SCHEDUEL 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of
[X] Definitive Proxy Statement the Commission Only
(as permitted by Rule
14a-6(e)(2))
DIALYSIS CORPORATION OF AMERICA
.............................................................................
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
...................................................................
(2) Aggregate number of securities to which transaction applies:
...................................................................
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
...................................................................
(4) Proposed maximum aggregate value of transaction:
...................................................................
(5) Total fee paid:
...................................................................
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
...................................................................
(2) Form, Schedule or Registration Statement No.:
...................................................................
(3) Filing Party:
...................................................................
(4) Date Filed:
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April 27, 2004
To: Our Shareholders
From: Stephen W. Everett
Subject: Invitation to the Dialysis Corporation of America 2004 Annual
Meeting of Shareholders
Management is extending its invitation to you to attend our annual meeting
on Thursday, June 3, 2004. 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 10:30 a.m. In addition to the formal items of
business, we will review the major developments of 2003, 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 approximately 57% 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.
Stephen W. Everett
Chief Executive Officer and President
DIALYSIS CORPORATION OF AMERICA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------------------------------------------------
Date: Thursday, June 3, 2004
Time: 10:30 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 2004 Dialysis Corporation of
America Annual Meeting of Shareholders to:
1. Elect six directors.
2. Act upon a proposal to ratify the appointment of Moore
Stephens, P.C. as independent auditors for the company for the
year 2004.
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 16,
2004, 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 2003 is enclosed.
By order of the Board of Directors
Lawrence E. Jaffe
Counsel and Corporate Secretary
April 27, 2004
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 ..................... 8
Executive Compensation Report ........................................ 10
Executive Compensation ............................................... 12
Performance Graph .................................................... 18
Governance of the Company ............................................ 19
Report of the Audit Committee ........................................ 23
Certain Relationships and Related Transactions ....................... 25
Section 16(a) Beneficial Ownership Reporting Compliance .............. 26
Proposal No. 2 - Ratification of the Appointment of the
Independent Auditors ............................................... 26
Other Matters to be Presented to Shareholders ........................ 29
Available Information ................................................ 29
Stockholders Sharing the Same Last Name and Address .................. 29
Financial Statements ................................................. 30
Appendix A: Audit Committee Charter .................................. A-1
INFORMATION STATEMENT
FOR
DIALYSIS CORPORATION OF AMERICA
2004 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 2004 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 57%
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 16, 2004, the record date, there were 8,485,815 shares of Dialysis
Corporation of America common stock outstanding. Medicore owns 4,821,244
shares of Dialysis Corporation of America common stock or approximately
57% 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 16, 2004, the record date. Dialysis Corporation
of America intends to send this Information Statement, the attached Notice
of Annual Meeting, and its 2003 Annual Report on Form 10-K, which includes
financial statements, on May 5, 2004 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 Peter
D. Fischbein, for a one year term; and the ratification of the appointment
of Moore Stephens, P.C. as our independent auditors for 2004. There is
nothing else that we are aware of that is presently the subject of
consideration at the meeting.
2
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 16, 2004, the
record date.
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. See "Shareholders Sharing the Same Last Name and
Address" below.
Q: How much common stock do officers and directors own?
A: Approximately 10.5% of our common stock as of the record date (13.2%
beneficially with exercisable options), and with the officers and
directors of our parent, Medicore, ownership of Dialysis Corporation of
America would be approximately 15%. This does not include Medicore's
approximately 57% (4,821,244 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 57% ownership
and Thomas K. Langbein's 5.5% ownership, no other shareholder to our
knowledge owns in excess of 5% of our 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 have asked banks, brokers and other institutions, nominees and
fiduciaries to forward these materials to their principals and we
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 57% ownership will
determine the outcome of any proposal.
Q: When are the year 2005 shareholder proposals due?
A: Shareholder proposals must be submitted in writing by December 28, 2004 to
Lawrence E. Jaffe, corporate Secretary of Dialysis Corporation of America,
c/o Jaffe & Falk, LLC, 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 under the Securities Exchange Act of 1934. If a shareholder submits
a proposal after the December 28, 2004 deadline, but still wishes to
present the proposal at Dialysis Corporation of America's Annual Meeting
of Stockholders (but not in its Information Statement) for the fiscal year
ending December 31, 2004, the proposal, which must be presented in a
manner consistent with our by-laws and applicable law, must be submitted
to our corporate Secretary in proper form at the address set forth above
no later than March 21, 2005. Please see the section below entitled "Other
Nominees" for the specific timing for a shareholder to submit the
nomination of a person to a directorship position.
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 58 Chairman of the Board(1) 1980
Stephen W. Everett 47 Chief Executive Officer 2003
President and director 2000
Bart Pelstring 63 Director 1985
Robert W. Trause* 61 Director 1998
Alexander Bienenstock* 66 Director 2001
Peter D. Fischbein** 64 None(1) Nominee
4
(1) Affiliated with our parent, Medicore. See "Information About Directors and
Executive Officers" below.
* Member of Audit Committee.
** Upon election, to become a member of the Audit Committee.
Our by-laws provide that the board shall not be less than two nor more
than nine 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. Since our parent owns approximately 57% of our voting
equity, our company is considered a Controlled Company as defined in Rule
4350(c)(5) of The Nasdaq Stock Market, Inc.'s Corporate Governance rules.
Therefore, we are exempt from certain requirements applicable to independent
directors, including that a majority of our board be comprised of independent
directors. See "Governance of the Company - Board Committees" below.
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 4,821,244 shares or approximately 57% 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 recommended 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 was Chief Executive Officer of the company until May
29, 2003, when that position was relinquished to Stephen W. Everett, President
of the company. 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. See "Certain Relationships and
Related Transactions."
5
Stephen W. Everett has been involved in the healthcare industry for over
24 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, President on March 1, 2000, and Chief Executive Officer on May 29, 2003.
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.
Alexander Bienenstock is an attorney who has specialized in securities and
corporate matters for over 30 years. From September, 2000 through October, 2001
he was a legal consultant with IDT Corp., a NYSE telecommunications company. He
has been affiliated with several law firms, and is currently a sole
practitioner. He recently established a commercial real estate mortgage
brokerage company. Mr. Bienenstock's background includes having been an adjunct
assistant professor in accounting and management at New York University, and,
for approximately 10 years, Chief Attorney, Branch of Small Issues of the New
York Regional Office of the SEC.
Peter D. Fischbein is an attorney and is a director of Medicore, which
position he has held since 1984. He is a member of Medicore's Audit, Nominating
and Compensation Committees. Mr. Fischbein was a director of Viragen, Inc., a
public company and former subsidiary of Medicore from 1981 to 2002. See "Certain
Relationships and Related Transactions."
EXECUTIVE OFFICERS
Name Age Position Held Since
---- --- -------- ----------
Stephen W. Everett* 47 Chief Executive Officer 2003
President 2000
Michael Rowe 42 Vice President (Operations) 2002
Daniel R. Ouzts 57 Vice President (Finance)
and Treasurer 1996
Principal Financial Officer (July) 2003
* For information concerning Mr. Everett, see "Information About Directors and
Executive Officers - Directors Standing for Election" above.
6
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 20 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.
Daniel R. Ouzts served as controller of the company from 1983 through
January, 2002, and Vice President and Treasurer from 1996 to January, 2002, and
July, 2003 to the present. He serves as Vice President of Finance (since 1986),
Treasurer (since 1983) and Principal Financial Officer (since 1995) 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 shall be provided without cost.
For information relating to the operations and functions of our Nominating
Committee, reference is made to "Governance of the Company - Nominating
Committee."
7
BENEFICIAL OWNERSHIP OF THE COMPANY'S SECURITIES
The following table sets forth as of April 16, 2004, 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 current 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.
ALL SHARES AND PER SHARE DATA, INCLUDING OPTION INFORMATION, IN THIS
INFORMATION STATEMENT HAVE BEEN ADJUSTED TO REFLECT A TWO-FOR-ONE STOCK SPLIT
EFFECTED BY THE COMPANY ON JANUARY 28, 2004.
Amount and Nature of Beneficial Ownership
-------------------------------------------------------
Dialysis Medicore
Common Common
Name Stock(1) %(2) Stock(3) %(4)
- ---- -------- ---- -------- ----
Medicore 4,821,244 56.8 -- --
2337 W. 76th Street
Hialeah, FL 33016
Thomas K. Langbein 5,287,021(5) 62.3 1,486,014 21.1
c/o Medicore
777 Terrace Avenue
Hasbrouck Heights, NJ 07604
Stephen W. Everett 334,000(1) 3.8 25,000 0.4
c/o Dialysis Corporation of America
1344 Ashton Road, Suite 201
Hanover, MD 21076
Bart Pelstring 142,492 1.7 65,000 0.9
c/o Dialysis Corporation of America
27 Miller Street
Lemoyne, PA 17043
Robert W. Trause* 53,428 0.6 -0- -0-
431C Hackensack Street
Carlstadt, NJ 07072
Peter D. Fischbein** 34,600 0.4 375,051 5.4
c/o Medicore, Inc.
777 Terrace Avenue
Hasbrouck Heights, NJ 07604
Alexander Bienenstock* 10,000(1) 0.1 -0- -0-
766 West Broadway
Woodmere, NY 11598
All directors and executive 1,149,797(6) 13.2 2,087,115 29.3
officers as a group (7 persons)
8
* Member of the Audit Committee, Nominating Committee and Compensation Committee
** Nominee - upon election to be a member of Audit Committee, Nominating
Committee and Compensation Committee
- ----------
(1) Medicore owns 4,821,244 shares (approximately 57%) 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 57% 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 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 1,012,461 shares of the
company (12%).
Includes the following shares that may be acquired upon exercise of
Dialysis Corporation of America options (see Note (2)) as of April 16,
2004 or within 60 days after that date:
S. Everett, 207,616 shares (exclusive of 66,000 shares vesting
January 1, 2005); M. Rowe, 62,500 shares (exclusive of 87,500 shares
vesting 25,000 each September, 2004 and 2005, and 12,500 each June 4
over the next four years); and exclusive of 10,000 shares for A.
Bienenstock vesting 5,000 shares each August, 2004 and 2005.
(2) Based on 8,485,815 shares outstanding but exclusive of common stock
issuable under (i) 282,270 currently exercisable options at prices ranging
from $.625 to $.75 per share; and (ii) 217,000 non-vested options which
vest over periods ranging from May 29, 2004 to January 13, 2008
exercisable at prices ranging from $.625 to $3.085 per share.
(3) Includes shares that may be acquired by Messrs. Langbein (100,000 shares);
Everett (8,333 shares); Ouzts (15,000 shares); Pelstring (6,666 shares);
and Fischbein (16,666 shares) upon exercise of Medicore options as of
April 16, 2004 or within 60 days after that date.
Does not include: (i) 87,400 shares held each by Mr. Langbein's two
children;** (ii) 400,000 shares in Mr. Langbein's employment agreement
issuable under certain conditions; (iii) 121,175 shares held by Susan
Kaufman, the wife of Mr. Fischbein, as trustee for their children; Ms.
Kaufman is economically independent and maintains separate bank and
brokerage accounts for the trusts over which Mr. Fischbein has no control,
and he disclaims beneficial interest in such shares; and (iv) 231,500
shares held by Mr. Jaffe's four children and a daughter-in-law.**
** all of majority age and independent; beneficial interest in such shares
is disclaimed by the reporting person.
(4) Based on 6,988,614 shares outstanding exclusive of (i) 238,661 shares
underlying outstanding options under Medicore's 1989 Stock Option Plan
(28,000 non-vested options not included); (ii) 400,000 shares available
for issuance under certain conditions of Thomas K. Langbein's employment
agreement; (iii) 98,000 shares reserved for issuance under a key employee
stock plan; and (iv) 500,000 shares reserved for issuance under a 2000
Stock Option Plan, with no options outstanding under this Plan.
9
(5) Exclusive of Medicore's ownership of Dialysis Corporation of America, Mr.
Langbein's beneficial ownership would be 465,777 (5.5%). See Note (1)
above.
(6) Includes Thomas K. Langbein's direct ownership of 465,777 shares without
direct or indirect ownership through Medicore's 56.8% ownership of the
company.
EXECUTIVE COMPENSATION REPORT
The Sarbanes-Oxley Act of 2002 mandated the establishment of an
executive compensation committee, consisting of only independent directors. We
are a Controlled Company as defined under the Nasdaq Stock Market rules, since
our parent owns approximately 57% of our voting power. Therefore, our company is
exempt from the compensation committee procedures. Nevertheless, we established
a compensation committee comprised of our three independent directors. Prior to
such executive compensation committee, 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.
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, has been affiliated with the
company for 24 years. Stephen W. Everett, Chief Executive Officer and President,
has been affiliated with the company since November, 1998, and has been involved
in the health care industry for over 24 years. See "Information About Directors
and Executive Officers - Directors Standing for Election." Essential elements of
senior
10
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. Mr.
Everett, together with Michael Rowe, Vice President of Operations, and a superb
support staff, pursue new geographic areas and physician and hospital alliances
and, with Mr. Langbein, evaluate the potential for growth and expansion of our
operations, facilities and patient base. In evaluating the performance of and
establishing Mr. Everett's compensation, the Compensation Committee takes into
account his 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. Everett did not participate in decisions affecting
his 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 2003 and in the first quarter of 2004, it reached its high point of $5.68
(post-split) in February, 2004. We effected a two-for-one stock split in
January, 2004, which we hope will provide a more active trading market for our
shares. We believe the strength in our securities market is primarily due to
executive management's efforts in improving our operations, providing growth,
and for three 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, 2003 accompanying this Information Statement.
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. Controlled expansion resulted in another
successful year of steady growth for our company. Two new facilities were
opened, one in Maryland and one in Ohio, and another facility was acquired in
Georgia during 2003. As was anticipated in our growth strategy, initial
operating costs at these new centers impacted our earnings, but our new centers,
with additional dialysis facilities opened in the first quarter of 2004, are
expected to have a favorable impact on our operating results as their patient
base matures. Nevertheless, the sustained growth for fiscal 2003, reflected net
income of $1,150,000, or $.15 per share ($.13 diluted) compared to $1,242,000 or
$.16 per share ($.14 diluted) of net income for 2002. A cash bonus of $50,000
was awarded to Mr. Everett. See "Executive Compensation." For bonuses to
directors toward a partial stock option exercise see "Governance of the Company
- - Compensation of Directors."
11
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 to date, we have grown to 19
dialysis facilities which we operate or manage. We have ongoing negotiations for
additional facilities in strategic locations, and contracts for acute dialysis
services with hospitals. Our medical services revenues have increased
approximately 18% since last year, climbing to approximately $30,278,000 from
approximately $25,607,000 in 2002. This is the third 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, 2003 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 2004. We look forward to 2004 as a year of expansion for our company,
sustained profitability, and enhanced shareholder value.
SUBMITTED BY THE COMPENSATION COMMITTEE
Robert W. Trause, Chairman
Alexander Bienenstock
Dr. David L. Blecker*
* Dr. Blecker's continued independence under the recently adopted Nasdaq Stock
Market Regulations was considered, and Peter D. Fischbein is a nominee to
replace Dr. Blecker on the board and the Audit, Nominating and Compensation
Committees. See "Proposal No. 1 - Election of Directors."
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, 2003 for services in all capacities for its Chairman of the Board, who was
Chief Executive Officer through May 29, 2003, and for its new Chief Executive
Officer and each of its executive officers whose total annual salary, bonus or
other compensation exceeded $100,000.
12
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
-------------------------------------------------------- -------------------------
(a) (b) (c) (d) (e) (g) (i)
Securities
Other Annual Underlying All Other
Name and Salary Bonus Compensation Options/SARs (#) Compensation
Principal Position Year ($) ($) ($) Company Medicore $
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas K. Langbein, CEO(1) 2003 83,308(2) 56,258(3) 5,611(6)
2002 73,367(2) 58,929(4) 7,687(6)
2001 56,977(2) 34,000(5) 5,960(6)
Stephen W. Everett, Pres. 2003 168,923(7) 117,078(8) 2,338(11)
and CEO(1) 2002 129,808(7) 85,714(9) 4,179(11)
2001 115,000(7) 50,000(10) 14,600(11) 330,000(12)
Timothy Rumrill, Vice 2003(13) 73,038(7) 484(15) 30,000(16)
President of Finance(13) 2002(13) 81,346(7) 8,000(14) 60,000(17)
2001
J. Michael Rowe(18) 2003 139,462(7) 25,000(19) 768(15) 50,000(20)
2002 115,539(7) 20,000(14) 740(15)
2001 61,388(7) 8,000(10) 100,000(21)
- --------------
(1) Thomas K. Langbein was CEO until May 29, 2003, at which time Stephen W.
Everett assumed that position.
(2) Annual compensation paid by Medicore, which was $333,200, $293,500 and
$285,000, respectively, for fiscal 2003, 2002 and 2001. Amounts included
in the Summary Compensation Table reflect the compensation allocated to
the company in proportion to the time spent on its behalf.
(3) Accrued in 2003 and paid in February, 2004 for the partial exercise of
options and $30,942 cash bonus. See "Governance of the Company -
Compensation of Directors" below.
(4) 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.
(5) The general corporate overhead allocable portion of Medicore's bonus of
$170,000 accrued in 2001 and paid in April, 2002.
(6) Automobile allowance and related expenses, and life and disability
insurance premiums paid by Medicore amounted to $30,200, $30,700 and
$29,800, respectively for 2003, 2002 and 2001. 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.
(7) All compensation paid by the company.
13
(8) Includes (i) a bonus accrued in 2003 and paid in February, 2004 relating
to the exercise of director stock options which included the payment of
the $.625 exercise price for 69,242 shares exercised under Mr. Everett's
options (valued at $43,276) together with a related cash distribution to
Mr. Everett of $23,802 (see "Governance of the Company - Compensation of
Directors" and discussion of options, below); and (ii) a cash bonus of
$50,000 accrued in 2003 and paid in January, 2004.
(9) 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.
(10) Accrued in 2001 and paid in January, 2002.
(11) Includes automobile related expenses of $1,957 and $9,600, respectively
for 2002 and 2001, moving expenses of $5,000 for 2001, and life insurance
premiums of $2,338 and $2,000, respectively, in 2003 and 2002, all of
which were paid by the company.
(12) Vests 33,000 shares every January 1, commencing 2001.
(13) Joined the company on January 28, 2002; resigned effective July 31, 2003.
(14) Accrued in 2002 and paid in January, 2003.
(15) Life insurance premiums.
(16) Amount paid in connection with resignation.
(17) The option was exercised for 15,000 shares with the balance of the option
for 45,000 shares cancelled based on his resignation. See note 16, above.
(18) Joined the company on June 1, 2001 and became an officer in June, 2002.
(19) Accrued in 2003 and paid in January, 2004.
(20) Vests 12,500 shares every June 4, commencing June 4, 2004.
(21) Vests 25,000 shares every September 5, commencing September 5, 2004.
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.
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
14
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 2003. The costs of executive
and accounting salaries and other shared corporate overhead for these companies
were charged on the basis of time spent. Mr. Langbein, as Chairman of the Board
of the Company and Chairman of the Board, CEO and President of Medicore, 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 10,000 outstanding to a director exercisable at $1.13 per share,
exercised in June, 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
15
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 16, 2004 (adjusted for two-for-one split
on January 28, 2004)
authorized: 3,000,000
issued: 2,241,000
vested: 282,270
non-vested: 217,000
exercised: 1,556,086
cancelled: 185,644
outstanding: 499,270
available: 944,644
exercise prices: range from $.625 to $3.085
exercise periods: range from 1/1/06 to 1/12/09
The exercise price of options is no less than 100% of the fair market
value of the common stock on the date of grant.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
- --------------------------------------------------------------------------------------- Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options/SARs Exercise Price Appreciation
Underlying Granted to or Base For Option Term
Options/SARs Employees in Price Expiration ----------------------
Name Granted (#) Fiscal Year ($/Sh) Date 5%($) 10%($)
(a) (b) (c) (d) (e) (f) (g)
- ------------------------------------------------------------------------------------------------------------------
J. Michael Rowe 50,000(1) 100 $1.80 6/3/08 24,865 54,946
- ----------------
(1) Option for 12,500 shares vest each June 4, which vesting commences in
2004; options are exercisable for five years.
16
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
at FY-End (#) Fiscal Year End($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable($)
- -----------------------------------------------------------------------------------------------------------------
CEO
Thomas K. Langbein
Company Options 74,286(1) 93,000(2) 445,714 (exer.) 1,215,000(3)
Medicore Options 100,000 7,000(4) 200,000 (exer.) 164,000(5)
Stephen W. Everett
Company Options 57,142(1) 72,000(2) 276,858 (exer.) 754,000(6)
66,000 (unexer.) 180,000(7)
Medicore Options 8,334 583(4) 16,666 (exer.) 14,000(5)
Timothy Rumrill
Company Options 15,000 29,000(8) -0-(9) ---
Medicore Options -0- -0- -0- ---
Michael Rowe
Company Options -0- -0- 50,000 (exer.) 130,000(10)
100,000 (unexer.) 208,000(11)
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 $.625
per share.
(2) Based on the fair market value of $1.88 on March 10, 2003, the exercise
date.
(3) The options are exercisable at $.625 per share (74,286 exercised on March
10, 2003, see note (1) above) through April 20, 2004 (all subsequently
exercised); and the closing price of the company's common stock as
reported by Nasdaq at December 31, 2003, was $3.35.
(4) Based on the fair market value of $1.45 on September 11, 2003, the
exercise date.
(5) The Medicore options are exercisable 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, 2003 was $2.20.
(6) Includes (i) options for 12,858 shares (57,142 exercised on March 10,
2003, see note (1) above) exercisable at $.625 per share through April 20,
2004 (all subsequently exercised); and (ii) options for 264,000 shares
exercisable at $.625 per share through January 1, 2006. See note (3) for
closing price of the common stock.
17
(7) Non-vested options which vest on January 1, 2005; upon vesting the options
are exercisable at $.625 per share through January 1, 2006.
(8) Options exercisable at $1.575 through February 28, 2007. The closing price
of the company's common stock on December 3, 2003, the exercise date, was
$3.50.
(9) Terminated affiliation with the company July, 2003. Balance of 45,000
non-vested options cancelled.
(10) The options are exercisable through September 5, 2006 at $.75 per share.
See note (3) for the closing price of the common stock.
(11) Non-vested options, including (i) options for 50,000 shares exercisable at
$.75 to September 5, 2006, vesting 25,000 each on September 4, 2004 and
2005; and (ii) options for 50,000 shares exercisable at $1.80 to June 3,
2008, vesting 12,500 each on June 4, 2004 to 2007. See note (3) for the
closing price of the common stock.
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, 1998 through December 31, 2003. 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. Our share price was adjusted to
reflect a two-for-one stock split on January 28, 2004. 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, 1998 $100.00 $100.000 $100.00
December 31, 1999 842.21 176.37 43.93
December 31, 2000 76.91 110.86 71.15
December 31, 2001 424.56 88.37 93.10
December 31, 2002 489.79 61.64 93.05
December 31, 2003 824.51 92.68 134.13
18
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 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 eight times during 2003. All directors participated at the
meetings, either present in person or by telephone conference call, except for
Dr. David Blecker, who was unavailable for two meetings and Bart Pelstring, who
was unavailable for one meeting.
The company's policy is to encourage all board members to attend the
annual meeting of shareholders. The annual board meeting is typically scheduled
to immediately follow the shareholder meeting to facilitate the board members'
attendance. Four of the six directors, Messrs. Langbein, Everett, Trause and
Pelstring, attended last year's annual meeting.
CORPORATE GOVERNANCE
Our board and management have a long-standing commitment to sound and
effective corporate governance practices. We established and maintain 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 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.
19
BOARD COMMITTEES
The board of directors has an Audit Committee, Nominating and Compensation
Committees, each of which consists of the same independent directors. The board
has three other employee members and our by-laws provide for up to nine
directors in order to have positions available for other independent directors.
We are a Controlled Company as that term is defined in The Nasdaq Stock Market
Rule 4350(c)(5), since our parent, Medicore, owns approximately 57% of our
voting securities. Therefore, we are exempt from the Nasdaq listing requirements
to have a board composed of a majority of independent directors, and
compensation and nominating committees comprised solely of independent
directors. However, we believe in the new corporate governance provisions
adopted by the SEC and Nasdaq, and, therefore, have established these committees
solely consisting of independent directors.
AUDIT COMMITTEE
The company, in accordance with Nasdaq Stock Market Rule 4350(d), has an
Audit Committee of at least three members, all of whom are independent as
defined in Nasdaq Stock Market Rule 4200(a)(15) and who meet the criteria of
independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of
1934, have not participated in the preparation of the company's financial
statements at any time during the past three years, and are able to read and
understand fundamental financial statements, including the company's balance
sheet, income statement and cash flow statement. Alex Bienenstock, Chairman of
the Audit Committee, has experience in finance and accounting, and the
background which was the basis for the board's determination that Mr.
Bienenstock is an "audit committee financial expert" as defined in Item 401(h)
of Regulation S-K under the Securities Exchange Act of 1934. To review Mr.
Bienenstock's credentials, reference is made to "Information About Directors and
Executive Officers." The designation of Mr. Bienenstock as the Audit Committee
financial expert does not impose on him any duty, obligation or liability that
is greater than any duty, obligation or liability imposed on such person as a
member of the Audit Committee and board of directors. The other members of our
Audit Committee are Robert Trause, and Peter D. Fischbein, a nominee for
director of the company (see "Proposal No. 1 - Election of Directors"). Mr.
Fischbein is an independent board member of our parent and is a member of
Medicore's Audit, Compensation and Nominating Committees. See "Information About
Directors and Executive Officers."
The Audit Committee, a very essential oversight committee, pursuant to its
charter provides assistance to the board in fulfilling its responsibilities to
our 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 charter
specifies:
o the scope of the Audit Committee's responsibilities
o how the Audit Committee carries out those responsibilities
o structure, processes and membership requirements
o 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. A more complete description of the
Audit Committee's responsibilities is provided in its Charter, a
copy of which is attached as Appendix A to this Information
Statement.
The Audit Committee met four times in 2003, with only one member unable to
attend one meeting.
20
COMPENSATION COMMITTEE
Our Compensation Committee consists of the same three independent board
members as the Audit and Nominating Committees. For the upcoming year, in the
absence of one director continuing on the board, Peter D. Fischbein, a director
and member of the Audit, Nominating and Compensation Committees of our parent,
who is currently a nominee to be elected to our board of directors, upon the
election of directors will become the third independent member of our Audit,
Compensation and Nominating Committees, along with Messrs. Alex Bienenstock and
Robert Trause. See "Proposal No. 1 - Election of Directors" and "Information
About Directors and Executive Officers." The Compensation Committee met once
last year.
Our Compensation 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
The Committee's report on executive compensation is set forth above under
"Executive Compensation Report."
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, but for the prospective replacement of director Dr.
David Blecker with Peter D. Fischbein. See "Governance of the Company." Although
we are a Controlled Company as defined under Nasdaq Stock Market Rule 4350(c)(5)
in that our parent owns approximately 57% of our voting equity, and, therefore,
are exempt from the requirements of the Nasdaq rules from having a majority of
independent directors on the board, compensation and nominating committees and
charters, we have established such committees, and have adopted a formal written
Nominating Committee Charter addressing the nominating process. Our Charter is
available on our website, www.dialysiscorporation.com.
Our Charter provides for the Nominating Committee to:
o assist the board in identifying and evaluating individuals qualified
for board membership
o recommend to the board nominees for directors for each annual
meeting of shareholders
o recommend directors for each committee
21
The Nominating Committee has a policy to consider director candidates
recommended from many sources, including, but not limited to, recommendations
from shareholders, directors, whether management or non-management, executive
officers, or third-party search firms. Procedures to be followed by shareholders
in recommending a director candidate are set forth under "Information About
Directors and Executive Officers - Other Nominees."
Any director candidate, from whatever recommendation source, is considered
and evaluated by the Nominating Committee using generally the same criteria and
methods, although those criteria and methods are not standardized and may vary
from time to time. These criteria include, among others, 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.
The process of evaluating nominees includes, among others:
o discussions with the recommender
o due diligence checks of the nominee
o interviews with the nominee
o needs of the board
The Nominating Committee met once last year.
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 $186,000 at December 31, 2003 was bonused in
January, 2004 to the board members, including $120,000 bonused for exercise of a
portion of their options, amounting to 191,238 shares at exercise prices ranging
from $.625 to $.75. See "Beneficial Ownership of the Company's Securities" and
"Executive Compensation - Options, Warrants or Rights" above.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
The board of directors has a process for security holders to send
communications to the board of directors, which includes:
o email to the Chairman of the Board of Directors,
medicore@compuserve.com
o fax to the Chairman of the Board of Directors, (201) 288-8208
o email to counsel to the company, Jaffe & Falk, LLC, attention
Lawrence E. Jaffe, Esq., who is also the Secretary to the company,
at lej@jafalaw.com
o by telephone Thomas K. Langbein (Chairman of the Board of Directors)
at (201) 288-8222 or Lawrence E. Jaffe, counsel at (201) 288-8282
22
Any such communication shall be directed to the appropriate director or
directors as requested by the shareholder.
The board welcomes shareholders' views, recommendations, and input of any
reasonable nature.
REPORT OF THE AUDIT COMMITTEE
The company has a written Audit Committee Charter, which was adopted in
2000 and amended in 2002 and 2003. The Audit Committee reviews and reassesses
the adequacy of its Charter on an annual basis. Based on its reassessment, the
Audit Committee amended the Charter in December, 2003. Under the guidance of the
Charter, 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 and the Charter as attached as Appendix A to this Information Statement.
The ultimate responsibility for good corporate governance rests with the board
of directors, whose primary roles are oversight, counseling and direction to
Dialysis Corporation of America's management in the best interests of our
shareholders.
Management has the primary responsibility for the system and integrity 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 accordance with rules of the SEC and
Nasdaq, our Audit Committee has ultimate authority and responsibility to select,
compensate, evaluate, and, if necessary, replace our independent auditors. The
company has to make funds available to the Audit Committee for the retention of
independent accountants and the engagement of the Committee's own advisors as it
deems appropriate. Our Audit Committee recently interviewed several accounting
firms to perform the 2003 audit of our consolidated financial statements, and in
January, 2004, retained Moore Stephens, P.C. to replace our former independent
accountants, Wiss & Company, LLP, which firm withdrew from auditing SEC clients.
See "Proposal No. 2- Ratification of the Appointment of Independent Auditors."
Although the Chairman of our Audit Committee, Alex Bienenstock, is an
accountant and an attorney, the Audit Committee members are not professional
accountants or auditors, and their functions are not intended to duplicate or to
certify the activities of the independent auditors, nor can the Audit Committee
certify that the independent auditors are "independent" as defined under SEC and
Nasdaq rules. The Audit Committee serves a board-level oversight role, in which
it provides advice, counsel and direction to management and the auditors on the
basis of the information it receives, discussions with management and the
auditors, and the experience of the Audit Committee's members in business,
financial and accounting matters.
The Audit Committee has an agenda for the year that includes, among many
other responsibilities, the company's financial statements, internal controls
and audit matters. The Audit Committee meets at least quarterly in executive
session, and also meets or otherwise has discussions with our independent
accountants, our Vice President of Finance, who is also our Principal Financial
Officer, and management, to review our interim financial results before the
publication of our quarterly reports on Form 10-Q and our press releases.
Management's and the independent auditors' presentations to and
23
discussions with the Audit Committee cover various topics and events that may
have significant financial impact and/or are the subject of discussions between
management and the independent auditors. The Audit Committee is responsible for
establishing procedures for the receipt, retention and treatment of complaints
received by our company regarding accounting, internal accounting controls or
auditing matters, including the confidential, anonymous submission by Dialysis
Corporation of America employees, received through established procedures, of
concerns regarding questionable accounting or auditing matters.
Dialysis Corporation of America's independent auditors provide the Audit
Committee with the written disclosures and the letter required by Independence
Standards Board Standard No. 1, "Independence Discussions with Audit
Committees," and the Audit Committee discusses with the independent auditors and
management that firm's independence.
In accordance with Audit Committee policy and the requirement of law, all
services to be provided by its independent accountants, currently Moore
Stephens, P.C., are pre-approved by the Audit Committee. Pre-approval includes
audit services and tax services. No audit-related services or other services are
provided to the company. See "Proposal No. 2 - Ratification of the Appointment
of the Independent Auditors" for more information regarding pre-approval
policies and fees paid to Wiss & Company, LLC and Moore Stephens, P.C. for
services in fiscal years 2003 and 2002.
The Audit Committee has reviewed and discussed the consolidated financial
statements for fiscal year 2003 with management and the independent auditors.
Management represented to the Audit Committee that the company's consolidated
financial statements were prepared in accordance with generally accepted
accounting principles. The independent auditors, Moore Stephens, represented
that their presentations included the matters required to be discussed with the
independent auditors by Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees." This review included a discussion with
management of the quality of Dialysis Corporation of America's accounting
principles, the reasonableness of significant estimates and judgments, and the
disclosures related to critical accounting estimates. In reliance on these views
and discussions and the report of the independent auditors, the Audit Committee
has recommended to the board, and the board has approved, the inclusion of the
audited financial statements in Dialysis Corporation of America's Annual Report
on Form 10-K for the year ended December 31, 2003 for filing with the SEC
The Audit Committee and the board have also recommended for shareholder
ratification the appointment of Moore Stephens, P.C. as the company's
independent auditors for fiscal 2003.
The Audit Committee
Alexander Bienenstock, Chairman
Robert Trause
Dr. David L. Blecker
March 23, 2004
24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our parent, Medicore, owns approximately 57% of our common stock. See
"Beneficial Ownership of the Company's Securities" above.
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 of Medicore, and one other key employee. The
premiums paid by Medicore on the life insurance and group health insurance for
its employees for fiscal 2003 aggregated approximately $142,000. 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 of the company and Medicore and Chief Executive Officer and President of
the latter. Daniel R. Ouzts is Vice President, Principal Financial Officer and
Treasurer of the company, and Medicore. Peter D. Fischbein is a director nominee
of the company and is a director of Medicore. See "Proposal No. 1 - Election of
Directors" and "Information About Directors and Executive Officers." Mr.
Langbein owns 5.5% of our company, and 21% of our parent, which includes an
option for 100,000 Medicore shares. Mr. Ouzts has a less than 1% interest in our
company, and approximately 2% interest in Medicore, which includes an option for
15,000 shares. Peter D. Fischbein owns less than 1% of the stock of our company
and 5.4% of Medicore shares, which includes an option for 16,666 Medicore
shares. Lawrence E. Jaffe is Secretary and counsel to our company and our
parent, of which company he is a director. Mr. Jaffe has an approximately 3%
interest in our company and in our parent, which for the latter includes an
option for 33,333 Medicore shares. See "Beneficial Ownership of the Company's
Securities" above. Mr. Jaffe devotes a substantial portion of his professional
services to our company and its parent, from which companies his firm, Jaffe &
Falk, LLC, receives a large portion of its professional fees, which for fiscal
2003 aggregated approximately $320,000, 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, 2003. 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 $13,000 at December 31, 2003.
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.
25
Certain officers and directors of our parent, Medicore, Messrs. Anthony C.
D'Amore, Peter D. Fischbein, Seymour Friend and Robert Magrann (40,000 shares
each), and Lawrence E. Jaffe, our Secretary and counsel (320,000 shares, plus
200,000 shares he gifted to his children of majority age and independent of
their father), in April, 2000, exercised options granted to them under our 1999
Stock Option Plan for 680,000 shares. The exercise was effected with cash for
the par value, an aggregate of $3,400 based upon the number of underlying shares
on the date of exercise, and the balance, an aggregate of $421,600, also based
on the number of underlying shares on the date of exercise, in the form of
three-year non-recourse promissory notes at a rate of interest of 6.2% per
annum, due April 20, 2003, and extended to April 20, 2004. These loans,
principal and interest, were repaid through the sale to the company of shares of
the company's common stock owned by the noteholders at fair market value on
February 9, 2004.
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. As
a matter of practice, our counsel usually assists the officers and directors in
preparing the beneficial ownership reports and reporting changes in beneficial
ownership. Counsel will usually handle the filing of those beneficial ownership
reports. 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, and based solely on review of such forms filed with
the company, all beneficial ownership reports by these reporting persons for the
year 2003 were filed on a timely basis, except one late report by J. Michael
Rowe, relating to his becoming an officer in June, 2002.
PROPOSAL NO. 2 - RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT AUDITORS
Our Audit Committee has appointed the accounting firm of Moore Stephens,
P.C., to audit and report on our financial statements for the year ended
December 31, 2004.
Moore Stephens, P.C. was authorized and appointed by our Audit Committee
in November, 2003, to audit and report on our financial statements for our 2003
fiscal year and was formally engaged as the independent auditors in January,
2004. Our retention of Moore Stephens, P.C. was the direct result of notice we
received from Wiss & Company, LLP, our former independent auditors, in
September, 2003,of its determination to discontinue providing audit services to
substantially all of its SEC registrant clients, including us, and its intent to
resign as our independent accountants solely as a result of its discontinuing
public company audit services, which resignation was to be effective as of the
date of our filing of our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003. Wiss & Company had been auditing and reporting on our
financial statements since fiscal 1998, and Wiss & Company's report on our
financial statements for the last two fiscal years ended December 31, 2002
contained no adverse opinion or a disclaimer of opinion, nor was qualified or
modified as to any uncertainty, audit scope, or accounting principles.
Additionally, during the two most recent fiscal years ended December
31,2002 and the subsequent interim period to the date of Wiss & Company's
resignation (i) we had no disagreements with Wiss & Company on any matter of
accounting principles or practices, financial statement disclosure, or
26
auditing scope or procedure, which, if not resolved to the satisfaction of Wiss
& Company, would have caused Wiss & Company to make reference to the subject
matter of the disagreement in connection with its report, and (ii) there were no
"reportable events" as that term is defined in Item 304(a)(1)(v) of Regulation
S-K promulgated by the SEC.
Upon Wiss & Company's notice of intended resignation, our Audit Committee
initiated the process of interviewing and evaluating alternate public accounting
firms to succeed as our independent auditors. The Audit Committee met with
several regional accounting firms, each with market recognition and considerable
experience in performing audit and audit-related work for public companies.
After substantial consideration of the proposals, the Audit Committee determined
to proceed with Moore Stephens, P.C., based on several factors, including
quality of personnel, SEC auditing experience, and prospective fees.
Although stockholder ratification of the appointment of our independent
auditors is not required by law on account of the fact that the Audit Committee
has sole authority to hire and dismiss the independent auditors, as a matter of
good corporate governance our Audit Committee has determined to submit the
appointment of Moore Stephens, P.C. as our independent auditors for stockholder
approval. Since our parent owns 57% of our voting power, the ratification of
Moore Stephens, P.C. as independent auditors is assured. Nevertheless, the Audit
Committee will not be restricted at any time thereafter from removing Moore
Stephens, P.C. and changing its independent auditors if it deems such change to
be in the best interests of the company.
Our Audit Committee pre-approves and reviews all audit and permissible
non-audit services performed by its independent auditors as well as the fees
charged for such services. In its pre-approval of permissible non-audit services
and fees, the Audit Committee considers the possible effect of the performance
of such services on the auditor's independence. Moreover, the law prohibits
public companies from obtaining certain "non-permissible" non-audit services
from its independent auditors in furtherance of the effort to maintain such
auditors' independence. To date, we have not obtained any non-permissible
non-audit services from either of Wiss & Company, LLP or Moore Stephens, P.C.
A representative of Moore Stephens, P.C., 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. We do not anticipate that a
representative of Wiss & Company, LLP, our former auditors, will be present at
the annual meeting.
FEES PAID TO INDEPENDENT AUDITORS
Audit Fees
Moore Stephens, P.C. performed the audit of our annual financial
statements as of and for the year ended December 31,2003. Wiss & Company, LLP
performed the audit of our annual financial statements as of and for the year
ended December 31, 2002, and the review of the financial statements included in
our Forms 10-Q for 2003 and 2002. The fees of Moore Stephens, P.C. for
professional services rendered for the audit of our financial statements for
fiscal 2003 was $27,000.
Wiss & Company's aggregate fees for professional services rendered for the
review of the financial statements included in our quarterly reports on Form
10-Q for fiscal 2003 was $4,500, and for professional services rendered for the
audit of our annual financial statements for fiscal 2002, and the review of the
financial statements included in our quarterly reports on Forms 10-Q for fiscal
2002 was $29,500.
27
Audit Related Fees
Neither of Moore Stephens, P.C. nor Wiss & Company, LLP performed any
assurance and related services for Dialysis Corporation of America, or any other
services reasonably related to the performance of the audit or review of our
financial statements during fiscal 2003 and 2002 that were not otherwise audit
services as described above.
TAX FEES
Moore Stephens, P.C., recently retained to replace Wiss & Company, is
handling the calculation and preparation of materials related to estimated taxes
and the preparation of tax returns for 2003, with such services to be billed in
2004.
Wiss & Company's aggregate fees billed in fiscal 2003 and 2002 for
professional services rendered for tax compliance, namely the calculation and
preparation of materials related to estimated taxes and the preparation of tax
returns, were $15,000 each year.
ALL OTHER FEES
Other than the professional services and fees billed as described above
under "Audit Fees" and "Tax Fees," neither Moore Stephens, P.C. nor Wiss &
Company provided any other services or billed other fees to our company or any
of our subsidiaries.
Our Audit Committee has established its pre-approval policies and
procedures, pursuant to which it approved the foregoing audit and permissible
non-audit services provided by Moore Stephens, P.C. and Wiss & Company, LLP,
respectively, in 2003. The Audit Committee's pre-approval policy provides each
audit and permitted non-audit service to be reviewed for a determination of
approval by the Audit Committee. Requests or applications for specific services
to be provided by the independent auditor are also submitted to our Vice
President of Finance and Principal Financial Officer, and must include a
detailed description of the services to be rendered. Our Vice President of
Finance and Principal Financial Officer shall provide the Audit Committee with a
written report as to the scope and applicability of the proposed services with
further communications between and among the auditors, the Vice President of
Finance and Principal Financial Officer, and the Audit Committee, as necessary
for further clarification and evaluation. The Audit Committee will make the
determination that any requested audit and/or non-audit services, upon the above
mentioned review process, are necessary and within the scope of the company's
operations and reporting responsibilities, will not, in its opinion and
evaluation, impair the auditor's independence, nor be considered a prohibited
non-audit service consistent with the SEC's rules relating to these issues. The
Audit Committee will provide a report of its approval or disapproval of our
requested audit and non-audit services to management and the board for
implementation. The Audit Committee will monitor the performance of all services
provided by the independent auditors and determine whether such services are in
compliance with its approval policies. The Audit Committee will report to
management on a periodic basis on the results of its monitoring, and recommend
appropriate action, including termination of the independent accountants for
breaches of the approved policies or the deficiency in providing services to the
company.
28
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 57%) 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 www.sec.gov, which
contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC.
o at the company's internet site at www.dialysiscorporation.com
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,
most without exhibits, that you may request. If you request exhibits, there will
be a charge for our reasonable expenses. See "Financial Statements" below.
Please forward your inquiry to our Secretary, Lawrence E. Jaffe, 777 Terrace
Avenue, Hasbrouck Heights, New Jersey 07604; or call us at (201) 288-8222 or at
(410) 694-0500.
STOCKHOLDERS SHARING THE SAME LAST NAME AND ADDRESS
We are sending only one copy of our annual report and Information
Statement to stockholders who share the same last name and address, unless they
have notified us that they want to continue receiving multiple copies. This
practice, known as "householding," is designed to reduce duplicate mailings and
save significant printing and postage costs.
If you received a householded mailing this year and you would like to have
additional copies of our annual report and Information Statement mailed to you,
please submit your request to our corporate Secretary via email at
lej@jafalaw.com, by fax to (201) 288-8208, or by mail to Lawrence E. Jaffe,
Esq., Dialysis Corporation of America, 777 Terrace Avenue, Hasbrouck Heights, NJ
07604.
29
FINANCIAL STATEMENTS
Dialysis Corporation of America's consolidated financial statements for
the year ended December 31, 2003 as well as substantial information concerning
the company, its officers, directors and operations, its properties, the market
for our common stock over the last two years, our purchases of our common stock,
selected financial data, management's discussion and analysis of financial
condition and results of operations, controls and procedures, and more, are
included in the company's Annual Report on Form 10-K for the year ended December
31, 2003, which is being sent to all shareholders (without exhibits) at the same
time and together with this Information Statement. The Annual Report on Form
10-K includes a list of all exhibits to that Report. Dialysis Corporation of
America will furnish copies of such exhibits upon written request and payment of
Dialysis Corporation of America's reasonable expenses in furnishing such
exhibits. The Annual Report on Form 10-K is available on the SEC's internet
site. See "Available Information" above.
30
APPENDIX A
AUDIT COMMITTEE CHARTER
ORGANIZATION
There shall be a committee of the board of directors known as the Audit
Committee.
COMPOSITION
The Board of Directors shall appoint an Audit Committee composed of no
less than three directors who shall be entirely "independent" as defined by
Section 301 of the Sarbanes-Oxley Act of 2002 (the "Sox Act"), and Securities
and Exchange Commission ("SEC") Rule 10A-3(b) of the Securities Exchange Act of
1934 (the "Exchange Act"), and Rule 4200(a)(15) of The Nasdaq Stock Market, Inc.
("Nasdaq"). The SEC rule prohibits any member of the Audit Committee, other than
in his or her capacity as a member of the Audit Committee, the board of
directors, or any other board committee, from (i) accepting, directly or
indirectly, any consulting, advisory or other compensatory fee from the Company
(which term, unless otherwise specifically indicated, includes all of the
company's subsidiaries and affiliates) or (ii) being an affiliated person of the
Company. Further, in accordance with Nasdaq Rule 4200(a)(15), each member of the
Audit Committee must be free from any relationship that, in the opinion of the
board, would interfere with the exercise of his or her independent judgment as a
member of the Audit Committee. No member of the Audit Committee shall have
participated in the preparation of the financial statements of the Company at
any time during the past three years. All members of the Audit Committee shall
have a working knowledge of basic finance and accounting practices, i.e., be
financially literate, and shall be able to read and understand fundamental
financial statements, including the Company's balance sheet, income and cash
flow statements. At least one member of the Audit Committee should have
financial expertise as determined by the board of directors within the
guidelines of Section 407 of the Sox Act and Nasdaq Rule 4350(d)(2)(A)(i), which
generally provide for a person, through education and experience (and the board
shall evaluate the totality of the individual's education and experience), who
has past employment experience in finance or accounting, or any other comparable
experience or background which results in the individual's financial
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight
responsibilities, or experienced in one or more positions that involve the
performance of similar functions, or that result, in the judgment of the board,
in the person having similar expertise and experience, who has the following
attributes:
o understanding of GAAP and financial statements
o experience in applying GAAP in connection with accounting for
estimates, accruals, revenues that are generally comparable to the
estimates, accruals and reserves, if any, used in the Company's
financial statements
o experience preparing or auditing financial statements that present
accounting issues that are generally comparable to those raised by
the Company's financial statements
o experience with internal controls and procedures for financial
reporting
o understanding audit committee functions
A-1
The financial expert is to assist the Audit Committee in overseeing the
audit process and carrying out the functions of the Audit Committee. Whether the
Audit Committee has a financial expert or not is primarily a disclosure matter.
The Audit Committee members may enhance their knowledge and familiarity with
finance and accounting by participating in educational programs.
The members of the Audit Committee shall be elected by the board at the
annual organizational meeting of the board, or until their successors shall be
duly elected and qualified. The members of the Audit Committee may designate a
chairman by a majority vote of the full Audit Committee, or the chairman of the
Audit Committee may otherwise be elected by the full board of directors.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the board of directors in
fulfilling their responsibilities to the shareholders and the investment
community relating to accounting, reporting practices, the quality and integrity
of financial reports of the Company, and shall have general responsibility for
surveillance of internal controls and accounting and audit services to the
Company. The Audit Committee, and any member of the Audit Committee, including
any member determined to be a financial expert, does not prepare financial
statements or perform audits, and its members are not auditors or certifiers of
the Company's financial statements. To accomplish these ends, the Audit
Committee will maintain open communication between the board of directors, the
independent auditors, the internal accountants, and management of the Company.
The Audit Committee in assisting the board in fulfilling its oversight
responsibilities will include reviewing:
o the financial reports and other financial information provided by
the Company to any governmental body or the public
o the Company's systems of internal controls regarding finance,
accounting and legal compliance that management and the board of
directors have established
o the Company's auditing, accounting, and financial reporting
processes generally
o all related party transactions as referred to in SEC Regulation S-K,
Item 404, for potential conflict of interest situations, which must
be approved by the Audit Committee
The Audit Committee will attempt to encourage continuous improvement of,
and will attempt to foster adherence to, the Company's policies, procedures and
practices at all levels.
DUTIES AND RESPONSIBILITIES
The Audit Committee's primary duties and responsibilities are to:
Independent Auditor/Audit
o select and retain the independent auditor
o determine the compensation and compensate the independent auditor
o right to terminate independent auditor when circumstances warrant
A-2
o pre-approve all audit services, meet with the independent auditors
to review the annual engagement letter, the scope of the proposed
audit for the current year, and the audit procedures to be utilized;
consider the fees for the audit; at the conclusion thereof, review
such audit, including any comments or recommendations of the
independent auditors
o oversight of independent auditor
o confirm and assure the independence of the independent auditors,
including a review of all significant relationships the independent
auditor may have with the Company; receive from the independent
auditor a written statement delineating all relationships between
the independent auditor and the Company, consistent with Independent
Standards Board Standard 1, and actively engage in a dialogue with
the independent auditor with respect to any disclosed relationships
or services that may impact the objectivity and independence of the
independent auditor
o resolve management auditor disagreements
o review with management and the independent auditors the completion
of the annual examination, any significant changes in the
independent auditors' audit plan, any difficulties or disputes with
management encountered during the course of the audit, and other
matters related to the content of the audit, which are to be
communicated to the Audit Committee
o pre-approve all permitted non-audit services
- may delegate pre-approval to other members provided decisions
presented to full Audit Committee
- de minimus exception if
(i) all non-audit services (not otherwise prohibited) do
not exceed 5% of total payments by the Company to the
auditor for that fiscal year
(ii) services not recognized as non-audit services at the
time of the engagement
(iii) services prompltly brought to the attention of the
Audit Committee and approved prior to the completion
of the audit
o review and discuss with management and the independent auditors the
financial statements of the Company including an analysis of the
auditor's judgment as to the quality of the Company's accounting
principles
o recommend to the board of directors whether, based on the review and
discussions described in above items, the financial statements
should be included in the Annual Report on Form 10-K
o review and discuss with management and the independent auditors (a)
any material financial or non-financial arrangements of the Company
which do not appear on 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 review and discuss with management and the independent auditors the
accounting policies which may be viewed as critical, and review and
discuss 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
A-3
Administrative
o create an agenda for the upcoming year
o review and update this Charter periodically, at least annually, as
conditions dictate
o maintain minutes and other records of meetings and activities of the
Audit Committee
o review the powers of the Audit Committee, and report and make
recommendations to the board of directors on its responsibilities
o conduct or authorize investigations into any matters within the
Audit Committee's scope of responsibilities; the Audit Committee
shall be empowered to retain independent counsel, accountants, or
others to assist it in the conduct of any investigation
o consider such other matters in relation to the financial affairs of
the Company and its accounts as the Audit Committee may, at its
discretion, determine to be advisable
o perform such other functions as assigned by law, the Company's
charter or bylaws, or the board of directors
o the duties and responsibilities of a member of the Audit Committee
are in addition to those duties set out for a member of the board of
directors
Financial Processes and Reporting
o review with the independent auditors and with the Company's
financial and accounting personnel, the adequacy and effectiveness
of the accounting and financial controls of the Company, and elicit
any recommendations for the improvement of such internal control
procedures, or particular areas where new or more detailed controls
or procedures are desirable; particular emphasis should be given to
the adequacy of such internal controls and computerized information
systems controls and security, to expose any payments, transactions
or procedures that might be deemed illegal or otherwise improper;
periodically consult with the independent auditors out of the
presence of management about internal controls
o review the internal accounting functions of the Company
o review the financial statements contained in the annual report to
shareholders and other filings with the SEC and other published
documents containing the Company's financial statements and consider
whether the information contained in these documents is consistent
with the disclosure and content of the financial statements; any
changes in accounting principles to be reviewed
o consider and review with management and the chief financial officer:
- significant findings during the year, including the status of
previous audit recommendations and management's responses
thereto
- any difficulties encountered in the course of the audit,
including any restrictions on the scope of the work or access
to required information
- any changes required in the planned scope of the audit
- the internal accounting department budget and staffing
o review and concur on the appointment, replacement, reassignment, or
dismissal of chief financial officer or other director of internal
accounting (or auditing)
o review accounting and financial human resources and succession
planning within the Company
A-4
o inquire of management, the chief financial officer or the director
of internal accounting (or auditing), and the independent auditors
about significant risks or exposures, and assess the steps
management has taken to minimize such risks to the Company
o review policies and procedures and general controls relating to
officers' expense accounts and perquisites, including the use of
corporate assets, and consider the results of any review of these
areas by the internal accounting department or the independent
auditors
o review legal and regulatory matters that may have a material impact
on the financial statements, related Company compliance policies,
and programs and reports received from regulators
o review with management, the independent auditors, and the internal
accounting department the interim financial reports before such are
filed with the SEC or other regulators; review press releases with
regard to interim financial reports
o review any internal reports to management prepared by the internal
accounting department and management's response
Reports and Meetings with Management, Auditors, and Internal Accountants
o meet with the chief financial officer or director of internal
accounting (or auditing), the independent auditors, and management
in separate executive sessions to discuss any matters that the audit
committee or these groups should discuss privately with the audit
committee
o prepare a letter for inclusion in the annual report that describes
the audit committee's composition and responsibilities and how they
were discharged
Complaints and Anonymity
o establish procedures for receipt, retention and resolution of
complaints and protection of whistleblowers
- complaints received by the Company regarding accounting,
internal accounting controls and auditing matters
- procedures for confidential, anonymous submission by employees
relating to concerns regarding questionable accounting or
auditing matters
MEETINGS
The Audit Committee shall meet in executive sessions at least four
times annually, or more frequently as circumstances dictate. In addition, to
satisfy its responsibilities, the Audit Committee should meet at least annually
with management, the members or head of the internal accounting department, and
the independent auditors, in separate and/or joint executive sessions with a
combination of any of the aforementioned parties to discuss any matters that the
Audit Committee or each of these groups believe should be discussed in order to
strengthen the effectiveness of the Audit Committee, and to provide for
accountability among the Company's Audit Committee, outside directors, and
management, and to enhance the reliability and credibility of financial
statements of the Company.
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Further, the Audit Committee, or at least its chairman, should meet with
the independent auditors and management quarterly to review the Company's
financial statements, consistent with the Company's requirements in filing
quarterly reports and annual reports as otherwise set forth in this Charter.
Special meetings may be called by the chairman of the Audit Committee, or at the
request of the independent auditors.
The Audit Committee shall report to the full board of directors with
respect to its meetings.
The majority of the members of the Audit Committee shall constitute a
quorum.
INVESTIGATIONS
The Audit Committee shall have the authority to conduct or authorize
investigations into any matters within its scope of responsibilities, and shall
have the authority to retain and the board to provide funds to compensate
outside advisors to assist in the conduct of any investigation.
LIMITATIONS
The Audit Committee is responsible for the duties set forth in this
Charter, but is not responsible for either the preparation of the financial
statements or the auditing of the financial statements. Management has the
responsibility for preparing the financial statements and implementing internal
controls, and the design, implementation and oversight of the disclosure
controls and procedures, and the independent accountants have the responsibility
for auditing the financial statements and monitoring the effectiveness of the
internal controls. The review of the financial statements by the Audit Committee
is not an audit. The audit is performed by the independent outside auditors. In
carrying out its responsibilities, the Audit Committee believes its policies and
procedures should remain flexible in order to best react to a changing
environment.
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