, 1999 by the delivery of the Shares to the
Company and delivery of the Purchase Price to Warburg Dillon Read, Inc., as
agent (the "Agent") for the Seller, in the manner set forth below (the
"Closing").
(a) Deliveries by the Seller. At the Closing, the Seller shall deliver
to the Company, certificates representing the Shares duly endorsed to the
Company or accompanied by duly executed stock powers, or a certificate
registered in the name of MIM Corporation evidencing the Shares.
(b) Deliveries by the Company. At the Closing, the Company shall
deliver to the Agent, on behalf of the Seller, the Purchase Price in the
manner described in Section 2, as well as the Company's portion of the
brokerage commission set forth in Section 2.
6. Indemnification.
(a) By Seller. The Seller shall indemnify and hold harmless the
Company, its affiliates and the directors, officers, shareholders,
employees and agents of the Company and its affiliates, from and after the
date hereof, against and in respect of any and all claims, losses,
liabilities and expenses, including attorneys' fees ("Losses"), arising
from a breach by the Seller of any of the representations, warranties or
covenants made by Seller in this Agreement.
(b) By the Company. The Company shall indemnify and hold harmless the
Seller from and after the date hereof, against and in respect of Losses
arising from a breach by the Company of any of the representations,
warranties or covenants made by the Company in this Agreement.
7. Exclusive Remedy. The provisions for indemnification set forth above are
the exclusive remedies of the Company and the Seller arising out of or in
connection with this Agreement, and shall be in lieu of any rights under
contract, tort, equity or otherwise.
8. Notices. Any and all notices or other communications or deliveries
required or permitted to be given or made pursuant to any of the provisions of
this Agreement shall be deemed to have been fully given or made for all purposes
if (i) hand-delivered, (ii) sent by a nationally recognized overnight courier,
or (iii) sent by telephone facsimile transmission (with prompt oral confirmation
of receipt) as follows:
If to the Company, at: MIM Corporation
100 Clearbrook Road
Elmsford, New York, 10523
Telecopy No.: (914) 460-1670
Attn: General Counsel
Tax ID No.: 05-0489664
If to Seller: Mr. E. David Corvese
839-C Ministerial Road
Wakefield, RI 03879
Fax: (401) 789-8732
With a copy to: Steven J. Feder, Esquire
White and Williams LLP
1800 One Liberty Place
Philadelphia, PA 19103-7395
Fax: (215) 864-7123
2
<PAGE>
9. General Provisions.
(a) Binding Effect. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and
permitted assigns.
(b) Assignability. This Agreement shall not be assignable in whole or
in part by either party, except upon the prior written consent of the other
party.
(c) Entire Agreement. This Agreement constitutes the complete
understanding of the parties hereto and shall supersede all other oral or
written agreements, arrangements, representations and communications
relating to the purchase of the Shares by the Company. This Agreement may
not be modified or terminated orally, and no modification, termination or
attempted waiver shall be valid unless in writing and signed by the party
against whom the same is sought to be enforced.
(d) Waiver. Any delay by any party hereto in enforcing any right
hereunder with respect to a breach of any provision of this Agreement shall
not operate nor be construed as a waiver of any such right. Any waiver must
be in writing and shall not operate as a waiver with respect to any
subsequent breach.
(e) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of
which shall be deemed to be one and the same instrument.
(f) Governing Law. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of Delaware (without regard to
any provisions thereof relating to conflicts of laws).
IN WITNESS WHEREOF, the undersigned have executed or caused this Agreement
to be executed on its behalf by its duly authorized officer as of the date set
forth above.
THE COMPANY:
MIM CORPORATION
By: /s/ BARRY A. POSNER
---------------------------
Name: Barry A. Posner
Title:
SELLER:
/s/ E. DAVID CORVESE
---------------------------
E. David Corvese
3
EXHIBIT 21
Parent:
MIM Corporation*
First Tier Subsidiaries:
MIM Health Plans, Inc.*
Pro-Mark Holdings, Inc.*
MIM Investment Corporation*
MIM IPA, Inc.**
Continental Managed Pharmacy Services, Inc.***
Second Tier Subsidiaries:
Continental Pharmacy, Inc.***
Automated Scripts, Inc.***
Preferred Rx, Inc.***
Valley Physicians Services, Inc.***
* Each of these corporations has been incorporated under the laws of the
State of Delaware.
** This corporation has been incorporated under the laws of the State of New
York.
*** Each of these corporations has been organized under the laws of the State
of Ohio and each of the corporations identified as second tier subsidiaries
are direct subsidiaries of Continental Managed Pharmacy Services, Inc.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Annual Report on Form 10-K into the Company's previously
filed Registration Statements on Form S-8 (File No. 333-33905) and Form S-3
(File No. 333-61265).
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 31, 1999
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