FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-28740
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MIM CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 05-0489664
- ------------------------------------------------- ---------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
100 Clearbrook Road, Elmsford, NY 10523
(Address of principal executive offices)
(914) 460-1600
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 120-2 of the Exchange Act).
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
On November 11, 2002, there were outstanding 24,345,548 shares of the
Company's common stock, $.0001 par value per share.
INDEX
Page Number
PART I FINANCIAL INFORMATION
INDEX
Item 1 Financial Statements
Consolidated Balance Sheets at September 30, 2002 (unaudited)
and December 31, 2001 ................................................ 1
Unaudited Consolidated Statements of Income for the three and nine
months ended September 30, 2002 and 2001 ............................. 2
Unaudited Consolidated Statements of Cash Flows for the nine
months ended September 30, 2002 and 2001 ............................. 3
Notes to the Unaudited Consolidated Interim Financial Statements .............. 5
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................... 11
Item 3 Quantitative and Qualitative Disclosure about Market Risk .................... 17
Item 4 Controls and Procedures ...................................................... 17
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds .................................... 18
Item 6 Exhibits and Reports on Form 8-K ............................................. 18
SIGNATURES
Exhibit Index .............................................................................. 22
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, 2002 December 31, 2001
--------------------- --------------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 2,841 $ 12,487
Receivables, less allowance for doubtful accounts of $3,405 and
$5,543 at September 30, 2002 and December 31, 2001, respectively 70,642 70,089
Inventory 9,547 3,726
Prepaid expenses and other current assets 2,854 1,439
--------- ---------
Total current assets 85,884 87,741
Property and equipment, net 7,957 9,287
Due from officer -- 2,132
Other assets, net 871 1,650
Goodwill, net 62,782 37,033
Intangible assets, net 17,712 1,976
--------- ---------
Total assets $ 175,206 $ 139,819
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 649 $ 594
Line of credit 5,618 --
Accounts payable 10,456 4,468
Claims payable 43,843 46,564
Payables to plan sponsors 23,108 21,063
Accrued expenses and other current liabilities 4,349 5,745
--------- ---------
Total current liabilities 88,023 78,434
Capital lease obligations, net of current portion 548 1,031
Other non current liabilities 57 58
--------- ---------
Total liabilities 88,628 79,523
Stockholders' equity:
Common stock, $.0001 par value; 40,000,000 shares authorized, 22,947,194 and
22,004,101 shares issued and outstanding
at September 30, 2002, and December 31, 2001, respectively 2 2
Treasury stock, 1,393,183 shares at cost (2,934) (2,934)
Additional paid-in capital 117,403 105,424
Accumulated deficit (27,893) (42,196)
--------- ---------
Total stockholders' equity 86,578 60,296
--------- ---------
Total liabilities and stockholders' equity $ 175,206 $ 139,819
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
1
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2002 2001 2002 2001
-------------------------- --------------------------
(Unaudited) (Unaudited)
Revenue $ 138,530 $ 119,886 $ 425,913 $ 332,773
Cost of revenue 120,566 106,231 374,472 294,047
--------- --------- --------- ---------
Gross profit 17,964 13,655 51,441 38,726
Selling, general and administrative expenses 11,733 9,826 32,786 27,599
TennCare reserve adjustment -- (1,496) (851) (2,476)
Amortization of intangibles 396 551 973 1,631
--------- --------- --------- ---------
Income from operations 5,835 4,774 18,533 11,972
Interest (expense) income, net (221) (43) (655) (27)
--------- --------- --------- ---------
Income before provision for income taxes 5,614 4,731 17,878 11,945
Provision for income taxes 1,123 409 3,575 932
--------- --------- --------- ---------
Net income $ 4,491 $ 4,322 $ 14,303 $ 11,013
========= ========= ========= =========
Basic income per common share $ 0.20 $ 0.20 $ 0.63 $ 0.53
========= ========= ========= =========
Diluted income per common share $ 0.19 $ 0.19 $ 0.60 $ 0.51
========= ========= ========= =========
Weighted average common shares used in
computing basic income per common share 22,944 21,361 22,801 20,894
========= ========= ========= =========
Weighted average common shares used in
computing diluted income per common share 23,813 22,589 23,951 21,624
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
2
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended September 30,
-------------------------------------
2002 2001
-------------------------------------
(Unaudited)
Cash flows from operating activities:
Net income $ 14,303 $ 11,013
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,544 5,288
TennCare reserve adjustment (851) --
Issuance of stock to employees 109 28
Provision for losses on receivables 941 883
Changes in assets and liabilities, net of acquired assets:
Receivables, net 5,264 (11,134)
Inventory (2,268) (1,440)
Prepaid expenses and other current assets (1,305) 205
Accounts payable 56 1,846
Claims payable (2,721) 4,139
Payables to plan sponsors and others 2,046 (6,734)
Accrued expenses and other current liabilities (1,900) (1,072)
Non current liabilities -- (457)
-------- --------
Net cash provided by operating activities 18,218 2,565
-------- --------
Cash flows from investing activities:
Purchase of property and equipment, net of disposals (1,751) (2,281)
Cost of acquisitions, net of cash acquired (34,851) (1,987)
Decrease (increase) in due from officer 2,132 (96)
(Increase) decrease in other assets (98) 100
-------- --------
Net cash used in investing activities (34,568) (4,264)
-------- --------
Cash flows from financing activities:
Net borrowings on line of credit 5,618 --
Purchase of treasury stock -- (2,596)
Proceeds from exercise of stock options 1,514 5,030
Principal payments on capital lease obligations (428) (448)
Net repayment of debt -- (165)
-------- --------
Net cash provided by financing activities 6,704 1,821
-------- --------
Net decrease in cash and cash equivalents (9,646) 122
Cash and cash equivalents--beginning of period 12,487 1,290
-------- --------
Cash and cash equivalents--end of period $ 2,841 $ 1,412
======== ========
(continued)
The accompanying notes are an integral part of these consolidated financial statements.
3
MIM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(In thousands)
Nine Months Ended September 30,
-----------------------------------
2002 2001
-------------- -----------------
(Unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 705 $ 151
======== ======
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Reclassification of stockholder notes to other assets $ -- $ 771
======== ======
Contribution of minority interest to additional paid-in
capital upon dissolution of subsidiary $ -- $1,112
======== ======
Stock issued in connection with acquisition $ 10,355 $ --
======== ======
The accompanying notes are an integral part of these consolidated financial statements.
4
MIM CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(In thousands, except per share amounts)
NOTE 1 - BASIS OF PRESENTATION
These unaudited consolidated interim financial statements should be read in
conjunction with the MIM Corporation and Subsidiaries (collectively, the
"Company") audited consolidated financial statements, notes and information
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 (the "Form 10-K") filed with the Commission. The accounting
policies followed for interim financial reporting are similar to those disclosed
in Note 2 of Notes to Consolidated Financial Statements included in Form 10-K.
The following accounting policies are described further below:
CONSOLIDATION
The consolidated financial statements include the accounts of MIM
Corporation and its subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventory consists principally of
purchased prescription drugs.
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 contracts have terms varying from six months to one year. These
contracts are subject to rate adjustment or termination upon the occurrence of
certain events. At such time as management estimates that a contract will
sustain losses over its remaining contractual life, a reserve is established for
these estimated losses. There are currently no expected loss contracts.
FEE-FOR-SERVICE. Under fee-for-service contracts, revenues from orders
dispensed by the Company's pharmacy networks are recognized when the pharmacy
services are reported to the Company by the dispensing pharmacist through the on
line claims processing systems.
All revenue is recorded net of any rebate share payable to plan sponsors.
The Company does not sell products separately from the services offered to
members and plan sponsors and does not maintain revenue or cost of revenue
information with regard to product sales.
When the Company independently has a contractual obligation to pay a
network pharmacy provider for benefits provided to its plan sponsors' members,
the Company includes payments from these plan sponsors as revenue, and payments
to the network pharmacy providers as cost of revenue ("gross") in accordance
with Emerging Issues Task Force ("EITF") 99-19, "Recording Revenue Gross as a
Principal versus Net as an Agent". These transactions require the Company to
assume credit risk and act as a principal. If the Company was merely
administering plan sponsors' network pharmacy contracts in which the Company
does not assume credit risk, but acts as an agent, the Company records only the
administrative or dispensing fees as revenue ("net").
PRESCRIPTION SERVICES. The Company's integrated pharmacy benefit services
include the delivery of pharmaceutical services and products. Such services and
products may be provided by any of the Company's pharmacy dispensing locations.
Revenue is recognized for these products and services when they are dispensed
and/or shipped.
5
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. The Company does not maintain cost of revenue information with
regards to product sales.
CLAIMS PAYABLE
The Company is responsible for all covered prescription drugs provided to
plan members during the contract period. Claims payable also includes estimates
of certain prescriptions that were dispensed to members for whom the related
claims had not yet been submitted.
PAYABLES TO PLAN SPONSORS
Payables to plan sponsors represent the sharing of pharmaceutical rebates
with the plan sponsors, as well as profit sharing plans with certain capitated
contracts.
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic income per common
share and diluted income per common share:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Numerator:
Net income ................................. $ 4,491 $ 4,322 $ 14,303 $ 11,013
============= ============= ============= =============
Denominator - Basic:
Weighted average number of common
shares outstanding ......................... 22,944 21,361 22,801 20,894
============= ============= ============= =============
Basic income per common share .............. $ 0.20 $ 0.20 $ 0.63 $ 0.53
============= ============= ============= =============
Denominator - Diluted:
Weighted average number of common
shares outstanding ......................... 22,944 21,361 22,801 20,894
Common share equivalents of outstanding
stock options .............................. 869 1,228 1,150 730
------------- ------------- ------------- -------------
Total diluted shares outstanding ........... 23,813 22,589 23,951 21,624
============= ============= ============= =============
Diluted income per common share ............ $ 0.19 $ 0.19 $ 0.60 $ 0.51
============= ============= ============= =============
NOTE 3 - DUE FROM COMPANY OFFICER
On March 23, 2002, officer repaid in full a $1,700 loan from the Company,
together with all accrued and unpaid interest thereon, totaling approximately
$2,100.
6
NOTE 4 - TENNCARE(R) RESERVE ADJUSTMENTS
There were no TennCare(R) reserve adjustments in the current quarter of
2002. The TennCare(R) reserve adjustments of $851 and $1,496 in the first
quarter of 2002 and the third quarter of 2001, respectively, were a result of
the collection of receivables from Xantus Healthplans of Tennessee, Inc., which
were previously reserved. During the first quarter of 2001, the Company recorded
a reserve adjustment of $980 to reflect a favorable settlement with Tennessee
Health Partnership ("THP") relative to the amount initially reserved. This
dispute related to several improper reductions of payments from THP for services
provided to THP and its enrollees.
NOTE 5 - TREASURY STOCK
In February 2001, the Company repurchased 1,298 shares of the Company's
common stock for $2,596, at a price of $2.00 per share of common stock.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
In 1998, the Company recorded a $2,200 special charge against earnings in
connection with an agreement in principle with respect to a civil settlement of
a Federal and State of Tennessee investigation for conduct involving two former
officers of the Company occurring prior to the Company's August 1996 initial
public offering. The definitive agreement covering that settlement was executed
on June 15, 2000, and required payment of $775 in 2000, payment of $900 in 2001,
and payment of $525 in 2002. On July 1, 2002, this settlement was paid in full.
NOTE 7 - ACQUISITIONS
On January 31, 2002, the Company acquired all of the issued and outstanding
capital stock of Vitality Home Infusion Services, Inc. ("Vitality"). Vitality is
a New York-based provider of specialty pharmaceutical services. Vitality
provides such services on a national basis to chronically ill and genetically
impaired patients, particularly focusing on oncology, infectious disease,
immunology and rheumatory disease.
The aggregate purchase price for Vitality was $46,416 (including $1,416 in
transaction costs), payable $35,000 in cash and 612,419 shares of MIM common
stock valued at $10,355, including 20,002 shares of common stock, valued at
$355, for transaction costs. The common stock of MIM was valued using the
average market price for twenty days prior to the date of the purchase
agreement. The purchase price for Vitality has been allocated to assets and
liabilities based on management's best estimates of fair value and based on a
final valuation performed by an independent outside valuation firm. The
following table sets forth the allocation of the purchase price as of September
30, 2002:
Purchase price:
Funded from the Company's line of credit $ 35,000
Common stock value 10,355
Transaction costs 1,061
-------------
Total purchase price 46,416
Less: net tangible assets as of January 31, 2002 4,441
-------------
Excess of purchase price over net tangible assets acquired $ 41,975
=============
Allocation of excess purchase price:
Customer relationships $ 11,000
Trademarks 4,700
Non-compete agreements 730
Goodwill 25,545
-------------
Total $ 41,975
=============
VITALITY PRO FORMA FINANCIAL INFORMATION
The following unaudited consolidated pro forma financial information for
the three and nine month periods ended September 30, 2002 and 2001,
respectively, has been prepared assuming Vitality was acquired as of January 1,
2001, utilizing the purchase method of accounting, with pro forma adjustments
for non-amortizing goodwill, amortizing intangibles, interest expense, rent
expense and income tax benefit. The pro forma financial information is presented
for informational purposes only and is not necessarily indicative of the results
that would have been realized had the acquisition occurred on January 1, 2001.
This pro forma financial information is not intended to be a projection of
future operating results.
7
Pro Forma Income Statement
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
2002 2001 2002 2001
---------------- ---------------- ---------------- ----------------
(Unaudited) (Unaudited)
Revenues $ 138,530 $ 138,153 $ 432,956 $ 385,884
Net income $ 4,491 $ 4,536 $ 14,115 $ 13,411
Basic income per common share $ 0.20 $ 0.21 $ 0.62 $ 0.62
Diluted income per common share $ 0.19 $ 0.20 $ 0.59 $ 0.60
NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets," which establish accounting and
reporting standards governing business combinations, goodwill and intangible
assets. SFAS No. 141 requires all business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting. SFAS No. 142
states that goodwill is no longer subject to amortization over its estimated
useful life. Rather, goodwill will be subject to at least an annual assessment
for impairment by applying a fair-value based test. Under the new rules, an
acquired intangible asset should be separately recognized and amortized over its
useful life (unless an indefinite life) if the benefit of the intangible asset
is obtained through contractual or other legal rights, or if the intangible
asset can be sold, transferred, licensed, rented or exchanged regardless of the
acquirer's intent to do so. The Company adopted these standards on January 1,
2002.
Pursuant to SFAS No. 142, substantially all of the Company's intangible
assets will no longer be amortized and the Company is required to perform an
annual impairment test for goodwill and intangible assets. Goodwill and
intangible assets are allocated to various reporting units, which are either the
operating segment or one reporting level below the operating segment. SFAS No.
142 requires the Company to compare the fair value of the reporting unit to its
carrying amount on an annual basis to determine if there is potential
impairment. If the fair value of the reporting unit is less than its carrying
value an impairment loss would be recorded to the extent that the fair value of
the goodwill within the reporting unit is less than the carrying value. The
impairment test for intangible assets consists of comparing the fair value of
the intangible asset to its carrying value. If the carrying value of the
intangible asset exceeds its fair value an impairment loss is recognized. Fair
value for goodwill and intangible assets are determined based on discounted cash
flows and appraised values. During the first quarter of 2002, the Company
completed its initial impairment review which indicated that there was no
impairment of goodwill or intangible assets.
The following table provides a reconciliation of reported net income for the
three and nine month periods ended September 30, 2001, to adjusted net income as
if SFAS No. 142 had been applied as of January 1, 2001.
Three Months Ended Nine Months Ended
September 30, 2001 September 30, 2001
--------------------------------- ----------------------------------
Dollars Diluted EPS Dollars Diluted EPS
--------------------------------- ----------------------------------
Net income as reported $ 4,322 $ 0.19 $ 11,013 $ 0.51
Add back goodwill amortization (net of tax) 439 0.02 1,298 0.06
-------------- ----------------- --------------- -----------------
Net income as adjusted $ 4,761 $ 0.21 $ 12,311 $ 0.57
============== ================= =============== =================
8
The changes in the net carrying amount of goodwill for the nine months ended
September 30, 2002, are as follows:
Balance as of December 31, 2001 $ 37,033
Goodwill acquired (Vitality) 25,545
Miscelleanous purchase price adjustments 204
----------
Balance (net of amortization) as of September 30, 2002 $ 62,782
==========
Gross amortizable intangible assets with definite lives at September 30,
2002 consist of customer relationships of $13,948 amortized over four to twenty
years and noncompete agreements of $862 amortized over three to four years and
$127 of trademarks amortized over three years. Gross intangible assets with
indefinite lives at September 30, 2002 are trademarks of $4,700 and goodwill of
$66,938. Accumulated amortization for intangibles and goodwill at September 30,
2002 is $6,081.
NOTE 9 - OPERATING SEGMENTS
The Company operates in two distinct segments: (1) PBM Services, which is
comprised of fully integrated pharmacy benefit management and mail services; and
(2) Specialty Pharmaceuticals, which is comprised of specialty pharmacy
distribution and clinical management services.
The accounting polices applied to business segments are the same as those
described in the summary of significant accounting policies as disclosed in Note
2 of Notes to Consolidated Financial Statements in the Form 10-K.
Segment Reporting Information
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -----------------------------
2002 2001 2002 2001
--------------------------- -----------------------------
Revenues:
PBM Services $ 94,826 $110,176 $306,819 $304,295
Specialty Pharmaceuticals 43,704 9,710 119,094 28,478
-------- -------- -------- --------
Total $138,530 $119,886 $425,913 $332,773
======== ======== ======== ========
Depreciation expense:
PBM Services $ 666 $ 971 $ 2,461 $ 2,860
Specialty Pharmaceuticals 238 111 675 328
-------- -------- -------- --------
Total $ 904 $ 1,082 $ 3,136 $ 3,188
======== ======== ======== ========
Income from operations:
PBM Services $ 1,460 $ 4,025 $ 6,207 $ 8,781
Specialty Pharmaceuticals 4,375 749 12,326 3,191
-------- -------- -------- --------
Total $ 5,835 $ 4,774 $ 18,533 $ 11,972
======== ======== ======== ========
Total assets:
PBM Services $ 74,280 $ 98,889
Specialty Pharmaceuticals 100,926 32,867
-------- --------
Total $175,206 $131,756
======== ========
Capital expenditures:
PBM Services $ 179 $ 455 $ 752 $ 1,835
Specialty Pharmaceuticals 205 107 1,024 483
-------- -------- -------- --------
Total $ 384 $ 562 $ 1,776 $ 2,318
======== ======== ======== ========
9
Revenues for the three months ended September 30, 2002 included $14,116
from capitated arrangements compared to $24,308 for the same period in 2001.
This represents 10.1% of the Company's current quarterly revenues compared to
20.3% for the same quarter in 2001.
Revenues for the nine months ended September 30, 2002 included $37,886 from
capitated arrangements compared to $80,222 for the same period a year ago. This
represents 8.9% of the Company's current nine month revenues compared to 24.1%
for the same period in 2001.
* * * *
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the audited
consolidated financial statements of MIM Corporation and subsidiaries
(collectively, the "Company"), including the notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 (the "Form 10-K") filed with the U.S. Securities and Exchange
Commission (the "Commission"), as well as the Company's unaudited consolidated
interim financial statements and the related notes thereto included elsewhere in
this Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
2002 (this "Report").
This Report contains statements not purely historical and which may be
considered forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934,
as amended, including statements regarding the Company's expectations, hopes,
beliefs, intentions or strategies regarding the future. These forward-looking
statements may include statements relating to the Company's business development
activities; sales and marketing efforts; the status of material contractual
relationships and the expenditures associated with one or more of them; the
effect of regulation and competition on our business; future operating
performance and results of the company; the benefits and risks associated with
the integration of acquired companies; and the likely outcome and effect of
legal proceedings on the company and its business and operations and/or the
resolution or settlement thereof. Although we believe any and all of these
statements should be based on reasonable assumptions, there is no way to
guarantee that we will always be able to meet the expectations arising from
those forward-looking statements and their underlying assumptions. Actual
results may differ materially from those implied in the forward-looking
statements because of the various factors enumerated in our periodic filings
with the SEC. These factors include, among other things, the status of contract
negotiations; increased government regulation relating to the health care and
insurance industries in general, and more specifically, pharmacy benefit
management, mail service and specialty pharmaceutical distribution
organizations; the existence of complex laws and regulations relating to the
Company's business; increased competition from the Company's competitors,
including those competitors with greater financial, technical, marketing and
other resources, and risks associated with risk-based or capitated contracts.
This Report contains information regarding important factors that could cause
such differences. The Company does not undertake any obligation to supplement
these forward looking statements to reflect any future events and circumstances.
OVERVIEW
The Company is a pharmaceutical healthcare organization delivering
innovative pharmacy benefit management, specialty pharmaceutical distribution
and other pharmacy-related healthcare solutions. The Company combines its
clinical management expertise, sophisticated data management and therapeutic
fulfillment capabilities to serve the particular needs of each of its customers
and respective pharmacy benefit recipients covered by a customer's
pharmacy-related health benefits. The Company provides a broad array of pharmacy
benefits and pharmacy products and services to individual enrollees ("Members")
receiving health benefits, principally through health insurers, including
managed care organizations ("MCOs") and other insurance companies, and, to a
lesser extent, third party administrators, labor unions, self-funded employer
groups, government agencies, and other self-funded plan sponsors (collectively,
"Plan Sponsors"). These services are organized under two reported operating
segments: pharmacy benefit management and mail services (collectively, "PBM
Services"), and specialty pharmacy distribution and clinical management services
("Specialty Pharmaceuticals").
The Company offers small and mid-sized Plan Sponsors a broad range of PBM
Services designed to promote the cost-effective delivery of clinically
appropriate pharmacy benefits through its network of retail pharmacies and its
own mail service distribution facility. PBM Services revenues are recognized two
different ways. When the Company has a contractual obligation to pay its network
pharmacy providers for services provided to Members of Plan Sponsors and assumes
credit risk for these benefits, it recognizes the total payments (including the
cost of the prescription drug) from these Plan Sponsors as revenue, and payments
to network pharmacy providers as cost of revenue ("gross"). When the Company
does not assume credit risk for the network pharmacy payments, it records only
the administrative or dispensing fees as revenue ("net").
11
The Company's Specialty Pharmaceuticals programs are offered to Plan
Sponsors of all sizes and include the distribution of biotech and other
specialty prescription medications and the provision of pharmacy-related
clinical management services and disease state programs to the chronically ill
and genetically impaired directly and through Plan Sponsors. These services are
offered through its BioScrip(R) specialty injectable and infusion therapy
programs.
The Company also distributes high-cost injectable and infusion prescription
medications and therapies, through its Vitality Home Infusion Services, Inc.
("Vitality") and American Disease Management Associates L.L.C. ("ADIMA")
subsidiaries.
Depending on the goals and objectives of its Plan Sponsor customers, the
Company provides some or all of the following clinical services to each Plan
Sponsor as part of its PBM Services and Specialty Pharmaceuticals services:
pharmacy case management, therapy assessment, compliance monitoring, health risk
assessment, patient education and drug usage and interaction evaluation,
pharmacy claims processing, mail services and related prescription distribution,
benefit design consultation, drug utilization review, formulary management and
consultation, drug data analysis, drug interaction management, patient
compliance, program management and pharmaceutical rebate administration.
CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Revenue for the PBM is recognized either at the time that the pharmacy service
is reported to the Company from participating pharmacies under the
fee-for-service contracts or, in the case of a capitated agreement, in the month
in which the services are performed. As outlined above, revenue is recorded
gross or net based on whether or not the credit risk is assumed by the Company.
Allowances for doubtful accounts are based on estimates of losses related to
customer receivable balances. Estimates are developed by using standard
quantitative measures based on historical losses, adjusting for current economic
conditions and, in some cases, evaluating specific customer accounts for risk of
loss. The establishment of reserves requires the use of judgment and assumptions
regarding the potential for losses on receivable balances.
REBATES
Manufacturers' rebates are recorded as estimates until such time as the rebate
monies are received. These estimates are based on historical results and trends
as well as the Company's forecasts. In January 2001, the Company adopted
Emerging Issues Task Force Issue No. 00-22 ("EITF 00-22"), "Accounting for
`Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers,
and Offers for Free Products or Services to Be Delivered in the Future". EITF
00-22, states, among other things, that rebates received from pharmaceutical
manufacturers should be recognized as a reduction of cost of revenue and rebates
shared with Plan Sponsors as a reduction of revenue.
PURCHASE PRICE ALLOCATION
The Company accounts for its acquisitions under the purchase method of
accounting and accordingly, the acquired assets and liabilities assumed are
recorded at their respective fair values. The recorded values of assets and
liabilities are based on third party estimates and independent valuations when
available. The remaining values are based on management's judgments and
estimates, and accordingly, the Company's financial position or results of
operations may be affected by changes in estimates and judgments.
12
INCOME TAXES
As part of the process of preparing the Company's consolidated financial
statements, management is required to estimate income taxes in each of the
jurisdictions in which it operates. The process involves estimating actual
current tax expense along with assessing temporary differences resulting from
differing treatment of items for book and tax purposes. These timing differences
result in deferred tax assets and liabilities, which are included in the
Company's consolidated balance sheet.
RESULTS OF OPERATIONS
REVENUES AND GROSS PROFIT
The following table provides details for the PBM Services segment for the
three and nine month periods ended September 30, 2002 and 2001:
PBM Services
($ in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------------------- ---------------------------------------------------
2002 2001 % Inc/ (Dec) 2002 2001 % Inc/ (Dec)
------------------------------------------------------------------------------------------------------
Revenues $94,826 $110,176 (13.9%) $306,819 $304,295 0.8%
Cost of revenues 87,633 99,729 (12.1%) 283,335 275,170 3.0%
------- -------- -------- -------- -------- -------
Gross profit $ 7,193 $ 10,447 (31.1%) $ 23,484 $ 29,125 (19.4%)
======= ======== ======== ======== ======== ========
Gross profit percentage 7.6% 9.5% 7.7% 9.6%
PBM Services revenues decreased 13.9% to $94.8 million in the third quarter
compared to $110.2 million in the third quarter of 2001 and increased slightly
to $306.8 for the nine months ended September 30, 2002 compared to the same
period in 2001. In the second quarter of 2002, the Company changed the terms of
some of its PBM customers, where the Company no longer accepted credit risk on
these customers. After giving effect to that change, current accounting rules
required the Company to classify these customers' gross PBM Services revenue on
a net basis. That change had the effect of reducing the gross PBM Services
revenue and cost of revenue by $20.4 million and $51.1 million for the quarter
and nine months ended September 30, 2002, respectively, with no resulting effect
on reported gross profit. The third quarter 2002 revenue decrease and the
minimal revenue increase for the nine months ended September 30, 2002, were the
result of decreases in revenue associated with the Company's classification of
certain PBM Services revenues from gross to net, the liquidation of Access
MedPLUS in the fourth quarter of 2001, and the Company's termination of certain
unprofitable PBM accounts, partially offset by increases from continued growth
in its retail network and mail services.
Cost of revenue decreased $12.1 million in the third quarter of 2002 and
increased $8.2 million in the nine months ended September 30, 2002 compared to
the same periods in 2001. The changes are a result of the same reasons discussed
above.
Gross profit decreased $3.3 million in the third quarter of 2002 and $5.6
million in the nine months ended September 30, 2002 compared to the same periods
in 2001, due to the liquidation of Access MedPLUS and the Company's termination
of certain unprofitable PBM accounts. These decreases were partially offset by
increases from continued growth in its retail network and mail services.
13
The following table provides details for the Specialty Pharmaceuticals
segment for the three and nine month periods ending September 30, 2002 and 2001.
Specialty Pharmaceuticals
($ in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------------------- --------------------------------------------
2002 2001 % Inc/ (Dec) 2002 2001 % Inc/ (Dec)
--------------------------------------------------------------------------------------------------
Revenues $ 43,704 $ 9,710 350.1% $ 119,094 $ 28,478 318.2%
Cost of revenues 32,933 6,502 406.5% 91,137 18,877 382.8%
------------ ------------ ----------- ------------- ------------ --------------
Gross profit $ 10,771 $ 3,208 235.7% $ 27,957 $ 9,601 191.2%
============ ============ =========== ============= ============ ==============
Gross profit percentage 24.6% 33.0% 23.5% 33.7%
Specialty Pharmaceuticals revenues increased $34.0 million in the third
quarter of 2002 to $43.7 million, and $90.6 million to $119,094 million for the
nine months ended September 30, 2002 compared to the same periods last year.
These increases were the result of the inclusion of Vitality's revenues from
February 2002 (the acquisition date) (see Note 7 of Notes to Unaudited
Consolidated Financial Statements), and continued growth in the Company's
BioScrip(R) injectable and infusion therapy programs.
Cost of revenue increased $26.4 million in the third quarter of 2002 and
$72.3 million for the nine months ended September 30, 2002 compared to the same
periods in 2001. These increases are commensurate with the inclusion of Vitality
since February 2002 and the growth in the Company's BioScrip(R) programs from
2001.
Gross profit increased $7.6 million for the third quarter of 2002 and $18.4
million for the nine months ended September 30, 2002 from the same periods in
2001, due to the inclusion of Vitality from February 2002, as well as increases
from the BioScrip(R) programs, reflecting their revenue growth from 2001.
The gross profit percentages declined in both the third quarter of 2002 and
the nine months ended September 30, 2002 compared to the same periods in 2001 as
a result of increases in the lower margin BioScrip(R) injectable therapy
programs. The current gross profit percentages now reflect a higher proportion
of injectable therapy programs in the total Specialty Pharmaceuticals business,
when, in the previous year, the infusion therapy program represented a higher
percentage of the total Specialty Pharmaceuticals business. Infusion therapy
historically has yielded a higher gross profit percentage.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased to $11.7
million for the third quarter of 2002, or 8.5% of revenue, from $9.8 million, or
8.2% of revenue for the same period a year ago. This increase is principally the
result of operating cost increases commensurate with the Company's business
growth, the inclusion of Vitality's SG&A in the Company's results since February
2002, as well as overall higher insurance premiums. SG&A expenses for the first
nine months of 2002 increased to $32.8 million, or 7.7% of revenue, from $27.6
million, or 8.3% of revenue, in the first nine months of 2001, for the same
reasons previously discussed.
TENNCARE(R) RESERVE ADJUSTMENTS
There were no TennCare(R) reserve adjustments in the current quarter of
2002. The TennCare(R) reserve adjustments of $0.9 million in the first quarter
of 2002 and $1.5 million in the third quarter of 2001, respectively, were the
result of the collection of receivables from Xantus Healthplans of Tennessee,
Inc., which were previously reserved. During the first quarter of 2001, the
Company also recorded a reserve adjustment of $1.0 million to reflect a
favorable settlement with Tennessee Health Partnership ("THP") relating to
several improper reductions of payments from THP for which the Company had
provided services.
14
AMORTIZATION OF INTANGIBLES
For the third quarter of 2002 and the nine months ended September 30, 2002,
the Company recorded amortization of $0.4 million and $1.0 million,
respectively, compared to $0.6 million and $1.6 million for the same periods,
respectively, in 2001. These decreases in 2002 are the result of the adoption of
SFAS No. 142 (see Note 8 of Notes to Unaudited Consolidated Financial
Statements), which were partially offset by the amortization of identifiable
intangibles resulting from the acquisition of Vitality on January 31, 2002.
NET INTEREST EXPENSE
Net interest expense was $0.2 million and $0.7 million for the three months
and nine months ended September 30, 2002, respectively, compared to nominal
amounts of net interest expense for the same periods in 2001. The interest
expense in 2002 is primarily a result of using the Company's revolving credit
facility to fund the $35 million cash portion of the Vitality $45 million
purchase price on January 31, 2002.
PROVISION FOR INCOME TAXES
Tax expense for the third quarter of 2002 and for the nine months ended
September 30, 2002 was $1.1 million and $3.6 million, respectively, compared to
$0.4 million and $0.9 million, respectively, for the same periods last year. The
effective tax rates for the third quarter and nine months ended September 30,
2002 were 20.0%, compared to 8.6% and 7.8%, respectively, for the same periods
last year. The Company was able to fully offset taxable income in 2001 with its
Federal net operating loss carry forwards, but expects to only partially offset
expected 2002 taxable income with available Federal net operating loss carry
forwards.
INCOME FROM OPERATIONS
Income from operations for the third quarter of 2002 increased 22% over the
same period last year to $5.8 million. 2001 income from operations of $4.8
million includes a benefit of $1.0 million (a special gain from a TennCare(R)
reserve adjustment of $1.5 million, offset by amortization of goodwill).
Earnings before interest, taxes, depreciation and amortization ("EBITDA") for
the third quarter of 2002 totaled $7.3 million, compared to $6.6 million for the
same period last year. EBITDA for 2001 includes the special gain above of $1.5
million.
Income from operations for the nine months ended September 30, 2002
increased 55% to $18.5 million from $12.0 million for the same period last year.
Income from operations includes a special gain from a TennCare(R) reserve
adjustment of $0.9 million in 2002 and a benefit of $1.1 million in 2001
(special gains from TennCare(R) adjustments of $2.5 million, above offset by
amortization of goodwill). EBITDA for the nine months of 2002 grew 34% to $23.1
million, compared to $17.3 million in the previous year's period. EBITDA
includes the special gains above of $0.9 million and $2.5 million in 2002 and
2001, respectively.
NET INCOME AND EARNINGS PER SHARE
Net income for the third quarter of 2002 was $4.5 million or $0.19 per
diluted share, compared to net income of $3.4 million or $0.15 per diluted share
for the same period last year, excluding a 2001 special gain from a TennCare(R)
reserve adjustment of $0.06 per diluted share and adding back the 2001 impact of
$0.02 for the application of SFAS No. 142 regarding the amortization of
goodwill. Average diluted shares outstanding for the third quarter increased by
1.2 million to 23.8 million shares.
Net income for the nine months ended September 30, 2002 was $13.6 million
or $0.57 per diluted share, compared to net income of $10.0 million or $0.47 per
diluted share for the same period last year, excluding 2002 and 2001 special
gains from TennCare(R) reserve adjustments of $0.03 and $0.10 per diluted share,
respectively, and adding back the 2001 impact of $0.06 per diluted share for the
application of SFAS No. 142 regarding the amortization of goodwill. Average
diluted shares outstanding for the nine months increased by 2.3 million to 24.0
million shares.
15
LIQUIDITY AND CAPITAL RESOURCES
The Company utilizes both funds generated from operations and available
credit under its Facility (as defined below) for acquisitions, capital
expenditures and general working capital needs.
For the nine months ended September 30, 2002, net cash provided by
operating activities totaled $18.2 million compared to $2.6 million for the same
period last year. This improvement is the result of continued growth in the
Company's businesses and the inclusion of Vitality results from February 2002.
Net cash used in investing activities during the nine months ended
September 30, 2002 was $34.6 million compared to $4.3 million used in the same
period in 2001. This increase reflects approximately $35 million of the Facility
used for the acquisition of Vitality (see Note 7 of Notes to Unaudited
Consolidated Financial Statements), partially offset by the repayment in full,
in March 2002, of a $2.1 million officer loan (see Note 3 of Notes to Unaudited
Consolidated Financial Statements).
For the nine months ended September 30, 2002, net cash provided by
financing activities was $6.7 million compared to $1.8 million in the same
period in 2001. The increase is primarily the result of $5.6 million currently
outstanding under the Facility after repaying most of the borrowings used to pay
the cash portion of the purchase price for the Vitality acquisition and the
absence of treasury stock purchases in 2002 that, in the 2001 period, totaled
$2.6 million.
At September 30, 2002, the Company had a working capital deficit of $2.1
million compared to working capital of $9.3 million at December 31, 2001. This
change is primarily the result of the acquisition of Vitality. Goodwill and
intangible assets, classified as non-current, increased $41.5 million while the
$5.6 million unpaid balance under the Facility was classified as a current
liability.
The allowance for doubtful accounts at September 30, 2002 of $3.4 million,
or 4.8% of accounts receivable, decreased $2.1 million from $5.5 million, or
7.9% of accounts receivable at December 31, 2001. This decrease was primarily
the result of a reduction to a reserve, in the first quarter of 2002,
established in a prior period for the collection of receivables from Xantus
Healthplans of Tennessee, Inc., which was no longer required (as discussed in
Note 4 of Notes to Unaudited Consolidated Financial Statements).
On November 1, 2000, the Company entered into a $45 million revolving
credit facility (the "Facility") with HFG Healthco-4 LLC, an affiliate of
Healthcare Finance Group, Inc. ("HFG"). The Facility has a three-year term and
is secured by the Company's receivables. Interest is payable monthly and
provides for borrowing of up to $45 million at the London Inter-Bank Offered
Rate (LIBOR) plus 2.1%. The Facility contains various covenants that, among
other things, require the Company to maintain certain financial ratios, as
defined in the agreements governing the Facility. As of September 30, 2002,
there was $5.6 million outstanding under the Facility as a result of the
Company's acquisition of Vitality. The Facility terminates on October 31, 2003.
The Company beleives that it will be able to extend or renew the Facility, or
alternatively, obtain a new credit facility with another lender, however, there
can be no assurances that the Company will be able to renew or extend the
Facility or obtain a new one on terms favorable to the Company. Failure to renew
or extend the Facility or enter into a new credit facility could have a material
adverse effect on the Company.
As the Company continues to grow, it anticipates that its working capital
needs will also continue to increase. The Company believes that its cash on
hand, together with funds available under the Facility and cash expected to be
generated from operating activities will be sufficient 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 Services and
Specialty Pharmaceuticals businesses, which the Company would expect to fund
from cash on hand, borrowings under the Facility, other future indebtedness or,
if appropriate, the private and/or public sale or exchange of equity securities
of the Company.
16
At December 31, 2001, the Company had unused Federal net operating loss
carryforwards of $40.3 million, which will begin expiring in 2009. Since the
Company has not had a history of consistent profitability, it is uncertain
whether the Company will realize the benefit from its deferred tax assets and
has provided a valuation allowance.
As of December 31, 2001, certain of the Company's Federal net operating
loss carryforwards are subject to limitation and may be utilized in a future
year upon release of the limitation. If Federal net operating loss carryforwards
are not utilized in the year they are available they may be utilized in a future
year to the extent they have not expired.
OTHER MATTERS
The TennCare(R) program operates under a demonstration waiver from The
United States Center for Medicare and Medicaid Services ("CMS"). That waiver is
the basis of the Company's ongoing service to those MCOs in the TennCare(R)
program. The waiver expired on December 31, 2001 and was renewed without
material modification through December 31, 2002 and further extended through
December 31, 2004, without material modification to those goods and services
being provided by the Company or the manner in which the Company is compensated.
While the Company believes that pharmacy benefits will continue to be provided
to Medicaid and other eligible TennCare(R) enrollees through MCOs in one form or
another through at least December 31, 2004. Should the funding sources and/or
conditions for the TennCare(R) program change significantly, the TennCare(R)
program's ability to pay the MCOs, and in turn the MCO's ability to pay the
Company, could materially and adversely affect the Company's financial position
and results of operations.
In the first quarter of 2001, the Company commenced a stock repurchase
program pursuant to which the Company is authorized to repurchase up to $5.0
million of its common stock from time to time on the open market or in private
transactions. To date, the Company has used, in the aggregate, approximately
$2.6 million towards the repurchase of its common stock under this program.
On October 1, 2002, the U.S. Department of Health and Human Services Office
of Inspector General ("OIG") released its Draft Compliance Program Guidance for
Pharmaceutical Manufacturers (the "Draft Guidance") designed to provide
voluntary, nonbinding guidance to assist pharmaceutical manufacturers in
devising effective legal compliance programs. The Draft Guidance identifies in
general terms certain areas of potential legal risk that OIG encourages
pharmaceutical manufacturers to consider in structuring compliance programs. OIG
has solicited public comment on the Draft Guidance and will at some time in the
future publish final guidance along with a discussion of relevant comments. The
Company currently maintains a compliance program that includes the key
compliance program elements described in the Draft Guidance. We do not believe
that the Draft Guidance, if adopted in its current form, would be likely to have
a material effect on our business operations or financial results. However, it
is possible that the Draft Guidance could be changed prior to publication of the
final version, and any such changes could impact our business operations,
possibly materially.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There has been no material change from the information provided in Item 7a
of the Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
As of November 12, 2002, an evaluation was performed under the supervision
and with the participation of the Company's management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on that evaluation, the Company's management, including the Chief Executive
Officer and Chief Financial Officer, concluded that the Company's disclosure
controls and procedures were effective as of November 12, 2002. There have been
no significant changes in the Company's internal controls or in other factors
that could significantly affect internal controls subsequent to November 12,
2002.
17
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 31, 2002, the Company issued 612,419 shares of its common stock
in connection with the acquisition of Vitality. (see Note 7 of Notes to
Unaudited Consolidated Financial Statements).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 3.1 Amended and restated Certificate of Incorporation
(incorporated by reference to Exhibit 3-1 to the
Company's Registration Statement on Form S-1, File No.
333-05327)
Exhibit 3.2 Amended and Restated By-Laws of MIM Corporation
Exhibit 4.1 Amended and Restated Rights Agreement dated as of May
20, 1999 between MIM Corporation and American Stock
Transfer and Trust Company (incorporated by reference
to Exhibit 4.1 to post-effective amendment No. 2 to the
Company's Form 8-A/A dated May 20, 1999.
Exhibit 10.1 Employment letter dated October 1, 2002, between
the Company and James S. Lusk.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended
September 30, 2002.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MIM CORPORATION
November 14, 2002 /s/ James S. Lusk
---------------------------
James S. Lusk
Chief Financial Officer
19
CERTIFICATION
I, Richard H. Friedman, certify that:
1. I have reviewed this quarterly report on Form 10-Q;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(i) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(ii) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(iii) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(i) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(ii) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
-----------------
/s/ Richard H. Friedman
-----------------------
Chief Executive Officer
20
CERTIFICATION
I, James S. Lusk, certify that:
1. I have reviewed this quarterly report on Form 10-Q;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(i) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(ii) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(iii) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(i) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(ii) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
-----------------
/s/ James S. Lusk
-----------------
Chief Financial Officer
21
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
3.1 Amended and restated Certificate of Incorporation (incorporated by
reference to Exhibit 3-1 to the Company's registration Statement of Form
S-1, File No. 333-05327)
3.2 Amended and restated By-Laws of MIM Corporation
4.1 Amended and Restated Rights Agreement dated as of May 20, 1999 between MIM
Corporation and American Stock Transfer and Trust Company (incorporated by
reference to Exhibit 4.1 to post-effective amendment No. 2 to the Company's
Form 8-A/A dated May 20, 1999.
10.1 Employment letter dated October 1, 2002, between the Company and James S.
Lusk
22
Exhibit 3.2 As amended through June 25, 2001
BY-LAWS
of
MIM Corporation
(a Delaware corporation)
ARTICLE 1
OFFICES
Section 1.01. Offices. The Corporation may have offices at
such places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
Section 2.01. Place of Meeting. Meetings of the stockholders
shall be held at such place, within the State of Delaware or elsewhere, as may
be fixed from time to time by the Board of Directors. If no place is so fixed
for a meeting, it shall be held at the Corporation's then principal executive
office.
Section 2.02. Annual Meeting. The annual meeting of
stockholders shall be held, unless the Board of Directors shall fix some other
hour or date therefor, at 10:00 o'clock A.M. on the third Wednesday of May in
each year, if not a legal holiday under the laws of Rhode Island, and, if a
legal holiday, then on the next succeeding secular day not a legal holiday under
the laws of Rhode Island, at which the stockholders shall elect by plurality
vote a Board of Directors, and transact such other business as may properly be
brought before the meeting.
Section 2.03. Notice of Annual Meetings. Written notice of the
annual meeting stating the place, date and hour of the meeting shall be given to
each stockholder entitled to vote at such meeting not less than 10 days nor more
than 60 days before the date of the meeting.
Section 2.04. List of Stockholders. The officer who has charge
of the stock ledger of the Corporation shall prepare and make, at least 10 days
before every meeting of stockholders, a complete list of stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting for a period of at least 10 days prior to the
meeting: (i) on a reasonably accessible electronic network, provided that the
information required to gain access to such list is provided with the notice of
the meeting, or (ii) during ordinary business hours, at the principal place of
business of the Corporation. If the meeting is to be held at a place, then the
list shall be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present. If
-1-
the meeting is to be held solely by means of remote communication, then the list
shall also be open to the examination of any stockholder during the whole time
of the meeting on a reasonably accessible electronic network, and the
information required to access such list shall be provided with the notice of
the meeting.
Section 2.05. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, may be called by the Chairman or
the Vice Chairman and shall be called by the Chief Operating Officer or
Secretary at the request in writing of a majority of the Board of Directors.
Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
Section 2.06. Notice of Special Meetings. Written notice of a
special meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called, shall be given to each stockholder
entitled to vote at such meeting not less than 10 days nor more than 60 days
before the date of the meeting.
Section 2.07. Quorum; Voting. The holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting. When a quorum is present at any meeting,
except for elections of directors, which shall be decided by plurality vote, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of statute
or of the Certificate of Incorporation, a different vote is required, in which
case such express provision shall govern and control the decision of such
question. Unless otherwise provided in the Certificate of Incorporation, each
stockholder shall at every meeting of stockholders be entitled to one vote in
person or by proxy for each share of the capital stock having voting power held
by such stockholder, but no shares shall be voted pursuant to a proxy more than
three years after the date of the proxy unless the proxy provides for a longer
period.
Section 2.08. Action Without a Meeting. Unless otherwise
restricted by the Certificate of Incorporation, any action required or permitted
to be taken at any annual or special meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing setting forth the action so taken shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
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that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and shall be
delivered to the corporation by delivery to its registered office in the State,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested. Every written consent
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty days after the earliest dated consent delivered in
the manner required by this Section to the corporation, written consents signed
by a sufficient number of stockholders to take action are delivered in the
manner required by this Section to the Corporation. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
Section 2.09. Nominations and Stockholder Business.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the stockholders may
be made at an annual meeting of stockholders (i) pursuant to the Corporation's
notice of meeting, (ii) by or at the direction of the Board of Directors or
(iii) by any stockholder of the Corporation who (x) was a stockholder of record
at the time of giving of notice provided for in Section 2.09(a)(2), (y) is
entitled to vote at the meeting and (z) complied with the notice procedures set
forth in Section 2.09(a)(2).
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (iii) of
paragraph (a)(1) of this Section 2.09, the stockholder must have given timely
notice thereof in writing to the secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to the secretary at the principal
executive offices of the Corporation not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 30 days or delayed by more than 60 days from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
90th day prior to such annual meeting and not later than the close of business
on the later of the 60th day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such meeting is
first made. Such stockholder's notice shall set forth (i) as to each person whom
the stockholder proposes to nominate for election or reelection as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (ii) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and of the beneficial
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owners, if any, on whose behalf the proposal is made; and (iii) as to the
stockholder giving the notice and the beneficial owners, if any, on whose behalf
the nomination or proposal is made, (x) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owners, if any, and (y) the class and number of shares of stock of the
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owners, if any.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 2.09 to the contrary, in the event that the
number of directors to be elected to the Board of Directors is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the Corporation
at least 70 days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by paragraph (a)(2) of this Section
2.09 shall also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
secretary at the principal executive offices of the Corporation not later than
the close of business on the tenth day following the day on which such public
announcement is first made by the Corporation.
(b) Special Meetings of Stockholders.
(1) Only such business shall be conducted at a special
meeting of stockholders as shall have been brought before the meeting pursuant
to the Corporation's notice of meeting.
(2) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected (i) pursuant to the Corporation's notice of meeting, (ii) by
or at the direction of the Board of Directors or (iii) provided that the Board
of Directors has determined that directors shall be elected at such special
meeting, by any stockholder of the Corporation who (x) has given timely notice
thereof meeting the requirements of Section 2.09(b)(3), (y) is a stockholder of
record at the time of giving of such notice and (z) is entitled to vote at the
meeting.
(3) To be timely, a stockholder's notice referred to in
Section 2.09(b)(2) must have been delivered to the secretary of the Corporation
at the principal executive offices of the Corporation not earlier than the 90th
day prior to such special meeting and not later than the close of business on
the later of the 60th day prior to such special meeting or the tenth day
following the day on which public announcement is made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. Such stockholder's notice shall set forth (i) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Exchange Act
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); and (ii) as to the
stockholder giving the notice and the beneficial owners, if any, on whose behalf
the nomination is made, (x) the name and address of such stockholder, as they
appear on the Corporation's books, and of such beneficial owners, if any, and
(y) the class and number of shares of stock of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial owners, if
any.
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(c) General.
(1) Only such persons who are nominated in accordance
with the procedures set forth in this Section 2.09 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 2.09. The presiding officer of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Section 2.09 and, if any proposed nomination or business is not in
compliance with this Section 2.09, to declare that such defective nomination or
proposal be disregarded.
(2) For purposes of this Section 2.09, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable news service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Sections 13, 14, or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Section 2.09, a stockholder shall also comply with all applicable requirements
of state law and of the Exchange Act and the rules and regulations thereunder
with respect to the matters set forth in this Section 2.09. Nothing in this
Section 2.09 shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
ARTICLE 3
DIRECTORS
Section 3.01. Number and Term of Office. The number of
directors of the Corporation shall be such number as shall be designated from
time to time by resolution of the Board of Directors and initially shall be two.
The directors shall be elected at the annual meeting of the stockholders, except
as provided in Section 3.02 hereof. Each director elected shall hold office for
a term of one year and shall serve until his successor is elected and qualified
or until his earlier death, resignation or removal. Directors need not be
stockholders.
Section 3.02. Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and shall qualify, unless sooner displaced. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10 percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
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Section 3.03. Resignations. Any director may resign at
any time by giving written notice to the Board of Directors, the Chairman, the
Chief Operating Officer, the Secretary or any Assistant Secretary. Such
resignation shall take effect at the time of receipt thereof or at any later
time specified therein; and, unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
Section 3.04. Direction of Management. The business of
the Corporation shall be managed under the direction of its Board of Directors,
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws directed or required to be exercised or done by the
stockholders.
Section 3.05. Place of Meetings. The Board of Directors
of the Corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 3.06. Annual Meeting. Immediately after each
annual election of directors, the Board of Directors shall meet for the purpose
of organization, election of officers, and the transaction of other business, at
the place where such election of directors was held or, if notice of such
meeting is given, at the place specified in such notice. Notice of such meeting
need not be given. In the absence of a quorum at said meeting, the same may be
held at any other time and place which shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors, or as shall
be specified in a written waiver signed by the directors, if any, not attending
and participating in the meeting.
Section 3.07. Regular Meetings. Regular meetings of the
Board of Directors may be held without notice at such time and place as shall
from time to time be determined by the Board.
Section 3.08. Special Meetings. Special meetings of the
Board of Directors may be called by the Chairman or the Vice Chairman on 2 days'
notice to each director; either personally (including telephone), or in the
manner specified in Section 4.01; special meetings shall be called by the
Chairman, the Vice Chairman or the Secretary in like manner and on like notice
on the written request of two directors.
Section 3.09. Quorum; Voting. At all meetings of the
Board, a majority of the directors shall constitute a quorum for the transaction
of business; and at all meetings of any committee of the Board, a majority of
the members of such committee shall constitute a quorum for the transaction of
business. The act of a majority of the directors present at any meeting of the
Board of Directors or any committee thereof at which there is a quorum present
shall be the act of the Board of Directors or such committee, as the case may
be, except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation. If a quorum shall not be present at any meeting of
the Board of Directors or committee thereof, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
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Section 3.10. Action Without a Meeting. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section 3.11. Participation in Meetings. One or more
directors may participate in any meeting of the Board or committee thereof by
means of conference telephone or similar communications equipment by which all
persons participating can hear each other.
Section 3.12. Committees of Directors. The Board of
Directors may, by resolution passed by a majority of the whole Board, designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution, shall have and may exercise all of the powers and
authority of the Board of Directors and may authorize the seal of the
Corporation to be affixed to all papers which may require it, but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution providing for the issuance of shares of stock
adopted by the Board of Directors, fix any preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the By-Laws of the Corporation; and,
unless the resolution expressly so provides, no such committee shall have the
power or authority to declare a dividend, to authorize the issuance of stock, or
to adopt a certificate of ownership and merger. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors when
requested.
Section 3.13. Compensation of Directors. Each director
shall be entitled to receive such compensation, if any, as may from time to time
be fixed by the Board of Directors. Members of special or standing committees
may be allowed like compensation for attending committee meetings. Directors may
also be reimbursed by the Corporation for all reasonable expenses incurred in
traveling to and from the place of each meeting of the Board or of any such
committee or otherwise incurred in the performance of their duties as directors.
No payment referred to herein shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
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ARTICLE 4
NOTICES
Section 4.01. Notices. Whenever, under the provisions of
law or of the Certificate of Incorporation or of these By-Laws, notice is
required to be given to any director or stockholder, such requirement shall not
be construed to necessitate personal notice. Such notice may in every instance
be effectively given by depositing a writing in a post office or letter box, in
a postpaid, sealed wrapper, or by dispatching a prepaid telegram, cable,
telecopy or telex or by delivering a writing in a sealed wrapper prepaid to a
courier service guaranteeing delivery within 2 business days, in each case
addressed to such director or stockholder, at his address as it appears on the
records of the Corporation in the case of a stockholder and at his business
address (unless he shall have filed a written request with the Secretary that
notices be directed to a different address) in the case of a director. Such
notice shall be deemed to be given at the time it is so dispatched.
Section 4.02. Waiver of Notice. Whenever, under the
provisions of law or of the Certificate of Incorporation or of these By-Laws,
notice is required to be given, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time of
the event for which notice is to be given, shall be deemed equivalent thereto.
Neither the business nor the purpose of any meeting need be specified in such a
waiver.
ARTICLE 5
OFFICERS
Section 5.01. Number. The officers of the Corporation
shall be a Chief Executive Officer, a Secretary and a Treasurer, and may also
include a Chairman, Vice Chairman, one or more Executive Vice Presidents and/or
Vice Presidents, one or more Assistant Secretaries and Assistant Treasurers, and
such other officers as may be elected by the Board of Directors. Any number of
offices may be held by the same person.
Section 5.02. Election and Term of Office. The officers
of the Corporation shall be elected by the Board of Directors. Officers shall
hold office at the pleasure of the Board.
Section 5.03. Removal. Any officer may be removed at any
time by the Board of Directors. Any vacancy occurring in any office of the
Corporation may be filled by the Board of Directors.
Section 5.04. Chairman and Vice Chairman.
(a) The Chairman, if there is one, shall preside at all
meetings of the Board of Directors and of the stockholders and shall perform
such other duties, if any, as may be specified by the Board from time to time.
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(b) The Vice Chairman, if there is one, shall preside at
all meetings of the Board of Directors and of the stockholders in the absence of
the Chairman, and shall perform such other duties, if any, as may be specified
by the Board form time to time.
Section 5.05. Chief Executive Officer. The Chief
Executive Officer shall be the chief executive officer of the Corporation and
shall have overall responsibility for the management of the business and
operations of the Corporation and shall see that all orders and resolutions of
the Board are carried into effect. In the absence of the Chairman and the Vice
Chairman, he shall preside over meetings of the Board of Directors and of the
stockholders of the Corporation. In general, he shall perform all duties
incident to the office of Chief Executive Officer, and such other duties as from
time to time may be assigned to him by the Board.
Section 5.06. Executive Vice Presidents and Vice
Presidents. The Executive Vice Presidents and Vice Presidents shall perform such
duties and have such authority as may be specified in these By-Laws or by the
Board of Directors or the Chief Executive Officer.
Section 5.07. Secretary. The Secretary shall attend all
meetings of the Board of Directors and all meetings of the stockholders and
record all the proceedings of the meetings of the stockholders and of the Board
of Directors in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or the President. He shall have custody of the corporate seal of
the Corporation and he, or an Assistant Secretary, shall have authority to affix
the same to any instrument, and when so affixed it may be attested by his
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature.
Section 5.08. Assistant Secretaries. The Assistant
Secretary or Secretaries shall, in the absence or disability of the Secretary,
perform the duties and exercise the authority of the Secretary and shall perform
such other duties and have such other authority as the Board of Directors or the
Chief Executive Officer may from time to time prescribe.
Section 5.09. Treasurer. The Treasurer shall have the
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors or the Chief Executive Officer or the Chief Financial
Officer, taking proper vouchers for such disbursements, and shall render to the
Board of Directors when the Board so requires, an account of all his
transactions as Treasurer and of the financial condition of the Corporation.
Section 5.10. Assistant Treasurers. The Assistant
Treasurer or Treasurers shall, in the absence or disability of the Treasurer,
perform the duties and exercise the authority of the Treasurer and shall perform
such other duties and have such other authority as the Board of Directors may
from time to time prescribe.
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ARTICLE 6
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6.01. Indemnification. Any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving while a director or officer of
the Corporation at the request of the Corporation as a director, officer,
employee, agent, fiduciary or other representative of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
shall be indemnified by the Corporation against expenses (including attorneys'
fees), judgments, fines, excise taxes and amounts paid in settlement actually
and reasonably incurred by such person in connection with such action, suit or
proceeding to the full extent permissible under Delaware law.
Section 6.02. Advances. Any person claiming
indemnification within the scope of Section 6.01 shall be entitled to advances
from the Corporation for payment of the expenses of defending actions against
such person in the manner and to the full extent permissible under Delaware law.
Section 6.03. Procedure. On the request of any person
requesting indemnification under Section 6.01, the Board of Directors or a
committee thereof shall determine whether such indemnification is permissible or
such determination shall be made by independent legal counsel if the Board or
committee so directs or if the Board or committee is not empowered by statute to
make such determination.
Section 6.04. Other Rights. The indemnification and
advancement of expenses provided by this Article 6 shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any insurance or other agreement, vote of
shareholders or disinterested directors or otherwise, both as to actions in
their official capacity and as to actions in another capacity while holding an
office, and shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such person.
Section 6.05. Insurance. The Corporation shall have power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee, agent,
fiduciary or other representative of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of these By-laws.
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Section 6.06. Modification. The duties of the Corporation
to indemnify and to advance expenses to a director or officer provided in this
Article 6 shall be in the nature of a contract between the Corporation and each
such director or officer, and no amendment or repeal of any provision of this
Article 6 shall alter, to the detriment of such director or officer, the right
of such person to the advancement of expenses or indemnification related to a
claim based on an act or failure to act which took place prior to such
amendment, repeal or termination.
ARTICLE 7
CERTIFICATES OF STOCK
Section 7.01. Stock Certificates. Every holder of stock
in the Corporation shall be entitled to have a certificate in the form
prescribed by the Board of Directors signed on behalf of the Corporation by the
Chairman or Vice Chairman or Chief Executive Officer or Chief Operating Officer
or an Executive Vice President or Vice President and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, representing the number of shares owned by him in the Corporation.
Any or all signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if such person were such officer,
transfer agent, or registrar at the date of issue.
Section 7.02. Lost Certificates. The Board of Directors
may direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 7.03. Transfers of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 7.04. Fixing Record Date. The Board of Directors
of the Corporation may fix a record date for the purpose of determining the
stockholders entitled to notice of, or to vote at, any meeting of stockholders
or any adjournment thereof, or to consent to corporate action in writing without
a meeting, or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action.
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Such record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors and such record date shall not
be (i) in the case of such a meeting of stockholders, more than 60 nor less than
10 days before the date of the meeting of stockholders, or (ii) in the case of
consents in writing without a meeting, more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors, or (iii) in other cases, more than 60 days prior to the payment or
allotment or change, conversion or exchange or other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting unless the Board of
Directors fixes a new record date for the adjourned meeting.
Section 7.05. Registered Stockholders. The Corporation
shall be entitled to recognize the exclusive right of a person registered on its
books as the owner of stock to receive dividends and to vote as such owner, and
shall be entitled to hold liable for calls and assessments a person registered
on its books as the owner of stock, and shall not be bound to recognize any
equitable or other claim to, or interest in, such stock on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE 8
AMENDMENTS
Section 8.01. Amendments. These By-Laws may be altered,
amended or repealed, and new By-Laws may be adopted, by the stockholders or by
the Board of Directors at any regular meeting of the stockholders or of the
Board of Directors or at any special meeting of the stockholders or of the Board
of Directors if notice of such alteration, amendment, repeal or adoption of new
By-Laws be contained in the notice of such special meeting.
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Exhibit 10.1
October 1, 2002
Mr. James S. Lusk
42 Colts Glen Lane
Basking Ridge, NJ 07920
Re: MIM Corporation and Subsidiaries
--------------------------------
Dear Jim:
MIM Corporation, a Delaware corporation (the "Company"), is pleased to
offer you employment as the Company's Chief Financial Officer, on the terms and
subject to the conditions set forth below. The terms and conditions of your
employment would be as follows:
1. POSITION AND DUTIES: Executive Vice President and Chief Financial
------------------- Officer.
In such capacity, you shall be the principal
financial and accounting officer of the
Company and shall be responsible for all
financial reporting and other matters typical
of a Chief Financial Officer. In such
capacity, you will faithfully perform the
duties of said office and position and such
other duties of an executive, managerial and
administrative nature as are specified and
designated from time to time by the Company's
Board of Directors.
You will report primarily to, and shall have
such further duties as shall be assigned to
you by the Chief Executive Officer of the
Company, subject to the authority of the
Board of Directors. Subject to the terms and
conditions of this Agreement, you acknowledge
and understand that you are an employee at
will.
2. BASE COMPENSATION: Your base salary will be at an annual rate of
----------------- $300,000.00 per year, payable bi-weekly, or
at such other times as other employees of the
Company are paid.
3. LONG-TERM INCENTIVE
COMPENSATION: As further compensation hereunder, effective
------------ upon the later to occur of the date you
commence your employment with the Company and
the date you execute definitive agreements
with respect to each such grant, the Company
would grant to you 150,000 non-qualified
stock options ("Options") to purchase the
Company's common stock, par value $0.0001 per
share ("Common Stock"). The Options shall
vest in equal installments on the first,
Mr. James S. Lusk
October 1, 2002
Page 2
second and third anniversary dates of your
employment. The grant and vesting of your
options would be subject to the terms and
conditions set forth in the form of a
definitive non-qualified stock option
agreement. Such options shall be priced at
the closing stock price on the trading day
immediately preceding your first day of
employment with the Company. Six months after
the commencement of your employment, you will
be reviewed and a determination will be made,
in the Company's sole and absolute
discretion, as to the granting of additional
Options.
4. TRANSPORTATION
ALLOWANCE: During your employment, the Company will
---------- provide you with a monthly allowance of $1000
for the use of an automobile.
5. PARTICIPATION IN HEALTH
AND OTHER BENEFIT PLANS: During your employment with the Company, you
----------------------- shall be permitted, if and to the extent
eligible, to participate in all employee
health and other related benefit plans,
policies and practices now or hereafter
available to members of senior management
generally and maintained by or on behalf of
the Company, including the Company's medical
expense reimbursement plan (the "MERP") and a
life insurance policy equal to three times
your then annual salary. Nothing in this
agreement shall preclude the Company from
terminating or amending any such plans or
coverage so as to eliminate, reduce or
otherwise change any benefit payable
thereunder.
You shall be eligible to participate in the
Company's 1998 Cash Bonus Program For Key
Employees. During the first calendar year of
your employment, you would participate pro
rata based on the number of days during
calendar year 2002 that you were employed by
the Company.
6. EXPENSES: Subject to such policies as may from time to
-------- time be established by the Company's Board of
Directors, the Company would pay or reimburse
you for all reasonable and necessary expenses
(which shall include professional fees and
dues reasonably necessary to the performance
of your duties hereunder) actually incurred
or paid by you during the term of your
employment in the performance of your duties,
upon submission and approval of expense
statements, vouchers or other supporting
information in accordance with the then
customary practices of the Company.
Mr. James S. Lusk
October 1, 2002
Page 3
7. VACATION:
-------- You would be entitled to four weeks (20
business days) vacation during the term of
your employment.
8. TERMINATION; SEVERANCE
CHANGE OF CONTROL:
----------------- If your employment with the Company is
terminated for any reason whatsoever, whether
by you or the Company, the Company would not
be liable for, or obligated to pay you any
bonus compensation or any other compensation
contemplated hereby not already paid or not
already accrued at the date of such
termination, and no other benefits shall
accrue or vest subsequent to such date. If
you are terminated by the Company (or any
successor) other than for "Cause" (as defined
below), (i) you will be entitled to receive
severance payments equal to one year of
salary at your then current salary level,
payable in accordance with the Company's then
applicable payroll practices and subject to
all applicable federal, state and local
withholding; and (ii) all outstanding
unvested Options granted to you (or hereafter
under the Bonus Program) and held by you
shall vest and become immediately exercisable
and shall otherwise be exercisable in
accordance with their terms and you shall
become vested in any pension or other
deferred compensation other than pension or
deferred compensation under a plan intended
to be qualified under Section 401(a) or
403(a) of the Internal Revenue Code of 1986,
as amended (the "Code"); and (iii) you shall
have no further rights to any other
compensation or benefits hereunder on or
after the termination of employment or any
other rights hereunder. For purposes of this
Agreement, "Cause" shall mean any of the
following: (1) commission by you of criminal
conduct which involves moral turpitude; (2)
acts which constitute fraud or self-dealing
by or on the part of you against the Company,
including, without limitation,
misappropriation or embezzlement; (3) your
willful engagement in conduct which is
materially injurious to the Company; or (4)
your gross misconduct in the performance of
duties as an employee of the Company,
including, without limitation, failure to
obey lawful written instructions of the Board
of Directors of the Company, any committee
Mr. James S. Lusk
October 1, 2002
Page 4
thereof or any executive officer of the
Company or failure to correct any conduct
which constitutes a breach of any written
agreement between you and the Company or of
any written policy promulgated by the Board
of Directors of either the Company, any
committee thereof or any executive officer of
the Company, in either case after not less
than ten days' notice in writing to you of
the Company's intention to terminate you if
such failure is not corrected within the
specified period (or after such shorter
notice period if the Company in good faith
deems such shorter notice period to be
necessary due to the possibility of material
injury to the Company). In addition, if you
are terminated by the Company (or any
successor) within one year of a "Change of
Control" (as defined below) or, within such
one (1) year period, you elect to terminate
your employment after the Company or a
successor entity materially reduces your
authority, duties and responsibilities, or
assigns you duties materially inconsistent
with your position or positions with the
Company or a successor entity immediately
prior to such Change of Control, (I) you
shall receive severance payments equal to one
year of your then current salary (and
reimbursement for expenses incurred prior to
the effective date of the termination of
employment; (II) all outstanding unvested
Options granted to you (or hereafter under
the Bonus Program) and held by you shall vest
and become immediately exercisable and shall
otherwise be exercisable in accordance with
their terms and you shall become vested in
any pension or other deferred compensation
other than pension or deferred compensation
under a plan intended to be qualified under
Section 401(a) or 403(a) of the Code; ; and
(III) you shall have no further rights to any
other compensation or benefits hereunder on
or after the termination of employment or any
other rights hereunder.
For purposes of this Agreement, "Change of
Control" means the occurrence of one or more
of the following: (i) a "person" or "group"
within the means the meaning of sections
13(d) and 14(d) of the Securities and
Exchange Act of 1934 (the "Exchange Act")
becomes the "beneficial owner" (within the
meaning of Rule l3d-3 under the Exchange Act)
of securities of the Company (including
options, warrants, rights and convertible and
exchangeable securities) representing 50.1%
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
Mr. James S. Lusk
October 1, 2002
Page 5
then serving at that time; provided, however,
that purchases by employee benefit plans of
the Company and by the Company or its
affiliates shall be disregarded; or (ii) any
sale, lease, exchange or other transfer (in
one transaction or a series of related
transactions) of all, or substantially all,
of the operating assets of the Company; or
(iii) a merger or consolidation, or a
transaction having a similar effect, where
(A) the Company is not the surviving
corporation, (B) the majority of the Common
Stock of the Company is no longer held by the
stockholders of the Company immediately prior
to the transaction, or (C) the Company's
Common Stock is converted into cash,
securities or other property (other than the
common stock of a company into which the
Company is merged), unless such merger,
consolidation or similar transaction is with
a subsidiary of the Company or with another
company, a majority of whose outstanding
capital stock is owned by the same persons or
entities who own a majority of the Company's
Common Stock at such time; or (iv) at any
annual or special meeting of stockholders of
the Company at which a quorum is present (or
any adjournments or postponements thereof),
or by written consent in lieu thereof,
directors (each a "New Director" and
collectively the "New Directors") then
constituting a majority of the Company's
Board of Directors shall be duly elected to
serve as New Directors and such New Directors
shall have been elected by stockholders of
the Company who shall be an (I) "Adverse
Person(s)"; (II) "Acquiring Person(s)"; or
(III) "40% Person(s)" (as each of the terms
set forth in (I), (II), and (III) hereof are
defined in that certain Amended and Restated
Rights Agreement, dated May 20, 1999, between
the Company and American Stock Transfer &
Trust Company, as Rights Agent.
9. TERMINATION UPON DISABILITY If by virtue of ill health or other
disability you are unable to perform
substantially and continuously the duties
assigned to you for more than 180 consecutive
or non-consecutive days out of any
consecutive twelve-month period, the Company
shall have the right, to the extent permitted
by law, to terminate your employment upon
written notice; provided that the Company
will have no right to terminate your
employment if, in the opinion of a qualified
physician reasonably acceptable to the
Company, it is reasonably certain that you
will be able to resume your duties on a
regular full-time basis within 30 days of the
Mr. James S. Lusk
October 1, 2002
Page 6
date you receive notice of such termination.
Upon a termination of your employment by
virtue of disability, (i) you shall receive
severance payments equal to one year of your
then current salary (and reimbursement for
expenses incurred prior to the effective date
of the termination of employment 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 your employment; (ii) you
shall receive for a period of one year after
termination of employment continuing coverage
under the health benefit plans and programs
you would have received under this agreement
as would have applied in the absence of such
termination, it being expressly understood
and agreed that nothing in this clause (ii)
shall restrict the ability of the Company to
amend or terminate such plans and programs
from time to time in its sole discretion;
provided, however, that the Company shall in
no event be required to provide any coverage
after such time as you become entitled to
coverage under the benefit plans and programs
of another employer or recipient of your
services (and provided, further, that such
entitlement shall be determined without
regard to any individual waivers or other
arrangements); (iii) all fully vested and
exercisable Options granted to and held by
you may be exercised by you or your estate or
beneficiaries for a period of one (1) year
from and after the date of your disability;
and (iv) you shall have no further rights to
any other compensation or benefits hereunder
on or after the termination of employment, or
any other rights hereunder.
10. TERMINATION UPON DEATH: If you die during the term of your
employment, the obligations of the Company
with respect to you shall terminate in their
entirety, except as follows: Upon death, (i)
you or your estate or beneficiaries shall be
entitled to receive accrued and unpaid salary
(including bonuses awarded or declared and
not paid) and reimbursement for expenses
incurred prior to the date of your
termination; (ii) all vested and exercisable
Options granted to you may be exercised by
your estate for a period of one (1) year from
and after the date of your death; and (iii)
neither you or your estate or beneficiaries
shall have any further rights to any other
compensation or benefits hereunder on or
after the termination of employment, or any
other rights hereunder.
Mr. James S. Lusk
October 1, 2002
Page 7
11. RESTRICTIVE COVENANT: As a condition to your employment with the
-------------------- Company, you will be obligated to enter into
a restrictive covenant agreement between you
and the Company, covering, among other
things, non-competition provisions,
non-solicitation provisions, and the
protection of the Company's trade secrets.
That agreement is attached hereto as Exhibit
A.
12. OTHER TERMS: Your employment, restrictive covenants and
----------- option agreements will include other
customary and usual terms, provisions,
conditions and representations as are found
in the Company's similar arrangements with
its employees.
13. CONDITION TO EMPLOYMENT:
----------------------- Your employment is conditioned on the
approval of your employment and this letter
agreement by the Board of Directors of the
Company.
14. ARBITRATION: If any dispute arises with respect to the
----------- rights and obligations hereunder and is not
resolved by us, such dispute will be
submitted to binding arbitration, which shall
be conducted in accordance with the
commercial arbitration rules (the "Rules") of
the American Arbitration Association ("AAA")
in effect at the time arbitration is
commenced. Arbitration may be commenced by
either party by service and filing of a
demand for arbitration in accordance with the
Rules of the AAA then in effect. There shall
be one arbitrator in any arbitration pursuant
to this agreement. The selection of
arbitrator shall be made in accordance with
the Rules of the AAA then in effect. The
venue of arbitration shall be the State of
New York, City of New York. The arbitrators
in any arbitration pursuant to this agreement
shall apply the substantive laws of the State
of New York. Any arbitral award obtained
pursuant to this agreement may be confirmed
pursuant to Article 75 of the New York Civil
Practice Law and Rules in New York State
Supreme Court or in any other court of
competent jurisdiction within or without the
State of New York.
Please call me to discuss any questions or comments that you may have
regarding these terms. After I receive your agreement to the foregoing,
definitive documentation will be prepared. I look forward to hearing from you
and working with you. Best regards.
Mr. James S. Lusk
October 1, 2002
Page 8
Sincerely yours,
MIM CORPORATON
By: /s/ Richard H. Friedman
-------------------------------
Name: Richard H. Friedman
Title:
Agreed to and Accepted By:
__________________________
James S. Lusk
Mr. James S. Lusk
October 1, 2002
Page 9
Exhibit A
RESTRICTIVE COVENANTS
Covenant Against Competition; Other Covenants. You acknowledge that (i)
the principal business of the Company (for purposes of these restrictive
covenants, the "Company" shall include all subsidiaries and affiliates of MIM
Corporation) is the provision of a broad range of services designed to promote
the cost-effective delivery of pharmacy benefits, including pharmacy benefit
management services, claims processing, the purchasing of pharmaceutical
products on behalf of pharmacy networks and long term care facilities (including
assisted living facilities and nursing homes) and specialty pharmaceutical
programs and mail order pharmacy services, including the dispensing of
prescription pharmaceutical products, and the sale and distribution, on a retail
and wholesale basis, of OTC's, vitamins, supplements, herbals and other goods
typically offered for sale through a retail, mail order or internet on-line
pharmacy (such business, and any and all other businesses that after the date
hereof, and from time to time during the Term, become material with respect to
the Company's then-overall business, herein being collectively referred to as
the "Business"); (ii) the Company is dependent on the efforts of a certain
limited number of persons who have developed, or will be responsible for
developing the Company's Business; (iii) is national in scope; (iv) your work
for the Company will give you access to the confidential affairs and proprietary
information of the Company; (v) your covenants and agreements contained in these
Restrictive Covenants are essential to the business and goodwill of the Company;
and (vi) the Company would not have offered you employment but for the covenants
and agreements set forth herein. Accordingly, you covenant and agree that:
(a) At any time during your employment with the Company and
ending nine months following (i) termination of your employment with the Company
(irrespective of the reason for such termination) or (ii) payment of any
severance, whichever occurs last, you shall not engage, directly or indirectly,
in sales or marketing or otherwise assisting any company or other business
entity (which includes, without limitation, owning, managing, operating,
controlling, being employed by, giving financial assistance to, participating in
or being connected in any material way with any person or entity other than the
Company), engaged in (i) the Business or (ii) any material component of the
Business; provided, however, that the Executive's ownership as a passive
investor of less than two percent (2%) of the issued and outstanding stock of a
publicly held corporation shall not be deemed to constitute competition.
(b) During and after the period during which you are employed,
you shall keep secret and retain in strictest confidence, and shall not use for
his benefit or the benefit of others, except in connection with the Business and
affairs of the Company and its affiliates, all confidential matters relating to
the Company's Business and the business of any of its affiliates and to the
Company and any of its affiliates, learned by you heretofore or hereafter
directly or indirectly from the Company or any of its affiliates (the
"Confidential Company Information"), including, without limitation, information
Mr. James S. Lusk
October 1, 2002
Page 10
with respect to (i) the strategic plans, budgets, forecasts, intended expansions
of product, service, or geographic markets of the Company and its affiliates,
(ii) sales figures, contracts, agreements, and undertakings with or with respect
to customers, (iii) profit or loss figures, and (iv) customers, clients,
suppliers, sources of supply and customer lists, and shall not disclose such
Confidential Company Information to anyone outside of the Company except with
the Company's express written consent and except for Confidential Company
Information which is at the time of receipt or thereafter becomes publicly known
through no wrongful act of you or is received from a third party not under an
obligation to keep such information confidential and without breach of these
Restrictive Covenants or the Agreement. Notwithstanding the foregoing, this
section (b) shall not apply to the extent that you are acting to the extent
necessary to comply with legal process; provided that in the event that you are
subpoenaed to testify or to produce any information or documents before any
court, administrative agency or other tribunal relating to any aspect pertaining
to the Company, you shall immediately notify the Company thereof.
(c) During the period commencing on the date hereof and ending
one year following the date upon which you shall cease to be an employee of the
Company or its affiliates, you shall not, without the Company's prior written
consent, directly or indirectly, (i) solicit or encourage to leave the
employment or other service of the Company or any of its affiliates, any
employee or independent contractor thereof or hire (on your behalf or any other
person or entity) any employee or independent contractor who has left the
employment or other service of the Company or any of its affiliates within one
year of the termination of such employee's or independent contractor's
employment or other service with the Company and its affiliates, or (ii)
solicit, contact, market to, work for, or assist others in soliciting any
customer or client of the Company with whom the Company was in contact with or
was providing goods and services to at the time of your termination of
employment with the Company. During such period, you will not, whether for your
own account or for the account of any other person, firm, corporation or other
business organization, intentionally interfere with the Company's or any of its
affiliates' relationship with, or endeavor to entice away from the Company or
any of its affiliates, any person who during the Term is or was a customer or
client of the Company or any of its affiliates.
(d) All memoranda, notes, lists, records, property and any
other tangible product and documents (and all copies thereof) made, produced or
compiled by you or made available to you concerning the Business of the Company
and its affiliates shall be the Company's property and shall be delivered to the
Company at any time on request.
Mr. James S. Lusk
October 1, 2002
Page 11
Rights and Remedies upon Breach of Restrictive Covenants.
--------------------------------------------------------
(a) You acknowledge and agree that any breach by him of any of
the provisions of sections (a) through (d) above (the "Restrictive Covenants")
would result in irreparable injury and damage for which money damages would not
provide an adequate remedy. Therefore, if you breach, or threaten to commit a
breach of, any of the Restrictive Covenants, the Company and its affiliates
shall have the following rights and remedies, each of which rights and remedies
shall be independent of the other and severally enforceable, and all of which
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company and its affiliates under law or in
equity (including, without limitation, the recovery of damages):
(b) The right and remedy to have the Restrictive Covenants
specifically enforced (without posting bond and without the need to prove
damages) by any court having equity jurisdiction, including, without limitation,
the right to an entry against you of restraining orders and injunctions
(preliminary, mandatory, temporary and permanent) against violations, threatened
or actual, and whether or not then continuing, of such covenants.
(c) The right and remedy to require you to account for and pay
over to the Company and its affiliates all compensation, profits, monies,
accruals, increments or other benefits (collectively, "Benefits") derived or
received by you as the result of any transactions constituting a breach of the
Restrictive Covenants, and you shall account for and pay over such Benefits to
the Company and, if applicable, its affected affiliates.
(d) You agree that in any action seeking specific performance
or other equitable relief, you will not assert or contend that any of the
provisions of these Restrictive Covenants are unreasonable or otherwise
unenforceable. The existence of any claim or cause of action by you, whether
predicated on the Agreement or otherwise, shall not constitute a defense to the
enforcement of the Restrictive Covenants.
`
Agreed to and accepted by:
/s/ James S. Lusk
- -----------------------------
James S. Lusk