SCHEDULE 14C INFORMATION
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Check the appropriate box:
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DIALYSIS CORPORATION OF AMERICA
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(Name of Registrant as Specified in Its Charter)
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April 14, 2003
To: Our Shareholders
From: Thomas K. Langbein
Subject: Invitation to the Dialysis Corporation of America 2003 Annual
Meeting of Shareholders
Management is extending its invitation to you to attend our annual
meeting on Thursday, May 29, 2003. The annual meeting is being held at the New
Jersey executive offices of our parent, Medicore, Inc., 777 Terrace Avenue,
Hasbrouck Heights, New Jersey 07604 at 11:00 a.m. In addition to the formal
items of business, our President, Stephen W. Everett, will review the major
developments of 2002, our business strategy, and answer your questions.
This booklet includes the Notice of Annual Meeting and the Information
Statement. Proxies are not being solicited since a quorum exists for the meeting
through Medicore's 61% ownership of Dialysis Corporation of America. The
Information Statement also describes the business we will conduct at the
meeting, basically the election of six directors and the ratification of
appointment of our auditors, and provides information about Dialysis Corporation
of America and our directors and management.
We look forward to seeing you at the annual meeting.
Thomas K. Langbein
Chairman of the Board and
Chief Executive Officer
DIALYSIS CORPORATION OF AMERICA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
- ----------------------------------------------------------
Date: Thursday, May 29, 2003
Time: 11:00 a.m.
Place: Executive Offices of our Parent
Medicore, Inc.
777 Terrace Avenue, 5th Floor
Hasbrouck Heights, New Jersey 07604
(210) 288-8222
- ----------------------------------------------------------
Dear Shareholder:
You are cordially invited to attend the 2003 Dialysis Corporation of
America Annual Meeting of Shareholders to:
1. Elect six directors.
2. Act upon a proposal to ratify the appointment of Wiss &
Company, LLP as independent auditors for the company for the
year 2003.
3. Transact any other business that may properly be presented at
the annual meeting.
If you were a shareholder of record at the close of business on April
11, 2003, you are entitled to vote at the annual meeting.
Your copy of the Annual Report on Form 10-K of Dialysis Corporation of
America for 2002 is enclosed.
By order of the Board of Directors
Lawrence E. Jaffe
Counsel and Corporate Secretary
April 14, 2003
TABLE OF CONTENTS
Page
----
Information About the Annual Meeting and Voting..................................... 2
Proposal No. 1 - Election of Directors.............................................. 4
Information About Directors and Executive Officers.................................. 5
Beneficial Ownership of the Company's Securities.................................... 7
Executive Compensation Report....................................................... 9
Executive Compensation.............................................................. 11
Performance Graph................................................................... 17
Governance of the Company........................................................... 17
Report of the Audit Committee....................................................... 21
Certain Relationships and Related Transactions...................................... 22
Section 16(a) Beneficial Ownership Reporting Compliance............................. 24
Proposal No. 2 - Ratification of the Appointment of the Independent Auditors........ 24
Other Matters to be Presented to Shareholders....................................... 25
Available Information............................................................... 25
INFORMATION STATEMENT FOR
DIALYSIS CORPORATION OF AMERICA
2003 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Q: Why did you send me an Information Statement?
A: Management of Dialysis Corporation of America is inviting you to attend
and vote at the 2003 annual meeting. This Information Statement
summarizes the information you need to know to vote intelligently.
Q: Why did you not send me a proxy?
A: This is because a quorum already exists based upon the approximately
61% ownership of the company's voting securities by Medicore, Inc., our
parent company.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
Q: What does a quorum mean?
A: A quorum means a majority of the outstanding shares. The annual meeting
may only proceed if a quorum is present at the meeting. A majority of
the outstanding shares will be present at the meeting through Medicore.
At April 11, 2003, the record date, there were 3,966,986 shares of
Dialysis Corporation of America common stock outstanding. Medicore owns
2,410,622 shares of Dialysis Corporation of America common stock or
approximately 61% of the votes. A shareholder list will be available at
the executive offices of our parent in Hasbrouck Heights, New Jersey at
the meeting and for 10 days prior to the meeting for your review.
Q: Who is entitled to vote?
A: Shareholders who owned Dialysis Corporation of America common stock at
the close of business on April 11, 2003, the record date. Dialysis
Corporation of America intends to send this Information Statement, the
attached Notice of Annual Meeting, and its 2002 Annual Report on Form
10-K, which includes financial statements, on April 23, 2003 to all
shareholders entitled to vote.
Q: How many votes do I have?
A: Each share of common stock is entitled to one vote.
Q: What am I voting on?
A: The election of six directors, Messrs. Thomas K. Langbein, Stephen W.
Everett, Bart Pelstring, Robert W. Trause, Alexander Bienenstock and
Dr. David L. Blecker, for a one year term; and the ratification of the
appointment of Wiss & Company, LLP as our independent auditors for
2003. There is nothing else that we are aware of that is presently the
subject of consideration at the meeting.
Q: How do I vote?
A: By attending the annual meeting. At that time you will be given a
ballot and you may vote your shares. If your shares of Dialysis
Corporation of America common stock are held in the name of a broker,
bank or other nominee, you must bring an account statement or letter
from the nominee showing you were the beneficial owner of the shares on
April 11, 2003, the record date.
2
Q: How many votes are required for approval?
A: The nominees for six directors have to receive a plurality of the votes
cast. Ratification of the appointment of the independent auditors
requires a majority of the votes cast "for" or "against" the proposal.
Abstentions and broker "non-votes" are not counted for either the
election of directors or the ratification of the appointment of
independent auditors. A broker "non-vote" occurs when a nominee, such
as a brokerage firm or bank, holding shares for a nominee does not vote
on a particular proposal because the nominee does not have
discretionary voting power for the particular proposal and has not
received voting instructions from the beneficial owner.
Q: Is my vote confidential?
A: Yes. Only the inspectors of election and other employees of Dialysis
Corporation of America assisting in tallying the vote will have access
to your vote and comments.
Q: Who counts the votes?
A: We appoint two persons to act as inspectors of election, who each take
an oath to accept that responsibility and certify the voting to the
board.
Q: What does it mean if I receive more than one Information Statement?
A: Your shares of Dialysis Corporation of America common stock are
probably registered in more than one name or account. It would be
appreciated if you would contact our transfer agent, Continental Stock
Transfer & Trust Company, 17 Battery Place, New York, New York 10004
(Attention: Proxy Department) and tell them to put all your accounts
registered in the same name at the same address.
Q: How much common stock do officers and directors own?
A: Approximately 3.2% of our common stock as of the record date, and with
the officers and directors of our parent, Medicore, ownership of
Dialysis Corporation of America would be approximately 9%. This does
not include Medicore's approximately 61% (2,410,622 shares) ownership
of Dialysis Corporation of America common stock.
Q: Who are the largest principal shareholders?
A: As of the record date, other than Medicore's approximately 61%
ownership, no other shareholder to our knowledge owns in excess of 5%
of our common stock. However, based on beneficial ownership, which
includes shares of common stock a person is entitled to acquire within
the next 60 days, Thomas K. Langbein, Chairman of the Board and Chief
Executive Officer, beneficially owns 6.2% which includes an option to
purchase 222,857 shares of the company's common stock. See "Information
About Directors and Executive Officers" and "Beneficial Ownership of
the Company's Securities."
Q: Who sends out the Information Statements and Annual Reports and what
are the costs?
A: The company is sending out the Information Statement and Annual Report
to shareholders.
We will ask banks, brokers and other institutions, nominees and
fiduciaries to forward these materials to their principals and we will
reimburse them for their reasonable expenses in forwarding the
materials. The company pays all expenses of preparing and delivering
the Information Statements and Annual Reports, including printing,
envelopes, mailing and similar out-of-pocket expenses.
3
Q: Who is eligible to submit a proposal?
A: To be eligible, you must have continuously held at least $2,000 in
market value, or 1%, of Dialysis Corporation of America's common stock
for at least one year by the date you submit the proposal. You must
continue to hold your Dialysis Corporation of America shares through
the date of the meeting. Please remember that Medicore's approximately
61% ownership will determine the outcome of any proposal.
Q: When are the year 2004 shareholder proposals due?
A: Shareholder proposals must be submitted in writing by December 12, 2003
to Lawrence E. Jaffe, corporate Secretary, Dialysis Corporation of
America, 777 Terrace Avenue, Hasbrouck Heights, New Jersey 07604. Any
proposal should provide the reasons for it, the text of any resolution,
and must comply with Rule 14a-8 of Regulation 14A of the proxy rules of
the SEC.
Q: Where can I find more information about the Company?
A: You can obtain information about Dialysis Corporation of America on our
website, www.dialysiscorporation.com. We would appreciate your
providing us with your e-mail address, so we can more efficiently
communicate with you. We will only use your e-mail address for
communications from the company to you, and will not provide your
e-mail address to any other person, other than as necessary for us to
communicate with you. Also see "Available Information" at the end of
this Information Statement.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Nominees for election for a one year term are:
Position
Name Age Current Position Held Since
---- --- ---------------- ----------
Thomas K. Langbein 57 Chairman of the Board 1980
Chief Executive Officer 1986
Stephen W. Everett 46 President and director 2000
Bart Pelstring 62 Director 1985
Robert W. Trause* 60 Director 1998
Alexander Bienenstock* 65 Director 2001
Dr. David L. Blecker* 55 Director 2001
* Member of audit committee.
Our by-laws provide that the board shall not be less than two nor more
than six persons. A majority of directors, although less than a quorum, or a
sole remaining director, have the right to appoint candidates to fill any
vacancies on the board. When appointed, such director shall then serve for the
remainder of the term. Our board amended our by-laws to expand the maximum
number of directors to nine in order to have additional independent directors to
satisfy the new Nasdaq rules mandating a board consisting of a majority of
independent directors. This new requirement will be applicable to our annual
meeting in 2004. See "Governance of the Company - Board Committees" below.
4
The board recently established a Nominating Committee consisting of the
three independent directors affiliated with the board, the same persons who are
on the Audit Committee and the recently formed Compensation Committee. The
members of the Nominating Committee approved the selection of the six nominees
for board of director membership.
The affirmative vote of a plurality of the shares of common stock
represented at the meeting is required to elect the nominees as directors.
Abstentions and broker non-votes are not counted for purposes of the election of
directors, and votes withheld for any nominee will have the same effect as a
vote against his election.
Medicore owns 2,410,622 shares or approximately 61% of the voting stock
of the company, and intends to vote all of its shares in favor of the election
of the six nominees of management as approved by the nominating committee for
directors, thereby assuring their election as directors.
The nominees have consented to serve on the board. If any nominee is
unable to serve for any reason, the parent's controlling block of company common
stock will be voted for any substitute nominee as designated by the board.
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
Directors Standing For Election
Thomas K. Langbein has been affiliated with the company since 1980. He
is Chairman of the Board and Chief Executive Officer of each of the company's
subsidiaries. Mr. Langbein is the Chairman of the Board, Chief Executive Officer
and President of Medicore, our parent. Mr. Langbein is President, sole
shareholder and director of Todd & Company, Inc., a broker-dealer, currently not
active, registered with the SEC and a member of the NASD. Mr. Langbein was
appointed as a director of Linux Global Partners, Inc. a private Linux software
company in which Medicore, in January, 2000, acquired an ownership interest and
to which company our parent provided loans, with funding from our company. He
resigned as a Linux director in November, 2002. Mr. Langbein devotes most of his
time to the affairs of the company, Medicore, and continues to consult with
Linux Global Partners and Xandros, Inc., its 95% owned operating subsidiary. See
"Certain Relationships and Related Transactions."
Stephen W. Everett has been involved in the healthcare industry for
over 23 years. From 1993 to 1997, Mr. Everett was responsible for oversight,
deal structuring, physician recruitment and practice management for the renal
care division of Vivra, Inc., the then second largest provider of dialysis
services in the United States. Mr. Everett held positions of similar
responsibility in 1998 through his affiliation with Physicians Practice
Management, engaged in consulting and management in the renal healthcare field.
He joined the company in November, 1998 as Vice President, became Executive Vice
President in June, 1999, and President on March 1, 2000.
Bart Pelstring has been affiliated with the company since 1976. Mr.
Pelstring was appointed as President in 1986, which position he relinquished on
March 1, 2000. Mr. Pelstring is a founding member of the National Renal
Administrators Association and was the founder and president of the Florida
Renal Administrators Association.
Robert W. Trause is a senior commercial account specialist engaged in
the marketing of commercial insurance specializing in property and casualty
insurance sales to mid-to-large range companies. He has been affiliated with an
insurance agency in New Jersey since 1991.
5
Alexander Bienenstock is an attorney who specializes in securities and
corporate matters. From September, 2000 through October, 2001 he was a legal
consultant with IDT Corp., a NYSE telecommunications company. He was affiliated
with several law firms, the most recent, Gusrae, Kaplan & Bruno (1997 to 1998),
and was counsel from 1998 to February, 2000, to a small brokerage firm no longer
in business. Mr. Bienenstock's background includes having been an adjunct
assistant professor in accounting and management, and Chief Attorney, Branch of
Small Issues of the New York Regional Office of the SEC.
Dr. David L. Blecker, M.P.H., is board certified in internal medicine
and nephrology by the American Board of Internal Medicine, and also holds board
certifications from the American Board of Preventative Medicine and the American
Board of Medical Management. Dr. Blecker is Chief in Nephrology and Director of
Dialysis at Kessler Memorial Hospital in Hammonton, New Jersey (since 1984),
Chief of Nephrology and Internal Medicine at Atlantic City Medical Center,
Atlantic City, New Jersey (since 1984), and is Assistant Clinical Professor of
Medicine at the University of Medicine and Dentistry of New Jersey (since 1992).
He is affiliated with four other hospitals in southern New Jersey, is a member
of many medical associations, and has published over 30 medical articles. Dr.
Blecker is the medical director of two of our dialysis facilities in New Jersey.
See "Certain Relationships and Related Transactions."
Executive Officers
Name Age Position Held Since
---- --- -------- ----------
Thomas K. Langbein* 57 Chief Executive Officer 1986
(Chairman of the Board) 1980
Stephen W. Everett* 46 President 2000
Tim Rumrill 42 Vice President (Finance)
and Principal Financial Officer 2002
Michael Rowe 41 Vice President (Operations) 2002
Daniel R. Ouzts 56 Vice President and Treasurer 1996
* For information concerning Messrs. Langbein and Everett, see "Information
About Directors and Executive Officers - Directors Standing for Election" above.
Tim Rumrill became affiliated with the company on January 28, 2002. He
has been involved in the healthcare industry for the last nine years, recently,
from August, 1998 to December, 2001, as Chief Financial Officer of Flagship
Health, P.A., a physician practice management company. From 1994 to July 1998,
he was Vice President of Finance for Better Health Plan, a subsidiary of Coastal
Physician Group, at that time a NYSE company.
Michael Rowe became affiliated with the company on June 1, 2001 and is
currently Vice President of Operations. Mr. Rowe has been involved in the
healthcare field for 19 years, recently, from January, 2000 to March, 2001, with
Advanced Orthopedic Centers, Inc., a large orthopedic surgery group, as
administrator, and from February, 1997 to December, 1999, he was Executive
Director and Vice President of Virginia Physicians/PhyCor of Richmond, a
division of PhyCor, Inc., a national practice management company.
6
Daniel R. Ouzts served as controller of the company from 1983 through
January, 2002, and Vice President from 1996. He serves as Vice President of
Finance and Principal Financial Officer of Medicore. Mr. Ouzts is a certified
public accountant. See "Certain Relationships and Related Transactions."
There are no family relationships among any of the officers or
directors of the Company.
Other Nominees
Our by-laws provide shareholders with the right to nominate persons for
a directorship if the shareholder provides written notice to our Secretary not
less than 60 nor more than 90 days prior to any meeting of shareholders at which
directors are to be elected; provided if less than 60 days notice of the meeting
is given to shareholders, written notice of nominations of directors by
shareholders shall be delivered or mailed by first class U.S. mail, postage
prepaid, to our Secretary not later than the close of the seventh day following
the mailing date of the notice of meeting. Each notice must include as to each
proposed nominee:
o name, age, business address, and, if known, residence address
o principal occupation or employment for the preceding five
years
o beneficial ownership of the company's securities
o any arrangement, affiliation, association, agreement or other
relationship with any security holder, officer, director or
other person affiliated with the company
o consent to serve as a director, if elected
o the name and address of the shareholder proposing the nominee
and other shareholders believed to be supporting such nominee
o the number of securities of each class owned by such
shareholder(s)
The Chairman of the meeting of shareholders may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and declare such to the meeting and the
defective nomination shall be disregarded.
We have not received any notice by an shareholder of an additional
nominee for director. Any shareholder who wishes to receive a copy of the
relevant section of our by-laws may request it in writing from our Secretary,
Lawrence E. Jaffe, which company shall be provided without cost.
BENEFICIAL OWNERSHIP OF THE COMPANY'S SECURITIES
The following table sets forth as of April 11, 2003 the names and
beneficial ownership of the equity securities of Dialysis Corporation of America
and its parent, Medicore, for directors of the company, individually itemized,
and for directors and executive officers of Dialysis Corporation of America as a
group, without naming them, and for each of the named executive officers
described in the Summary Compensation Table (see "Executive Compensation"
below), and for shareholders known to Dialysis Corporation of America to
beneficially own more than 5% of our voting securities.
7
Amount and Nature of Beneficial Ownership
--------------------------------------------------------------------------
Dialysis Medicore
Common Common
Name Stock(1) %(2) Stock(3) %(4)
- ---- -------- ---- -------- ----
Medicore 2,410,622 60.8 -- --
2337 W. 76th Street
Hialeah, FL 33016
Thomas K. Langbein 2,670,622(1) 63.7 1,533,014 22.5
c/o Medicore
777 Terrace Avenue
Hasbrouck Heights, NJ 07604
Stephen W. Everett 134,000 3.3 25,000 less than 1%
c/o Dialysis Corporation of America
27 Miller Street
Lemoyne, PA 17043
Bart Pelstring 85,000 2.1 65,000 1.0
c/o Dialysis Corporation of America
27 Miller Street
Lemoyne, PA 17043
Robert W. Trause* 40,000 1.0 -0- -0-
431C Hackensack Street
Carlstadt, NJ 07072
Dr. David L. Blecker* 10,000 less than 1% -0- -0-
510 Jackson Avenue
Northfield, NJ 08225
Alexander Bienenstock* 5,000 less than 1% -0- -0-
766 West Broadway
Woodmere, NY 11598
All directors and executive 586,000 13.3 1,759,064 25.4
officers as a group (9 persons)
* Member of the Audit Committee, Nominating Committee and Compensation Committee
- -------------------
(1) Medicore owns 2,410,622 shares (approximately 61%) of our common stock.
Officers and directors of Dialysis Corporation of America, who may also
be officers and/or directors of Medicore and shareholders of each
company, disclaim any indirect beneficial ownership of Dialysis
Corporation of America common stock through Medicore's approximately
61% ownership of Dialysis Corporation of America. Thomas K. Langbein,
by virtue of his positions with Dialysis Corporation of America and
Medicore and his stock ownership of Medicore, may be deemed to have
indirect beneficial ownership of such shares through shared voting and
investment power with
8
respect to Medicore's ownership of Dialysis Corporation of America. Mr.
Langbein disclaims such entire indirect beneficial ownership, but for
his proportionate indirect interest, approximately 542,000 shares of
the company (13.7%).
Includes the following shares that may be acquired upon exercise of
Dialysis Corporation of America options (see Note (2)) as of April 11,
2003 or within 60 days after that date:
T. Langbein, 222,857 shares (1999 options); S. Everett, 105,429 shares
(1999 and 2000 options); B. Pelstring, 38,571 shares (1999 options); R.
Trause, 34,286 shares (1995 and 1999 options); M. Rowe, 12,500 shares
(2001 options); D. Ouzts, 25,000 shares (1999 options); A. Bienenstock,
4,405 shares (2001 options); D. Blecker, 8,810 shares (2001 options);
and T. Rumrill, 7,500 shares (2002 options).
If Thomas K. Langbein excluded Medicore's ownership of Dialysis
Corporation of America, then his beneficial ownership would be 260,000
(6.2%), which includes 222,857 shares obtainable upon exercise of an
option. See indirect beneficial ownership above.
(2) Based on 3,966,986 shares outstanding exclusive of (i) common stock
issuable under 459,358 options exercisable at prices ranging from $1.25
to $2.25 per share.
(3) Includes shares that may be acquired by Messrs. Langbein (300,000
shares); Everett (25,000 shares); Ouzts (45,000 shares); and Pelstring
(20,000 shares) upon exercise of Medicore options as of April 11, 2003
or within 60 days after that date.
Does not include 35,700 shares held each by Mr. Langbein's two children
of majority age, and 400,000 shares in Mr. Langbein's employment
agreement issuable under certain conditions relating to wrongful
termination or change in control.
(4) Based on 6,524,275 shares outstanding exclusive of (i) 689,000 shares
underlying outstanding options under Medicore's 1989 Stock Option Plan;
(ii) 400,000 shares available for issuance under certain conditions of
Thomas K. Langbein's employment agreement; and (iii) 98,000 shares
reserved for issuance under a key employee stock plan.
EXECUTIVE COMPENSATION REPORT
In March, 2003, we established an executive compensation committee,
consisting of only our independent directors, as mandated by the Sarbanes-Oxley
Act of 2002. For 2002 to the current date, compensation of our executive
officers was considered by all members of the board of directors. We have one
employment agreement with our President. See "Executive Compensation -
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements." Our philosophy is to align compensation of management with annual
and long-term performance and interests of shareholders. Executive compensation
is structured to motivate management to create and sustain shareholder value.
The board attempts to accomplish this goal by:
(i) aligning the interests of management and shareholders through
stock ownership; and
(ii) seeking growth and performance of our company by attracting,
retaining and motivating talented executives and employees
through competitive compensation.
9
What is the structure of executive compensation?
The elements of executive compensation include:
o base pay
o long-term incentives
o special awards in recognition of extraordinary efforts and
achievements
How is base pay determined?
Base pay is determined by individual performance and position with and
responsibilities to the company. We also try to be competitive with salaries in
an attempt to be able to maintain quality executives.
Responsibilities of the Chairman of the Board, Chief Executive Officer and
President
Thomas K. Langbein, Chairman of the Board and Chief Executive Officer,
has been affiliated with the company for 23 years. Stephen W. Everett,
affiliated with the company for four and one-half years and President since
March, 2000, has been involved in the health care industry for over 23 years.
See "Information About Directors and Executive Officers - Directors Standing for
Election." Essential elements of senior executive management are leadership and
key contributions to the overall financial performance of the company, and the
company's progress toward achieving growth and its strategic objectives. Messrs.
Langbein and Everett have been most responsible for the company's performance
and recent growth. The President pursues new geographic areas and physician and
hospital alliances and, with Mr. Langbein, evaluates the potential for growth
and expansion of our operations, facilities and patient base. In evaluating the
performance of and establishing Mr. Langbein's and Mr. Everett's compensation,
the board takes into account their efforts in directing our operations, seeking
sources of capital, pursuing areas to develop or acquire dialysis facilities,
coordinating management, operations and internal controls as we grow, and
motivating key executive management toward greater overall efficiencies in
labor, cost control and increased business. Mr. Langbein and Mr. Everett did not
participate in decisions affecting their own compensation.
What are long-term incentives?
The philosophy for incentive compensation is to provide competitive
awards when financial objectives are achieved. Long-term incentive awards for
executives usually take the form of granting stock options under the company's
option plans or granting restricted stock awards, which are shares which cannot
be publicly sold for a certain period of time, usually from one to two years. We
believe the granting of stock options or restricted shares helps align the
interests of our executives with our shareholders. This is premised on the basic
principle that the executives will receive value only if the market value of our
common stock increases over time. The market price of our common stock increased
during 2002 and in recent months, in spite of the adverse economy and market
conditions. This was primarily due to executive management's efforts in
improving our operations, providing growth, and for two consecutive years,
generating profitability. See "Growth And Profitability" below, and Item 5,
"Market for the Registrant's Common Equity and Related Stockholder Matters" of
our Annual Report on Form 10-K for the year ended December 31, 2002 accompanying
this Information Statement.
10
Special Awards
Special awards may be granted from time to time in recognition of
extraordinary efforts and achievements in positively influencing company results
and enhancing shareholder value. Such may arise based upon an executive's
extraordinary efforts in accomplishing expansion, acquisitions, increasing
market share and similar events. These situations and extent of awards are
evaluated on a case by case basis. Based upon the sustained growth for fiscal
2002, reflecting net income of $1,242,000, or $.32 per share ($.29 diluted)
compared to $784,000 or $.20 per share of net income for 2001, and fiscal 2001
having turned around a loss in fiscal 2000 of $356,000 or a loss of $.09 per
share, cash bonuses of $50,000 were awarded to Messrs. Everett and Langbein, the
latter paid by Medicore. See "Executive Compensation." For bonuses to directors
toward a partial stock option exercise see "Governance of the Company -
Compensation of Directors."
Growth And Profitability
Over the years we have developed and sold certain of our dialysis
centers. By 1989, we had sold all but one center, but we made an effort to grow,
and in 2001 we had expanded to ten dialysis centers, and in 2002, we have grown
to 16 dialysis facilities which we operate or manage. We have two additional
facilities in the development stage ready for construction, one in Indiana and
the other in Virginia. Our medical services revenues have increased
approximately 33% since last year, climbing to approximately $25,162,000 from
approximately $18,920,000 in 2001. Most significant is that we reflected net
income of approximately $1,242,000 compared to approximately $784,000 in 2001,
representing an approximately 58% increase. This is the second consecutive year
that our company has reflected net income from operations, which in a little
over the past decade the company had reflected losses. See Item 6, "Selected
Financial Data" and Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of our Annual Report on Form 10-K for the
year ended December 31, 2002 accompanying this Information Statement. We are
extremely proud of our management and employees, who are hard working, loyal and
dedicated to our operations and the growth of our company. We continue to be
motivated, and have every reason to expect that our growth and profitability
will continue in 2003. We are involved in continued negotiations for additional
dialysis centers and acute inpatient services. We look forward to 2003 as a year
of expansion for our company, sustained profitability, and enhanced shareholder
value.
Submitted by the Board of Directors
Thomas K. Langbein Bart Pelstring
Stephen W. Everett Alexander Bienenstock*
Robert W. Trause* Dr. David L. Blecker*
* Member of the newly formed Compensation Committee
EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth compensation paid by
the company and its subsidiaries for the last three fiscal years ended December
31, 2002 for services in all capacities for its Chief Executive Officer and each
of its executive officers whose total annual salary, bonus or other compensation
exceeded $100,000.
11
Long Term
Annual Compensation Compensation Awards
------------------------------------------------- --------------------
(a) (b) (c) (d) (e) (g) (i)
Securities
Underlying
Other Annual Options/SARs (#) All Other
Name and Salary Bonus Compensation -------------------- Compensation
Principal Position Year ($) ($) ($) Company Medicore $
- ------------------------- ---- --------- --------- ------------ ------- -------- ------------
Thomas K. Langbein, CEO 2002 73,000(1) 58,929(2) 7,700(4) -- --
2001 57,000(1) 34,000(3) 6,000(4) --(5)
2000 69,000(1) 7,100(4) 550,000(6) --
Stephen W. Everett, Pres 2002 129,808(7) 85,714(8) 4,179(10)
2001 115,000(7) 50,000(9) 14,600(10) 165,000(11)
2000 114,100(7) 474(10) -- 25,000
Timothy Rumrill, Vice 2002 81,346(7) 8,000(13)
President of Finance(12) 2001 (7)
2000 (7)
J. Michael Rowe(14) 2002 115,539(7) 20,000(12) -- -- -- 740(15)
2001 61,388(7) 8,000(9) -- -- -- --
2000 -- -- -- -- -- --
- ------------------
(1) Annual compensation paid by Medicore, which was $293,500, $285,000 and
$278,000, respectively, for fiscal 2002, 2001 and 2000. Amounts
included in the Summary Compensation Table reflect the compensation
allocated to the company in proportion to the time spent on its behalf.
(2) Includes (i) $46,429 accrued in 2002 and paid in March, 2003 for the
partial exercise of options (see "Governance of the Company -
Compensation of Directors" below); and (ii) $12,500, the general
corporate overhead allocable portion of Medicore's bonus of $50,000
accrued in 2002 and paid in January, 2003.
(3) Includes $12,500, the general corporate overhead allocable portion of
Medicore's bonus of $170,000 accrued in 2001 and paid in April, 2002.
(4) Automobile allowance and related expenses, and life and disability
insurance premiums paid by Medicore amounted to $30,700, $29,800 and
$28,500, respectively for 2002, 2001 and 2000. As part of the general
corporate overhead allocation, the amounts in the Summary Compensation
Table reflect the portion of such payment which is allocated to the
company.
(5) Does not include Medicore grant of restricted common stock award valued
at $500,000.
(6) Options for 250,000 shares exercisable at $3.25 per share, expired
unexercised on February 16, 2003.
(7) All compensation paid by the company.
(8) Includes (i) $35,714 accrued in 2002 and paid in March, 2003 for the
partial exercise of options (see discussion of options below); and (ii)
bonus of $50,000 accrued in 2002 and paid in January, 2003.
12
(9) Accrued in 2001 and paid in January, 2002.
(10) Includes automobile related expenses of $1,957, $9,600 and $474,
respectively for 2002, 2001 and 2000, moving expenses of $5,000 for
2001, and life insurance premiums of $2,000 in 2002, all of which were
paid by the company.
(11) Vests 33,000 shares every January 1, commencing 2001.
(12) Joined the company on January 28, 2002.
(13) Accrued in 2002 and paid in January, 2003.
(14) Joined the company on June 1, 2001 and became an officer in June, 2002.
(15) Life insurance premiums.
Employment Contracts and Termination of Employment and Change-In-Control
Arrangements
Stephen W. Everett, President and director of the company, has a
five-year employment contract through December 31, 2005. His first year salary
was $120,000, increasing a minimum of $10,000 per annum the second and third
years, and for each of the two remaining years, the prior year's adjusted
compensation increased by an amount equal to the lesser of 3% of pre-tax profits
or $10,000. His 2003 salary was increased by $40,000, providing Mr. Everett with
an aggregate salary of $170,000. Mr. Everett's employment agreement also
provides:
o employee and fringe benefits to the extent available by the
company to other similarly situated executive employees
o reimbursement for reasonable out-of-pocket expenses incurred
in connection with his duties
o vacations normally taken by senior management
o termination
- death; three months' severance pay
- for cause; salary and expenses to date of termination
("cause" includes conviction for fraud or criminal
conduct, habitual drunkenness or drug addition,
embezzlement, regulatory agency sanctions against Mr.
Everett or the company due to his wrongful acts,
material breach of the agreement, dishonesty, or
resignation, except if due to breach by the company)
- by the company after 13 weeks of disability; three
months' severance pay
- by Mr. Everett upon breach by the company; severance
pay equal to the greater of six months of his then
compensation or his remaining compensation under the
agreement
o confidentiality restrictions two years from termination
o non-competition for one year from termination within the
United States; provided, non-competition eliminated if the
company terminates Mr. Everett without cause or due to the
company's material breach of the agreement
o Mr. Everett to assign any patents, property rights, discovery
or idea to the company
Certain executive and accounting personnel and administrative
facilities of the company and Medicore were common for fiscal 2002. The costs of
executive and accounting salaries and other shared
13
corporate overhead for these companies were charged on the basis of time spent.
Mr. Langbein, as an officer and director, and Mr. Ouzts, as an officer, of the
company and Medicore, divided their time and efforts among these companies. See
"Certain Relationships and Related Transactions."
Options, Warrants or Rights
1995 Dialysis Corporation of America Stock Option Plan
o expired November 9, 2000
o terms were similar to the 1999 Plan (see below)
o 5,000 outstanding to a director exercisable at $2.25 per share
through June 9, 2003
1999 Dialysis Corporation of America Stock Option Plan
o expires April 20, 2009
o grants available to officers, directors, consultants, key
employees, advisors and similar parties
o options (non-qualified and incentive) may be up to five years,
may require vesting, exercise price determined by board of
directors
o options may, at discretion of board, be exercised either with
cash, common stock with fair market value equal to cash
exercise price, optionee's personal non-recourse or recourse
note, at the discretion of the board, or assignment to the
company if sufficient proceeds from the sale of common stock
acquired upon exercise of the option with an authorization to
the broker to pay that amount to the company, or any
combination of such payments
o termination of optionee's affiliation with the company by
- death, disability or retirement after age 65,
exercisable for nine months but not beyond option
expiration date
- termination for cause, right to exercise terminates
immediately
- any other termination, 30 day exercise
o options are non-transferable
o forced redemption at formulated prices upon change in control
of the company which includes (i) sale of substantially all of
the assets of the company or its merger or consolidation; (ii)
majority of the board changes other than by election of
shareholders pursuant to board solicitations or vacancies
filled by board caused by death or resignation; or (iii) a
person or group acquires or makes a tender offer for at least
25% of the company's common stock
o 1999 Plan history to April 11, 2003
- 1,500,000 shares reserved for issuance
- options exercisable at $1.25 per share for 800,000
shares granted in 1999
435,000 non-qualified options (one remaining
option for 29,286 shares, expires April 20, 2004)
292,857 incentive options expiring April 20, 2004
14
- options for 240,000 shares granted in 2001
165,000 incentive options; five years at
$1.25 per share to January 1, 2006;
99,000 vested (33,000 vest each January
1)
15,000 non-qualified options; five years at
$1.50 per share to September 5, 2006
1,785 non-qualified options exercised
60,000 incentive options; five years at
$1.50 per share to September 5, 2006
15,000 vested
37,500 vest at 12,500 September 5,
2003, 2004 and 2005
7,500 vest at 2,500 September 5,
2003, 2004 and 2005
- 62,500 options cancelled due to termination of
affiliation with the company
- 347,499 non-qualified options exercised, of which
340,000 options exercised with payment of par value
and three year non-recourse promissory notes,
extended one year to April 20, 2004; stock held by
the company as collateral to secure notes
- 72,143 incentive options exercised
- 598,358 options outstanding; all are incentive
options except for 42,501 options; includes 141,500
non-vested options
The exercise price of options is no less than 100% of the fair market
value of the common stock on the date of grant.
Option/SAR Grants In Last Fiscal Year
Individual Grants
- ------------------------------------------------------------------------------- Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options/SARs Price Appreciation
Underlying Granted to Exercise For Option Term
Options/SARs Employees in Price Expiration -----------------------
Name Granted (#) Fiscal Year ($/Sh) Date 5%($) 10%($)
(a) (b) (c) (d) (e) (f) (g)
- ---- ------------ ------------ -------- ---------- ----------- ----------
Timothy Rumrill 30,000(1) 74.1 $3.15 2/28/07 $26,109 $57,693
- ------------------
(1) Option for 7,500 shares vest each February 28, which vesting commenced
in 2003; options for 22,500 shares are not vested. Options are
exercisable for five years.
15
Aggregated Option/SAR Exercises In Last Fiscal Year and FY-End Option/SAR Values
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
at FY-End (#) Fiscal Year End($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable($)
- ----- ---------------- -------------- --------------- ------------------
CEO
Thomas K. Langbein
Company Options -0-(1) -0-(1) 260,000 (exer.) 710,000(2)
Medicore Options -0- -0- 300,000 (exer.) 24,000(3)
Stephen W. Everett
Company Options -0-(1) -0-(1) 134,000 (exer.) 366,000(4)
66,000 (unexer.) --(5)
Medicore Options -0- -0- 25,000 (exer.) 2,000(6)
Timothy Rumrill
Company Options -0- -0- 30,000 (unexer.) --(7)
Medicore Options -0- -0- -0- --
Michael Rowe
Company Options -0- -0- 12,500 (exer.) 31,000(8)
37,500 (unexer.) --(9)
Medicore Options -0- -0- -0- --
- --------------
(1) Accrued compensation at December 31, 2002 of approximately $100,000 was
bonused to the board of directors on a pro rata basis for an exercise
of a portion of their options; Messrs. Langbein and Everett exercised
at $1.25 per share; options were exercised by Mr. Langbein for 37,143
shares and by Mr. Everett for 28,571 shares which had a value of
$93,000 and $72,000, respectively, based on the fair market value of
$3.76 on March 10, 2003, the exercise date.
(2) The options are exercisable at $1.25 per share (37,143 exercised on
March 10, 2003, see note (1) above) through April 20, 2004, and the
closing price of the company's common stock as reported by Nasdaq at
December 31, 2002, was $3.98.
(3) The Medicore options are exercisable for 300,000 shares through July
26, 2005 at $1.38 per share. The closing price of the Medicore common
stock as reported by Nasdaq as of December 31, 2002 was $1.46.
(4) Options for 35,000 shares (28,571 exercised on March 10, 2003, see note
(1) above) exercisable at $1.25 per share through April 20, 2004; and
options for 99,000 shares exercisable at $1.25 per share through
January 1, 2006. See note (2) for closing price of the common stock.
(5) Non-vested options. Options vest 33,000 each January 1; upon vesting
the options are exercisable at $1.25 per share through January 1, 2006.
16
(6) The options are exercisable through July 26, 2005 at $1.38 per share.
See note (3) for the closing price of the Medicore common stock.
(7) Non-vested options. Options vest 7,500 each February 28, commencing
2003; upon vesting the options are exercisable through February 28,
2007 at $3.15 per share.
(8) The options are exercisable through September 5, 2006 at $1.50 per
share. See note (2) for the closing price of the common stock.
(9) Non-vested options. Options vest 12,500 each September 5.
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total
shareholder returns for the company, the Nasdaq Market Index and the Dialysis
Center Industry Index from December 31, 1997 through December 31, 2002 The
cumulative total shareholder returns on our common stock was measured by
dividing the difference between our share price at the end and the beginning of
the measurement period by the share price at the beginning of the measurement
period. The total shareholder return assumes $100 invested at the beginning of
the period in our common stock, in the Nasdaq Market Index and the Dialysis
Center Industry Index. We did not pay dividends on our common stock during the
measurement period and the calculations of cumulative total shareholders return
on the common stock did not include dividends. This graph is presented in
accordance with SEC requirements. You are cautioned against drawing any
conclusions from this information, as past results are not necessarily
indicative of future performance. This graph in no way reflects a forecast of
future financial performance.
Comparison Of Five Year Cumulative Total Returns Among DCA, Nasdaq
Market Index and Dialysis Center Industry Index
Measurement Period Dialysis Center
(Fiscal Year Covered) DCA Nasdaq Index Industry Index
- --------------------- --- ------------ --------------
December 31, 1997 $ 100.00 $ 100.00 $100.00
December 31, 1998 33.33 141.04 117.40
December 31, 1999 280.70 248.76 51.58
December 31, 2000 25.64 156.35 83.53
December 31, 2001 141.54 124.64 109.31
December 31, 2002 163.28 86.94 109.25
GOVERNANCE OF THE COMPANY
The Board of Directors
The board of directors oversees the business and affairs of the company
and monitors the performance of management. In accordance with corporate
governance principles, the board does not involve itself in day-to-day
operations. The board is kept knowledgeable and informed through
17
discussions with the Chairman, other directors, executives, the Audit,
Nominating and Compensation Committees, division heads and advisors (counsel,
outside auditors, investment bankers and other consultants), by reading reports,
contracts and other materials sent to them and by participating in board and
committee meetings.
The board met five times during 2002. All directors participated at the
meetings, either present in person or by telephone conference call.
Corporate Governance
Our board and management have a long-standing commitment to sound and
effective corporate governance practices. Last year, we adopted a Compliance
Program to prevent and detect violations commonly known in the healthcare
industry as "fraud and abuse" laws. We believe the program will further our
mission to deliver high quality patient services and care and demonstrate to the
patients and communities we serve, as well as our employees and affiliated
physicians, our commitment to honest and responsible individual and corporate
conduct.
At that time, we also adopted our Code of Ethics and Business Conduct
to continue our traditions of adhering to the most rigorous standards of ethics
and integrity, which includes acting with fairness, honesty and compassion with
our patients, business partners, payors, regulators, and the communities we
serve. It also means acting in compliance with the extensive laws and
regulations governing our businesses.
Our board and management have reviewed with our counsel, audit
committee and independent auditors the provisions of the Sarbanes-Oxley Act of
2002, the new and proposed rules of the SEC, and the proposed new listing
requirements of the Nasdaq Stock Market. We have already met many of these new
requirements, such as speedier reporting of insider transactions, CEO and CFO
certification of quarterly and annual reports, and audit committee pre-approval
of audit and non-audit services. We will modify and update our charter, Codes of
Ethics, Compliance Procedures, and all related corporate governance materials as
the law and regulations are adopted.
Board Committees
The board of directors has an Audit Committee, and recently established
Nominating and Compensation Committees, each of which consist of the same
independent directors. The board has three other employee members and has
amended Section 4.2 of our by-laws to increase the maximum number of directors
to nine in order to fill one or more of these newly created positions with
independent directors. This will enable the board to position itself for the new
rules for continued Nasdaq securities listing requirements to maintain a board
consisting of a majority of independent directors, as well as providing for a
variety of independent board members serving the different committees.
Audit Committee
The current members of our Audit Committee are Alex Bienenstock, the
financial expert as determined by the board of directors under the new rules of
the SEC, and the Chairman of the Audit Committee, Robert Trause, and Dr. David
L. Blecker. The Audit Committee, a very essential oversight committee, pursuant
to its charter provides assistance to the board in fulfilling its
responsibilities to our
18
shareholders and the investment community relating to accounting, reporting
practices, the quality and integrity of our financial reports, and surveillance
of internal controls and accounting and auditing services. The Audit Committee
does not prepare financial statements or perform audits, and its members are not
auditors or certifiers of the company's financial statements. Among many of the
Audit Committee's responsibilities:
o considers the selection and recommends to the board each year a firm of
certified public accountants to be approved as our independent auditors
for our new fiscal year
o evaluates the performance of our independent auditors
o determines the compensation of the independent auditors and provides
for their compensation
o pre-approves all audit services; reviews the annual engagement letter,
the scope of the proposed audit for the current year, and the audit
procedures
o confirms the independence of the independent auditors, including review
of all significant relationships the independent auditors may have with
our company; receives from the independent auditors a written statement
delineating all relationships between the independent auditors and the
company
o engages in a dialogue with the independent auditors with respect to any
disclosed relationships or services that may impact the objectivity and
independence of the independent auditors
o reviews with management and the independent auditors the completion of
the annual examination, any significant changes in the independent
auditors' audit plan, any difficulties with management encountered
during the course of the audit, and other matters related to the
content of the audit
o pre-approves all permitted non-audit services
o reviews and discusses with management and the independent auditors the
financial statements, including an analysis of the independent
auditors' judgment as to the quality of the company's accounting
principles
o recommends to the board, based on its reviews and discussions as
provided in these listed responsibilities, whether the financial
statements should be included in our annual report on Form 10-K
o reviews our system of internal controls with the independent auditors,
our management and our counsel o reviews, at least annually, with our
counsel, any legal matters that may materially impact our financial
statements, our compliance policies, and any governmental regulatory
issues
o reviews and discusses with management and the independent auditors (a)
any material financial or non-financial arrangements of the company
which do not appear in the financial statements of the company; and (b)
any transactions or courses of dealing with parties related to the
company which transactions are significant in size or involve terms or
other aspects that differ from those that would likely be negotiated
with independent parties, and which arrangements or transactions are
relevant to an understanding of the company's financial statements
o reviews and discusses with management and the independent auditors the
accounting policies which may be viewed as critical, and reviews and
discusses any significant changes in the accounting policies of the
company and accounting and financial reporting proposals that may have
a significant impact on the company's financial reports
19
Compensation Committee
We recently established a Compensation Committee, which consists of the
same three independent board members as the Audit and Nominating Committee. This
Committee has the responsibility to:
o review and recommend to the board of directors approval of the
compensation for the Chief Executive Officer
o review and recommend to the board of directors the adoption or
amendment of the compensation and benefit plans and programs
for the officers and other key employees, including any stock
option or incentive compensation plans
o review and approve specific matters which are consistent with
such plans and programs; approve the terms and conditions of
awards under such plans within the limits of each plan
o review and approve compensation and benefit arrangements for
senior management; the Chief Executive Officer may participate
with the Compensation Committee in the review and approval of
senior management compensation
Nominating Committee
As with the other committees, the Nominating Committee is made up of
only independent directors, currently the same persons participating on the
Audit and Compensation Committee. The Nominating Committee:
o recommends candidates for our board of directors
o annually reviews the tenure of each director
All candidates for director are considered and selected by the
Nominating Committee on the basis of education, experience, leadership
qualities, integrity, and most importantly, a combination of these qualities
forming the basis of the ability to contribute to the board, the company and our
shareholders.
Compensation of Directors
No standard arrangements for compensating directors for services as
directors or for participating on any committee exists. We reimburse directors
for travel and related out-of-pocket expenses incurred in attending shareholder,
board and committee meetings, which expenses have been minimal. In lieu of any
cash compensation or per meeting fees to directors for acting as such, we have
provided directors, among others, with options to purchase common stock of the
company at exercise prices no less than the fair market value as of the date of
grant. Accrued compensation of $100,000 at December 31, 2002 was bonused in
March, 2003 to the board members on a pro rata basis for exercise of a portion
of their options, amounting to 79,642 shares at exercise prices ranging from
$1.25 to $1.50. See "Beneficial Ownership of the Company's Securities" and
"Executive Compensation - Options, Warrants or Rights" above.
20
REPORT OF THE AUDIT COMMITTEE
Under the guidance of its written Audit Committee Charter, which was
adopted in June, 2000, and amended in November, 2002, the Audit Committee is
charged with overseeing the accounting, reporting practices, and the quality and
integrity of financial reports of our company. See "Governance of the Company -
Board Committees - Audit Committee" above.
Management has the primary responsibility for the system of internal
controls, disclosure controls and procedures, and the financial reporting
process. Our independent accountants have the responsibility to express an
opinion on the financial statements based on an audit conducted in accordance
with generally accepted auditing standards. Our independent auditors also submit
a detailed report to our Audit Committee which includes accounting policies used
to prepare financial statements, effective accounting treatments, and
discussions with management. The Audit Committee has the responsibility to
monitor and oversee these processes.
In fulfilling its responsibilities, the Audit Committee recommended to
the board the selection of the company's independent accountants, Wiss &
Company, LLP for 2003. That firm has discussed with the Audit Committee and
provided written disclosures to the Audit Committee relating to that firm's
independence, as required by the Independence Standards Board for auditors of
public companies. The discussions and disclosure informed the Audit Committee of
Wiss & Company's independence, and assisted the Audit Committee in evaluating
such independence. The Committee also considered whether Wiss & Company's
provision of non-audit services to the company was compatible with the auditor's
independence. Wiss & Company did not provide non-audit services which would
impact its independence with respect to the company. The Audit Committee also
discussed with the independent auditors other matters required to be
communicated under generally accepted auditing standards.
The Audit Committee reviewed with our Vice President and Principal
Financial Officer and with our independent auditors the overall scope and
specific plans for their audit. They also discussed with the independent
accountants the result of their examinations, their evaluation of the company's
internal controls, and the overall quality of Dialysis Corporation of America's
accounting and financial reporting. The Audit Committee also reviewed all fees
paid or payable to the independent auditors, which fees are discussed in
"Proposal No. 2 - Ratification of Appointment of Independent Auditors" below.
The Committee reviewed and discussed with management and the
independent accountants the company's audited financial statements.
Following these actions, the Audit Committee recommended to the board,
and the board has approved, that the audited financial statements be included in
the company's Annual Report on Form 10-K for the year ended December 31, 2002
for filing with the SEC. The Audit Committee and the board have also recommended
for shareholder ratification the appointment of Wiss & Company, LLP as the
company's independent auditors for fiscal 2003.
The Audit Committee
Alexander Bienenstock, Chairman
Robert Trause
Dr. David L. Blecker
March 19, 2003
21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our parent, Medicore, owns approximately 61% of our common stock. See
"Beneficial Ownership of the Company's Securities" above.
In 1977, we became a public company through a merger with Premium
Acceptance Corporation, a licensed insurance premium and second mortgage
company, underwritten by Todd & Company, Inc., a securities brokerage firm
solely owned by Thomas K. Langbein, Chairman and Chief Executive Officer of the
company. The Chairman of the Board and President of Premium Acceptance
Corporation was Anthony C. D'Amore, a current director of Medicore. Mr. D'Amore
acts as an insurance consultant and receives nominal commissions for insurance
provided to the company and Medicore. George Langbein, formerly an employee of
Medicore and brother of Thomas K. Langbein, obtained a $100,000 term life
insurance policy covering and owned by Bart Pelstring, a director of the
company. The premium paid by the company is approximately $2,000. Medicore
obtains group health insurance coverage for its employees as well as personal
life insurance policies for several executives and key employees through George
Langbein. Medicore pays for the $1,600,000 of life insurance owned by Thomas K.
Langbein, see "Executive Compensation" above, and $100,000 term life insurance
policies covering Daniel R. Ouzts, Vice President and Principal Financial
Officer and one other key employee. The premiums paid by Medicore on the life
insurance and group health insurance for its employees for fiscal 2002
aggregated approximately $146,000. We are of the opinion that the cost and
coverage of the insurance are as favorable as can be obtained from unaffiliated
parties.
Certain of the officers and directors of the company are officers
and/or directors of Medicore and its affiliates. Thomas K. Langbein is Chairman
of the Board and Chief Executive Officer of the company and Medicore and
President of the latter. Daniel R. Ouzts is Vice President and Treasurer of the
company, and Vice President, Principal Financial Officer and Controller of
Medicore. Mr. Langbein is the beneficial owner of 6.2% of our company which
includes an option for 222,857 Dialysis Corporation of America shares, and 22.5%
of our parent, which includes an option for 300,000 Medicore shares. See
"Information About Directors and Executive Officers" and "Beneficial Ownership
of the Company's Securities" above. Mr. Ouzts has a less than 1% interest in our
company, which includes an option for 25,000 shares, and 2.1% of Medicore, which
includes an option for 45,000 shares. Lawrence E. Jaffe is Secretary and counsel
to our company and our parent, of which company he is a director. Mr. Jaffe has
a 4.0% interest in our company, and a 3.3% beneficial interest in our parent,
which includes an option for 100,000 Medicore shares. Mr. Jaffe devotes most of
his professional services to our company and its parent, from which companies he
receives a substantial portion of his professional fees, which for fiscal 2002
aggregated $340,000, of which $156,000 was for our company.
Certain of the executive and accounting personnel and administrative
facilities of our company and our parent, are common. The costs of executive,
financial and administrative salaries and other shared corporate overhead for
these companies are charged on the basis of time spent. Since the shared
expenses are allocated on a cost basis, there is no intercompany profit
involved. The amount of expenses charged to us by Medicore amounted to
approximately $200,000 for the year ended December 31, 2002. Utilization of
personnel and administrative facilities in this manner enables Medicore to share
the cost of qualified individuals with its subsidiaries rather than duplicating
the cost for various entities. It is our opinion that these services are on
terms as favorable as we could receive from unaffiliated parties.
In May, 2001, the company loaned its President $95,000 at an annual
interest of prime plus 1% (floating) payable on demand but no later than May 11,
2006. Accrued interest aggregated approximately
22
$9,000 at December 31, 2002. The demand loan is collateralized by all of the
President's options and underlying common stock of the company, as well as any
proceeds from the sale of such common stock.
DCA of Lemoyne, Inc., one of our wholly-owned dialysis subsidiaries,
leases its dialysis facility from us under a five year net lease expiring
December 22, 2003 at approximately $43,000 per annum, plus applicable taxes,
separately metered utilities and insurance, and additional rent of approximately
$5,000 per year covering common area maintenance expenses. That subsidiary has
two renewal options for five years each under the agreement. We are of the
opinion that the rental is on terms as favorable as could be obtained from an
unaffiliated party.
We own a building with a little over 8,100 square feet of space in
Valdosta, Georgia. We lease approximately 6,000 square feet to DCA of So. Ga.,
LLC, our 100% owned dialysis facility, for approximately $91,000 under a 10-year
lease with two renewal options of five years each.
We acquired property in Cincinnati, Ohio in April, 2002, and completed
construction of a 5,000 square foot dialysis facility at a cost of $740,000
including $75,000 in tenant improvements. In February, 2003, we sold the
property to a corporation owned by the medical director of that Cincinnati
facility, which company owns a 20% interest in our Cincinnati subsidiary
operating that dialysis center. Another 20% of that subsidiary is held by a
company owned by the medical director's wife. The medical director has leased
the facility to our Cincinnati subsidiary under a 10-year lease with two
consecutive five-year renewals. Our 60% owned Cincinnati subsidiary issued a
five-year $75,000 promissory note to us for the tenant improvements. This note
must be satisfied before the Cincinnati subsidiary pays any other indebtedness
or makes any distributions to its members.
For further details of the property arrangements as discussed above,
reference is made to Item 2, "Property" of our Annual Report on Form 10-K for
the year ended December 31, 2002 accompanying this Information Statement.
Our subsidiary, DCA of Vineland, LLC, is owned 51.3% by our company,
with the remaining 48.7% owned by two professional associations, one owned by
Dr. Blecker, the medical director of our Vineland facility, and the other in
which Dr. Blecker has an affiliation. See "Proposal No. 1 - Election of
Directors." Another professional association in which Dr. Blecker has an
affiliation owns 20% of Dialysis Services of NJ., Inc. - Manahawkin, the other
80% owned by Dialysis Corporation of America. Dr. Blecker is co-medical director
of the Manahawkin dialysis facility.
In 2000, we loaned our parent, Medicore, $2,200,000 at an interest rate
of 10% per annum for Medicore to establish a new division, which invests in
Linux software system companies. We extended these Linux Global Partners' loans
to June 30, 2001 in consideration for an additional 100,000 shares of Linux
Global Partners, bringing our equity ownership of Linux Global Partners to
400,000, or approximately 2%. In May, 2001, Medicore paid us $215,000, of which
$200,000 was principal, and in June, 2001, Medicore repaid the $2,000,000
balance of the debt, together with accrued interest of approximately $279,000.
See Note 4 to "Notes to Consolidated Financial Statements" to our Annual Report
on Form 10-K for the year ended December 31, 2002 accompanying this Information
Statement. Thomas K. Langbein, Chairman of the Board and CEO of our company and
Medicore, of which he is also a major stockholder and President, was a director
of Linux Global Partners until his resignation in November, 2002.
Certain officers and directors of our parent, Medicore, Messrs. Anthony
C. D'Amore, Peter D. Fischbein, Seymour Friend and Robert Magrann (20,000 shares
each), and Lawrence E. Jaffe, our Secretary and counsel (160,000 shares, plus
100,000 shares obtained by his children of majority age and
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independent of their father), in April, 2000, exercised options granted to them
under our 1999 Stock Option Plan for 340,000 shares. The exercise was effected
with cash for the par value (aggregate $3,400) and the balance, $421,600, in
three-year non-recourse promissory notes at a rate of interest of 6.2% per
annum, due April 20, 2003. The board deferred the interest payments until and
extended the maturity date to April 20, 2004.
In August, 2001, we purchased the 30% minority interest in DCA of So.
Ga., LLC for $600,000, with $300,000 paid in cash and $300,000 payable in
August, 2002. The minority interest seller is medical director of another of our
Georgia dialysis subsidiaries, DCA of Fitzgerald, LLC.
The company has management services agreements with each of its
dialysis subsidiaries, including DCA of Toledo, LLC, in which we hold a 40%
interest, pursuant to which it provides administrative and management services,
including, among others, providing capital equipment, preparing budgets,
bookkeeping, accounting, data processing, and other corporate based information
services, materials and human resources management, billing and collection and
accounts receivable and payable processing. These services are provided for a
percentage of net revenues of the particular dialysis subsidiary.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and 10% shareholders to file reports with the SEC,
the Nasdaq Stock Market and our company, indicating their beneficial ownership
of common stock of the company and any changes in their beneficial ownership.
The rules of the SEC require that we disclose failed or late filings of reports
of company stock ownership by our directors and executive officers. To the best
of our knowledge, all beneficial ownership reports by these reporting persons
for the year 2002 were filed on a timely basis, except two late reports by
Timothy Rumrill, one relating to becoming an officer in January, 2002, and
report relating to receipt of options in March, 2002.
PROPOSAL NO. 2 - RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT AUDITORS
The Audit Committee has appointed the accounting firm of Wiss &
Company, LLP, subject to ratification by the shareholders at the annual meeting,
to audit our accounts with respect to our operations for the year 2003.
A representative of Wiss & Company, our auditors for the most recently
completed fiscal year, is expected to be present at the annual meeting and will
have the opportunity to make a statement, and he will be available to respond to
appropriate questions from shareholders.
Audit Fees
Wiss & Company's aggregate fees for fiscal 2001 and for fiscal 2002,
the latter includes additional fees expected to be billed, for professional
services rendered for the audit of our annual financial statements, including
our subsidiaries, and for the reviews of the financial statements included in
our quarterly reports on Forms 10-Q, were $37,000 and $29,500, respectively.
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Tax Fees
Wiss & Company's aggregate fees billed for fiscal 2001 and for fiscal
2002, the latter including additional fees expected to be billed, for tax return
preparation services and tax advice, were $11,000 and $15,000, respectively.
All Other Fees
Other than the professional services and fees billed and expected to be
billed as described above under "Audit Fees" and "Tax Fees," Wiss & Company did
not provide any other services or bill other fees to our company or any of our
subsidiaries.
The Audit Committee has considered the compatibility of these services
with the auditors' independence.
OTHER MATTERS TO BE PRESENTED TO SHAREHOLDERS
Management is not aware of any other matter to be presented for action
at the annual meeting other than the election of the six directors and the
ratification of the appointment of independent auditors. Management does not
presently intend to bring any other matter before the meeting. If any other
matters do properly come before the meeting, it is anticipated that Medicore
will vote its majority ownership (approximately 61%) as to what it believes to
be in the best interest of shareholders.
AVAILABLE INFORMATION
We file reports, information statements and other information with the
SEC and Nasdaq. Those reports, information statements and other information may
be inspected and obtained:
o at the Public Reference Room of the SEC, Room 1024 - Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
o at the offices of The Nasdaq Stock Market, Inc., Reports
Section, 1735 K Street, N.W., Washington, D.C. 20006; or
o from the internet site maintained by the SEC at
http://www.sec.gov, which contains reports, proxy and
information statements and other information regarding issuers
that file electronically with the SEC.
Prescribed rates or modest fees may be charged for copies. For more
information on the public reference room, call the SEC at 1-800-SEC-0330.
We would also be pleased to furnish you with such reports and documents
that you may request. Please forward your inquiry to our Secretary, Lawrence E.
Jaffe, 777 Terrace Avenue, Hasbrouck Heights, New Jersey 07604.
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