<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-6906
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MEDICORE, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 59-0941551
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2337 WEST 76TH STREET, HIALEAH, FLORIDA 33016
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 558-4000
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No____
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant based upon the closing price of the common stock on March
5, 1998 was approximately $9,563,000.
As of March 5, 1998 the Company had outstanding 5,847,740 shares of
common stock.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Proxy Statement
in connection with the Registrant's Annual Meeting of Shareholders to be
held on June 10, 1998.
Annual Reports, Forms 10-K, for the years ended December 31, 1994
and 1995, Part IV, Exhibits.
Annual Reports for Registrant's Subsidiary, Techdyne, Inc., Forms
10-K for the years ended December 31, 1995 and 1997, Part IV, Exhibits.
Registration Statement of Registrant's Subsidiary, Techdyne, Inc.,
Form SB-2, effective September 13, 1995, Registration No. 33-94998-A, Part
II, Item 27, Exhibits.
Registration Statement of Registrant's Subsidiary, Techdyne, Inc.,
Form S-3, Effective December 11, 1996, Registration No. 333-15371, Part II,
Item 16, Exhibits.
Annual Report for Registrant's Subsidiary Dialysis Corporation of
America, Form 10-K for the years ended December 31, 1996, and 1997, Part
IV, Exhibits.
Registration Statement of Registrant's Subsidiary, Dialysis Corpora-
tion of America, Form SB-2, effective April 17, 1996, Registration No.
333-80877A, Part II, Item 27, Exhibits.
<PAGE>
MEDICORE, INC.
Index to Annual Report on Form 10-K
Year Ended December 31, 1997
Page
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PART I
Item 1. Business................................................... 1
Item 2. Properties................................................. 17
Item 3. Legal Proceedings.......................................... 19
Item 4. Submission of Matters to a Vote
of Security Holders........................................ 19
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters............................ 19
Item 6. Selected Financial Data.................................... 20
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 21
Item 8. Financial Statements and Supplementary Data................ 31
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..................... 31
PART III
Item 10. Directors and Executive Officers
of the Registrant.......................................... 32
Item 11. Executive Compensation..................................... 33
Item 12. Security Ownership of Certain
Beneficial Owners and Management........................... 33
Item 13. Certain Relationships and Related Transactions............. 33
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................................ 33
<PAGE>
PART I
Item 1. Business
Historical
Medicore, Inc. ("Medicore"), incorporated in Florida in 1961, manu-
factures and distributes medical products, and through its 63% owned
public subsidiary, Techdyne, Inc. ("Techdyne"), is an international
contract manufacturer of electronic and electro-mechanical products,
primarily for the data processing, telecommunications, instrumentation
and food preparation equipment industries. Techdyne's wholly-owned
subsidiaries include Lytton Incorporated ("Lytton") acquired in July,
1997, Techdyne (Scotland) Limited ("Techdyne (Scotland)") and Techdyne
Livingston Limited which is a subsidiary of Techdyne (Scotland). Medicore
also owns and operates three kidney dialysis centers through its 66% owned
public subsidiary Dialysis Corporation of America ("DCA").
Medicore and its subsidiaries are collectively hereinafter referred
to as the "Company."
The Company's executive offices are located at 2337 West 76th
Street, Hialeah, Florida 33016 and at 777 Terrace Avenue, Hasbrouck
Heights, New Jersey 07604. Its telephone number in Florida is (305)
558-4000 and in New Jersey is (201) 288-8220.
Financial Information Relating to Industry Segments
Year Ended December 31,
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1997 1996 1995
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Revenues
Electro-mechanical(1) $33,168,780 $24,434,180 $30,424,358
Medical products(2) 1,708,488 2,012,498 1,702,042
Medical services 9,220,435 4,136,970 2,469,372
Earned at corporate level 329,404 4,517,673 2,413,790
Elimination of intersegment
revenues:
Parent company real estate
rental charges to electro-
mechanical manufacturing (93,640) (103,450) (130,000)
Electro-mechanical
manufacturing sales to
medical services (213,985) (278,465) (219,482)
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Total Revenues $44,119,482 $34,719,406 $36,660,080
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Year Ended December 31,
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1997 1996 1995
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Operating Profit (Loss)(3)
Electro-mechanical(1) $ 1,317,869 $ 1,282,190 $ 2,218,269
Medical products(2) 6,489 (637,360) 34,789
Medical services 4,352,812 75,706 (322,156)
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Total Operating Profit 5,677,166 720,536 1,930,902
Earned at corporate level 329,404 4,517,673 2,413,790
General corporate expenses 1,488,587 977,691 505,169
Interest expense 393,515 217,615 246,393
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Income before income taxes,
and minority interest $ 4,911,498 $ 4,042,903 $ 3,593,130
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Identifiable Assets(4)
Electro-mechanical(1) $23,888,089 $13,224,196 $12,879,101
Medical products(2) 580,125 985,210 780,343
Medical services 11,637,765 7,552,289 3,971,867
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36,843,037 21,761,695 17,631,311
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Corporate assets 4,018,482 5,323,157 3,615,843
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Total Assets $40,861,519 $27,084,852 $21,247,154
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Financial Information Relating to Foreign
and Domestic Operations and Export Sales
Year Ended December 31,
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1997 1996 1995
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Net Sales and Other Income
United States $37,279,414 $24,559,290 $24,349,700
Europe(5) 6,840,068 10,160,116 12,310,380
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$44,119,482 $34,719,406 $36,660,080
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Net Income (Loss)
United States(2) $ 2,434,607 $ 1,897,373 $ 1,254,849
Europe(5) (193,636) 519,896 996,422
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$ 2,240,971 $ 2,417,269 $ 2,251,271
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Identifiable Assets(4)
United States $35,869,051 $21,299,640 $14,645,274
Europe(5) 4,992,468 5,785,212 6,601,880
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$40,861,519 $27,084,852 $21,247,154
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(Notes on following page)
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(1) Reflects the operations, revenues, assets and liabilities of Lytton
for the five months ended December 31, 1997. Lytton was acquired on
July 31, 1997 for $2,500,000 and 300,000 shares of the Company's common
stock, plus guarantees and incentive compensation. Lytton is engaged
in the manufacture of electronic and electro-mechanical products,
primarily printed circuit boards. See Item 1, "Business - Electro-
Mechanical Manufacturing" and Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) Includes estimated costs of $305,000 in 1996 for shutdown of durable
medical equipment operations.
(3) Operating profit is total revenue exclusive of revenues earned at the
corporate level, less operating expenses and includes any applicable
amortization of costs in excess of net tangible assets acquired.
Operating expenses exclude general corporate expenses, interest expense
and minority interest of subsidiaries.
(4) Identifiable assets by segment include assets directly identifiable
with the applicable operations. Company assets consist primarily of
cash, receivables, marketable securities, real property and deferred
expenses.
(5) Techdyne (Scotland) Limited sales are primarily to customers in the
United Kingdom. Sales are also made to Ireland, Germany and the Middle
East.
Medical Products
The Company distributes medical supplies, primarily disposables, both
domestically and internationally, to hospitals, blood banks, laboratories
and retail pharmacies. Products distributed include exam gloves, prepackaged
swabs and bandages and glass tubing products for laboratories. In addition,
the Company distributes a line of blood lancets used to draw blood for
testing. Developed by the Company and manufactured by Techdyne, the
lancets are distributed under the names Medi-Lance(tm) and Lady Lite(tm)
or as a private label item if requested by the customer.
The Company closed its durable medical equipment subsidiary, All
American Medical & Surgical Supply Corp. in the first quarter of 1997.
See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Marketing of medical products is conducted by independent manufacturer
representatives and employees of the Company.
Electro-Mechanical Manufacturing
Techdyne is an international contract manufacturer of electro-
mechanical and electronic products, primarily manufactured to customer
specifications and designed for original equipment manufacturers ("OEMs")
and distributors in the data processing, telecommunications, instrumentation
and food preparation equipment industries.
Custom-designed products primarily include conventional and molded
cables and wire harnesses, and complex printed circuit boards ("PCBs") and
electro-mechanical assemblies. Techdyne also manufactures complete finished
assemblies as well as conducts contract manufacturing for other
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companies. Techdyne also provides manufacturing and test engineering
services and materials management for its customers' high tech and rapidly
changing products. Manufacturing is accomplished, if applicable, in
accordance with Underwriters Laboratories specifications and the Canadian
Standards Association requirements. Techdyne has an ISO 9002 quality
assurance designation for its Hialeah, Florida and Houston and Austin,
Texas facilities, which similar quality assurance designation is held by
its European subsidiary Techdyne (Scotland). See "Quality Control" below.
Techdyne custom designs and assembles over 800 components and finished
products for over 100 OEM customers. The customer base consists of certain
of the Fortune 500 companies. Approximately 79% of sales are domestic,
and 21% effected by Techdyne (Scotland) are in the European markets. For
the year ended December 31, 1997, approximately 63% of Techdyne's sales
were made to numerous locations of six major customers, IBM (19%), EMC and
its related suppliers (10%),Compaq Computer Corporation ("Compaq") (9%),
Motorola (9%) and PMI Food Equipment Group ("PMI") (8%) (Lytton's primary
customer which accounted for 38% of Lytton's sales for the five months
ended December 31, 1997). Techdyne (Scotland) had a substantial portion
of its sales, approximately 42%, to Compaq. During 1997 and 1996 bidding
for Compaq orders became more competitive which resulted in substantially
reduced sales to that customer with lower profit margins on remaining sales.
A loss or substantially reduced sales of any major customer would have had
an adverse effect on Techdyne and the Company as was the case with the
Company in Europe. The Company is pursuing new customer orders. See Item
7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Techdyne's Business Strategy
In response to industry trends for OEMs to rely more on contract
manufacturers in order to reduce capital investment in sophisticated
equipment, access manufacturing technology, improve inventory management
and purchasing power, and focus on product development and marketing,
particularly in view of constantly changing and improving technology and
therefore, shorter product life cycles, Techdyne's objective is to become
a stronger competitive force and provider of electronic contract manu-
facturing services for OEM customers. Techdyne will continue to seek to
develop strong, long-term alliances with major-growth OEMs of complex,
market leading products.
Management is seeking to concentrate on high value added products
and services for leading OEMs. Techdyne focuses on leading manufacturers
of advanced electronic products that generally require custom-designed,
more complex interconnect products and short lead-time manufacturing
services.
Techdyne is able to build on its integrated manufacturing capabilities,
provide its customers with a broad range of high value added manufacturing
services and final system assemblies and testing. In addition to PCBs,
Techdyne's cable assembly capabilities provide it with further opportuni-
ties to leverage its vertical integration. By manufacturing PCBs and
custom cable assemblies, Techdyne is able to provide greater value added
and be more competitive. In addition, vertical integration provides
Techdyne with greater control over quality, delivery and cost.
Techdyne has significantly expanded its manufacturing facilities. In
March, 1997, it executed a five year lease for 5,500 square feet of manu-
facturing and office space in Milford, Massachusetts. Cables, harnesses
and to a lesser extent PCBs are manufactured at this new facility. In
April, 1997, it entered into two leases for its manufacturing facilities
in Texas. One lease is for 18,225 square feet in Austin, Texas which
tripled its existing manufacturing space in that area, and the second
lease is for 15,000 square feet of space in Houston, Texas, also expanding
on its manufacturing and warehousing
<PAGE> 5
facility at that location. These facilities have greatly expanded
Techdyne's manufacturing capabilities and provide Techdyne with operations
in key geographic markets for its electronic industry customers.
Management has also successfully pursued business acquisition
opportunities. In July, 1997, Techdyne acquired Lytton, a private company
engaged in the manufacture, assembly and sale of complex PCBs and other
electronic products for over 40 major commercial customers. Lytton is
located in Dayton, Ohio, providing the Company with a new geographic and
end user market. The Lytton acquisition complemented Techdyne's operations
and continued the business strategy of the Company by expanding its customer
base, broadening its product line, entering a new geographic area, enhancing
its manufacturing capabilities, and enabling the Company to better serve
the combined existing customer base with enhanced product choices with
opportunities to further attract new customers.
To satisfy customer needs, the Company seeks to develop long-term
customer relationships by using its state-of-the-art technology to provide
timely and quick-turnaround manufacturing and comprehensive support for
materials purchases and inventory control. Through its EDI (electronic
data interchange), the customer is able to convey its inventory and
product needs on a weekly basis based on a rolling quantity forecast.
More emphasis is placed on value-added turnkey business for the manu-
facture of complete finished assemblies. This is accomplished with
extended technology, continuous improvement of its processes, and
Techdyne's early involvement in the design process using its computer-
aided design ("CAD") system.
Techdyne is improving its material acquisition process in an attempt
to better its purchasing power by identifying materials used across
customer lines. In 1998, the Company will begin to update its material
requirements planning ("MRP") system utilizing Visual Manufacturing
software. The Visual Manufacturing software is anticipated to solve
the "year 2000" issue for the Company. Management is also attempting to
consolidate vendors to achieve better purchasing power. The Company
believes these efforts will provide it with better leverage in material
pricing and permit Techdyne to be more competitive when bidding for manu-
facturing work and turnkey business. Management is also attempting to
better track actual costs against customer quotes which will better allow
it to control costs and more accurately manage its operating margins.
Products and Services
Cable and Harness Assemblies
A cable is an assembly of electrical conductors insulated from each
other and twisted around a central core and jacketed. Cables may be molded
or non-molded. Techdyne maintains a large assortment of standard tooling
for D-subminiature connectors, Din connectors (circular connectors with
from two to four pairs of wires used for computer keyboards), flat ribbon
cables, and discrete cable assemblies.
Techdyne offers a wide range of custom manufactured cable and harness
assemblies for molded and mechanical applications, including multiconductor,
ribbon, co-axial cable assemblies, and discrete wire harness assemblies.
The Company uses advanced manufacturing processes, in-line inspection and
computer testing. The cable and harness assemblies use automated and
semi-automated processes. Techdyne tests all of its cable and harness
assemblies with computerized automated test equipment.
<PAGE> 6
Flat ribbon cable or ribbon cable assemblies are cables with wires
(conductors) on the same plane with connectors at each end. Flat ribbon
cables are used in computer assemblies and instrumentation.
Discrete cable assemblies are wires with contacts and connectors.
Harnesses are prefabricated wiring with insulation and terminals ready to
be attached to connectors.
Printed Circuit Boards and Molded Assemblies
PCB assemblies are electronic assemblies consisting of a basic printed
circuit laminate with electronic components including diodes, resistors,
capacitors and transistors, inserted and wave soldered. PCBs may be used
either internally within the customer's products or in peripheral devices.
The variety of PCBs produced include pin-through-hole ("PTH") assemblies,
low and medium volume surface mount technology ("SMT") assemblies, and
mixed technology PCBs, which include multilayer PCBs.
PCB production increased from approximately 8% in 1996, to approxi-
mately 26% in 1997, primarily due to additional manufacturing facilities
including the acquisition of Lytton which, with its six automated lines,
is significantly involved in PCB production.
PTH assembly involves inserting electronic components with pins or
leads through pre-drilled holes in a PCB and soldering the pins to the
electrical circuit.
In SMT production, electronic components are attached and soldered
directly onto the surface of a circuit board rather than inserted through
holes. SMT components are smaller, can be spaced more closely together
and, unlike PTH components, can be placed on both sides of a PCB. This
allows for product miniaturization, while enhancing the electronic
properties of the circuit. SMT manufacturing requires substantial
capital investment in expensive, automated production equipment which
requires high usage. Techdyne has computerized testing for substantially
all of its PCBs to verify that components have been installed properly and
meet certain functional standards, that the electrical circuits have been
properly completed, and that the PCB assembly will perform its intended
functions.
Techdyne also produces multilayer PCBs, which consist of three or
more layers of a PCB laminated together and interconnected by plated-through
holes used to receive component leads and to interconnect the circuit
layers. Multilayer boards increase packaging density, improve power and
ground distribution, and permit the use of higher speed circuitry. The
development of electronic components with increased speed, higher per-
formance and smaller size has stimulated a demand for multilayer PCBs,
as they provide increased reliability, density and complexity.
Contract Manufacturing
Contract manufacturing involves the manufacture of complete finished
assemblies with all sheet metal, power supplies, fans, PCBs, as well as
complete sub-assemblies for integration into an OEM's finished products,
such as speaker and lock key assemblies and diode assemblies that consist
of wire, connectors and diodes that are over-molded, packaged and bar
coded for distribution. These products can be totally designed and manu-
factured by Techdyne through its computer-aided design system, engineering
and supply procurement. Techdyne develops manufacturing processes and
tooling and test sequences for new products for its customers. It also
provides design and engineering services in the early stages of product
development thereby assuring mechanical and electrical considerations are
integrated with a total system. Alternatively, the customer may provide
specifications and Techdyne will assist in the design and
<PAGE> 7
engineering, or just manufacture to a customer's specifications. Contract
manufacturing products also include rack assemblies for data processing
and video editing and custom disk drive enclosures for OEMs.
By contracting assembly production, OEMs are able to keep pace with
continuous and complex technological changes and improvements by making
rapid modifications in their products without costly retooling and without
any extensive capital investments for new or altered equipment.
Medical Products
Lancets are produced for the Company for its medical supplies distri-
bution. Lancets produced by Techdyne are vertical insert molded disposable
products distributed under the trade names Medi-Lance(tm), Lady Lite(tm)
and Medi-Let or under a private label if requested by the customer.
Reworking and Refurbishing
Customers provide Techdyne with materials and sub-assemblies
acquired from other sources which the customer has determined requires
modified design or engineering changes. Techdyne redesigns, reworks,
refurbishes and repairs these materials and sub-assemblies.
Manufacturing
Components and products are custom designed and developed to fit
specific customer requirements and specifications. Techdyne attempts to
develop a "partnership" relationship with many of its customers by
providing a responsive, flexible, total manufacturing service. Such
service includes computer integrated manufacturing and engineering
services, quick-turnaround manufacturing and prototype development,
materials procurement, inventory management, developing manufacturing
processes for that particular customer and its needs, tooling and test
sequences for new products from product designs received from its
customers or developed by Techdyne based upon customer requirements.
Techdyne's industrial, electrical and mechanical engineers work in close
liaison with its customers' engineering departments from inception through
design, prototypes, production and packaging.
Techdyne maintains a large assortment of standard tooling and modern
state-of-the-art equipment at all of its facilities. Techdyne operates
simultaneous production and assembly lines for its diverse mix of
electrical and electro-mechanical products.
In addition to assembly operations, Techdyne has become more
involved in contract manufacturing of moderate to high volume turnkey
assemblies and sub-assemblies, including injection molded and electronic
assembly products. Finished turnkey assemblies include the entire
finished product and the entire manufacturing process from design and
engineering to purchasing raw materials, manufacturing and assembly of
the component parts, testing, packaging and delivery of the product to
the customer. By contracting assembly production, OEMs are able to keep
pace with continuous and complex technological changes and improvements
by making rapid modifications to their products without costly retooling
and without any extensive capital investments for new or altered equipment.
The PCB assembly operations are geared toward advanced SMT. Lytton
provides Techdyne with increased PCB production through state-of-the-art
manufacturing equipment and processes and a highly trained and experienced
engineering and manufacturing workforce that compliments Techdyne's opera-
tions. The manufacturing of PCBs involves several steps including the
attachment of various electronic components, such as integrated circuits,
capacitors, microprocessors and resistors.
<PAGE> 8
The Company offers a wide range of custom manufactured cables and
harnesses for molded and mechanical applications using advanced manufac-
turing processes, in-line inspection and testing to focus on process
efficiencies and quality. The cable and harness assembly process is
accomplished with automated and semi-automated preparation and insertion
equipment and manual assembly techniques.
Techdyne (Scotland)'s manufacturing facility, located in Livingston,
Scotland, focuses mainly on the electronics industry producing primarily
wire harnesses, electro-mechanical assemblies, and molded cables, incor-
porating multifaceted design and production capabilities.
Techdyne also has "supplier partnerships" to meet customers' needs.
This involves Techdyne accomplishing the in-house manufacturing require-
ments of the customer. Through EDI the customer conveys its needs on a
weekly basis based on a rolling quarterly forecast.
Suppliers and Materials Management
Materials used in Techdyne's operations consist of metals, electronic
components such as cable, wire, resistors, capacitors, diodes, PCBs, and
plastic resins. These materials are readily available from a large number
of suppliers and manufacturers. Techdyne has not experienced any signifi-
cant disruptions from shortages in materials or delivery delays of its
suppliers and believes that its present sources and the availability of
its required materials are adequate. Techdyne has a computerized system
of material requirements planning, purchasing, sales and marketing
functions. Techdyne is updating and making its materials acquisition
processes more efficient by installing new Visual Manufacturing software
in 1998/1999.
Techdyne uses just-in-time inventory management technologies and
manages its material pipelines and vendor base to allow its customers to
increase or decrease volume requirements within established frameworks.
Operational improvements implemented several years ago have improved
the overall efficiency of manufacturing, particularly in the area of
inventory management, including purchasing, which is geared more closely
to current needs resulting in reduced obsolescence problems.
Quality and Process Control
Techdyne has an ISO 9002 quality assurance designation for its
Hialeah, Florida, Houston and Austin, Texas and Dayton, Ohio facilities,
which is the international standard of quality with respect to all quality
systems of operations, including, among others, purchasing, design,
engineering, processes, manufacturing, sales, inventory control and
quality. Techdyne (Scotland) also holds a similar quality assurance
designation.
Quality control is essential to Techdyne's operations since low-cost
and high quality production are primary competitive standards and are
vital to the services of Techdyne. See "Competition" below. Products,
components, assemblies and sub-assemblies manufactured by Techdyne are
thoroughly inspected visually and electronically to assure components are
to strict specifications and are functional and safe. Management believes
it is one of the manufacturers of choice for the major Fortune 500
companies, certain of which continue to be customers based upon Techdyne's
excellent record of quality production.
<PAGE> 9
Strict process controls are also standard operating procedure.
Process controls deal with the controls relating to the entire manufac-
turing process. Techdyne strives for a CPK of two, i.e., twice as
critical as customer tolerances.
During the course of initial qualification and production cycles,
new and existing customers inspect Techdyne and its operations. Techdyne's
product and manufacturing quality receive excellent ratings.
Customers
Techdyne serves a wide range of businesses from emerging growth
companies to multinational OEMs involved in a variety of markets including
computer networking systems, computer workstations, telecommunications,
mass data storage systems, instrumentation and food preparation equipment
industries. The Company seeks to serve a sufficiently large number of
customers to avoid dependence on any one customer or industry. Neverthe-
less, historically a substantial percentage of the Company's net sales
have been to multiple locations of a small number of customers, the loss
of any of which would adversely affect the Company. To that extent, the
Company is dependent upon the continued growth, viability and financial
stability of its customers, which are in turn substantially dependent on
the growth of the personal computer, computer peripherals, communications,
instrumentation, data processing and food preparation equipment industries.
These industries have been characterized by rapid technological change,
short product life cycles, pricing and margin pressures. In addition,
many of the Company's customers in these industries are affected by
general economic conditions. In addition, the Company generates signifi-
cant accounts receivable in connection with providing manufacturing
services to its customers. If one or more of the Company's major
customers were to become insolvent or otherwise were unable to pay for
the manufacturing services provided by the Company, the Company's operating
results and financial condition would be adversely affected. In 1997, 63%
of Techdyne's sales, including IBM (19%), EMC and related suppliers (10%),
Compaq (9%), Motorola (9%), Telxon (8%) and PMI Food Equipment Group (8%)
were made to numerous locations of six major customers. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Techdyne sells to approximately an additional 100 other companies,
which comprise the remaining 37% of its sales. Lytton, which was acquired
in July, 1997 and focuses primarily in PCBs, had approximately 53% of its
sales for the last three fiscal years to PMI Food Equipment Group.
Techdyne (Scotland) had a substantial portion of its 1997 sales, approxi-
mately 42%, to Compaq. During 1997 and 1996, bidding for Compaq orders
became more competitive due to Far Eastern competitors which resulted in
substantially reduced sales to that customer with lower profit margins on
remaining sales. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Marketing and Sales
Techdyne continues to pursue expansion and diversification of its
customer base and it is targeting emerging OEMs in high growth industry
segments. Principal sources of new business are the expansion in the
volume and scope of services provided to existing customers, referrals
from customers and suppliers, direct sales through its sales managers
and executive staff, and through its independent sales representatives.
Domestic sales are generated by six regional sales managers covering
different regions of the country. There are also 11 in-house
sales/marketing personnel, including the President of Techdyne. The
regional sales managers have six independent manufacturer representative
agencies. Sales are also generated through catalogues, brochures and
trade shows. The manufacturer sales representatives,
<PAGE> 10
primarily marketing electronic and similar high technology-products, are
retained under exclusive sales representative agreements for specific
territories and are paid on a commission basis.
Techdyne (Scotland) has four in-house sales personnel who market its
products and services to customers in Scotland, England, Ireland, Germany
and the Middle East.
Substantially all of Techdyne's sales and reorders are effected
through competitive bidding. Most sales are accomplished through purchase
orders with specific quantity, price and delivery terms. Some production,
such as its supplier partnerships are accomplished under open purchase
orders with components released against customer requests. See "Manufac-
turing and Supplies" above.
Backlog
At December 31, 1997, Techdyne's backlog of orders amounted to
approximately $14,029,000, of which approximately $2,054,000 (approxi-
mately 15%) was represented by the orders for Techdyne (Scotland) and
approximately $7,408,000 (approximately 53%) was represented by orders
for Lytton. Last year the backlog was approximately $7,300,000 of which
approximately $1,320,000 was represented by orders for Techdyne (Scotland).
Management believes, based on past experience and relationships with its
customers and knowledge of its manufacturing capabilities, that substan-
tially all of its backlog orders are firm and will be filled within six
months. The purchase orders within which Techdyne performs do not provide
for cancellation. Over the last several years cancellations have been
minimal. However, variations in the size and delivery schedules of
purchase orders received by Techdyne may result in substantial fluctua-
tions in backlog from period to period. Since orders and commitments may
be rescheduled or cancelled, and customers' lead times may vary, backlog
does not necessarily reflect the timing or amount of future sales.
Dialysis Operations
The Company, through DCA and its subsidiaries, currently operates
three outpatient dialysis treatment centers in Pennsylvania with a
capacity of 31 licensed stations. Through these centers and other DCA
subsidiaries, the Company provides inpatient dialysis services to several
hospitals where the dialysis facilities are located. The outpatient
dialysis centers are located in Carlisle, Lemoyne and Wellsboro, Pennsyl-
vania. Home patient dialysis services are also provided by DCA, which
includes dialysis training for patients at home, primarily peritoneal
dialysis, either continuous ambulatory peritoneal dialysis ("CAPD") or
continuous cycling peritoneal dialysis ("CCPD"), as well as Method 2
homepatient treatment which involves providing equipment and supplies,
training, patient monitoring and follow-up assistance to patients who
are able and prefer to be treated at home.
In October, 1997, DCA sold its Florida dialysis operations which
included the assets of Dialysis Services of Florida, Inc. - Fort Walton
Beach ("DSF"), the assets of Dialysis Medical, Inc. ("DMI") which related
solely to the Florida Method 2 patient treatments, and an acute inpatient
dialysis services agreement with a Florida hospital operated by DCA Medical
Services, Inc. ("DCAMS"). DSF and DMI are now inactive, 20% of which
subsidiaries was owned by a former medical director whose shares have
been redeemed. DCAMS is wholly owned and continues to operate the home-
care operations in Pennsylvania.
DCA has commenced construction of a Manahawkin, New Jersey dialysis
facility licensed for 12 stations, and will soon commence construction of
another dialysis facility in Toms River, New Jersey. Other new dialysis
facilities are anticipated, presently through construction and development
of new dialysis centers as opposed to acquisition.
<PAGE> 11
DCA's Business Strategy
DCA, having 21 years experience in successfully developing and
operating dialysis treatment facilities, is intent upon using its
expertise to expand its dialysis operations, including provision of
ancillary services to patients. First in the Company's objectives is
top quality patient care. Management intends to continue to establish
alliances with hospitals and to initiate dialysis service arrangements
with nursing homes and managed care organizations, and to continue to
emphasize its high quality patient care and its smaller size which allows
it to focus on each patient's individual needs while remaining sensitive
to the physicians' professional concerns.
DCA is actively negotiating with physicians to establish new out-
patient dialysis facilities. Other than the current development of the
two facilities in New Jersey, there are no other firm agreements for the
acquisition or construction of additional dialysis facilities, no firm
contracts for acute inpatient dialysis services, and no assurance can be
given that any such acquisition or development will be completed.
DCA believes that it has existing adequate space within its facilities
to accommodate greater patient volume and will work to achieve such
increase, to lower its fixed costs, and operate at a greater efficiency
level.
One of the primary elements in acquiring or developing facilities is
locating an area with an existing substantial patient base under the
guidance of a local nephrologist, since the facility is primarily going
to serve such patients. Other considerations in evaluating a proposed
acquisition or development of a dialysis facility are the availability
and cost of qualified and skilled personnel, particularly nursing and
technical staff, the size and condition of the facility and its equipment,
the atmosphere for the patients, the area's demographics and population
growth estimates, whether a certificate of need is required, and the
existence of competitive factors such as hospital or proprietary non-
hospital owned and existing outpatient dialysis facilities within
reasonable proximity of the proposed center.
An acquisition, which usually costs more than construction and
development of a new facility, can be accomplished quickly. To construct
and develop a new facility ready for operations may take an average of
four to six months and 12 months or longer to generate income, all of
which are subject to location, size and competitive elements. To construct
a 10 station facility may cost in a range of $600,000 to $750,000 depending
on location, size and related services to be provided.
Acquisition of existing facilities may range from $40,000 to $70,000
per patient. Therefore, a facility for 30 patients could cost from
$1,200,000 to $2,100,000 subject to location, competition, nature of
facility and negotiation. To date, no acquisitions have been made and
should such acquisition opportunities arise, there is no assurance that
DCA would have available or be able to raise the necessary financing.
Management is also seeking to increase acute dialysis care contracts
with hospitals for inpatient dialysis services. These contracts are sought
with hospitals in areas serviced by its facilities, and are negotiated and
are not fixed by government regulation as is the case with Medicare
reimbursement fees for ESRD patient treatment. Hospitals are willing to
enter into such inpatient care arrangements for cost efficiencies and to
eliminate the administrative burdens of providing dialysis services to
their patients.
<PAGE> 12
ESRD Treatment Options
Individuals with end stage renal disease ("ESRD"), which results
from chemical imbalance and buildup of toxic chemicals, is a state of
kidney disease characterized by advanced, irreversible renal impairment,
which requires dialysis treatments or kidney transplantation to sustain
life.
Treatment options for ESRD patients include (1) hemodialysis,
performed either at (i) an outpatient facility, or (ii) inpatient hospital
facility, or (iii) the patient's home; (2) peritoneal dialysis, either CAPD
or CCPD, usually performed at the patient's home; and/or (3) kidney
transplant. The most prevalent form of treatment for ESRD patients is
hemodialysis, which involves the use of an artificial kidney, known as a
dialyzer, to perform the function of removing toxins and excess fluids
from the blood-stream. This is accomplished with the dialysis machine,
a complex blood filtering device which takes the place of certain functions
of the kidney and which machine also controls external blood flow and
monitors the toxic and fluid removal process. On the average, patients
usually receive three treatments per week with each treatment taking three
to five hours. Dialysis treatments are performed by teams of licensed
nurses and trained technicians pursuant to the staff physician's instruc-
tions. Home hemodialysis treatment requires the patient to be medically
suitable and have a qualified assistant.
Operations of Dialysis Facilities
DCA's dialysis facilities are designed specifically for outpatient
hemodialysis and generally contain, in addition to space for dialysis
treatments, a nurses' station, a patient weigh-in area, a supply room,
water treatment space used to purify the water used in hemodialysis
treatments, a dialyzer reprocessing room, staff work area, offices and a
staff lounge and kitchen. DCA's facilities also have a designated area
for training patients in home dialysis. Each facility offers amenities
for the patients, such as a color television with headsets for each
dialysis station, and other amenities to ensure the patients are com-
fortable and relaxed.
In accordance with participation requirements under the Medicare ESRD
program, each facility retains a Medical Director qualified and experienced
in the practice of nephrology and the administration of a renal dialysis
facility. See "Physician Relationships" below. Each facility also has a
nurse administrator who supervises the daily operations and the staff,
which consists of registered nurses, licensed practical nurses, patient
care technicians, a part-time social worker and a part-time registered
dietitian, who all supervise each aspect of the patients' treatments.
See "Employees" below.
Inpatient Dialysis Services
DCA presently provides inpatient dialysis services to three hospitals
in Pennsylvania. These services are under contracts with the hospitals
wherein the dialysis facility provides the equipment, supplies and
personnel to perform the dialysis treatments as required by the hospital.
These hospital agreements specify per treatment fees individually
negotiated with the hospital. Inpatient services are typically necessary
for patients with acute kidney failure resulting from trauma or similar
causes, patients in the early stages of ESRD, and ESRD patients who require
hospitalization for other reasons.
Ancillary Services
Dialysis facilities provide certain ancillary services to ESRD
patients, including the administration of erythropoietin ("EPO") upon a
physician's prescription. EPO is a bio-engineered protein which stimulates
the production of red blood cells and is used in connection with all forms
of
<PAGE> 13
dialysis to treat anemia, a medical complication frequently experienced
by ESRD patients. EPO decreases the necessity for blood transfusions in
ESRD patients. Other ancillary services may include bone densitometry
studies to test the degree of bone deterioration; electrocardiograms;
nerve conduction studies to test the degree of deterioration of nerves;
doppler flow testing to test the effectiveness of the patient's vascular
access for dialysis; and blood transfusions. See "Medicare Reimbursement"
below.
Physician Relationships
An integral element to the success of a facility is its association
with area nephrologists. A dialysis patient generally seeks treatment
at a facility near the patient's home and where such patient's nephrologist
has established practice privileges. Consequently, DCA relies on its
ability to attract and satisfy the needs of referring nephrologists to
gain new patients and to provide quality dialysis care through these
referring physicians.
The conditions of a facility's participation in the Medicare ESRD
program mandate that treatment at a dialysis facility be under the
general supervision of a medical director who is a physician. DCA
retains by written agreement qualified physicians or groups of qualified
physicians to serve as medical directors for each of its facilities.
Generally, the medical directors are board eligible or board certified
in internal medicine by a professional board specializing in nephrology
and have had at least 12 months of experience or training in the care of
dialysis patients at ESRD facilities. DCA's medical directors are
typically a significant source of referrals to the particular center
served.
Patient Revenues
Substantially all of the fees for outpatient dialysis treatments are
funded under the ESRD Program established by the federal government under
the Social Security Act, and administered in accordance with rates set by
the Health Care Financing Administration ("HCFA") of the Department of
Health and Human Services ("HHS"). The balance of the outpatient charges
are paid by private payors including the patient's medical insurance,
private funds or state Medicaid plans. Pennsylvania, presently the state
in which the Company operates, provides Medicaid or comparable benefits to
qualified recipients to supplement their Medicare coverage. Medicaid
payments to DCA have not been significant.
Under the ESRD Program, payments for dialysis services are determined
pursuant to Part B of the Medicare Act which presently pays approximately
80% of the allowable charges for each dialysis treatment furnished to
patients. The maximum payments vary based on location of the center.
See "Medicare Reimbursement" below. The remaining 20% may be paid by
Medicaid if the patient is eligible, from private insurance funds or the
patient's personal funds. Medicare and Medicaid programs are subject to
regulatory changes, statutory limitations and governmental funding re-
strictions, which may adversely affect DCA's and the Company's revenues
and dialysis services payments. See "Medicare Reimbursement" below.
The inpatient dialysis services are paid for by the hospital pursuant
to contractual pre-determined fees. Inpatient treatments accounted for
approximately 12% and 16% of DCA's revenues for the years ended December
31, 1996 and 1997, respectively.
<PAGE> 14
Medicare Reimbursement
DCA is reimbursed primarily from third party payors including
Medicaid, commercial insurance companies, and substantially by Medicare
under a prospective reimbursement system for chronic dialysis services.
Under this system, the reimbursement rates are fixed in advance and have
been adjusted from time to time by Congress. This form of reimbursement
limits the allowable charge per treatment. An established composite rate
set by HCFA governs the Medicare reimbursement available for a designated
group of dialysis services, including dialysis treatments, supplies used
for such treatments, certain laboratory tests and medications. HCFA
eliminated routine Medicare coverage for nerve conduction studies,
electrocardiograms, chest x-rays and bone mineral density measurements,
and will only pay for such tests when there is documentation of medical
necessity. The Medicare composite rate is subject to regional differences.
Certain other services and items are eligible for separate reim-
bursement under Medicare and are not part of the composite rate, including
certain drugs (including EPO, the allowable rate currently $10 per 1000
units), blood (for amounts in excess of three units per patient per year),
and certain physician-ordered tests provided to dialysis patients. These
ancillary services are not significant segments of income to the Company.
The Company receives reimbursement for outpatient dialysis services
provided to Medicare-eligible patients at rates that are currently between
$117 and $123 per treatment, depending upon regional wage variations. The
Medicare composite rate for outpatient dialysis services currently averages
$126 per treatment for freestanding facilities. The Medicare reimbursement
rate is subject to change by legislation.
Since 1989, the dialysis operations consisted of one center in Fort
Walton Beach, Florida until 1995 when DCA established two additional
outpatient dialysis facilities, one in Lemoyne, Pennsylvania which
commenced operations in June, 1995 and the other in Wellsboro, Pennsyl-
vania which commenced operations in October, 1995. In July, 1997 a new
dialysis facility in Carlisle, Pennsylvania became operational, and in
October, 1997 DCA sold its Florida dialysis operations. The treatment
statistics for the five years ended December 31, 1997 were as follows:
Fiscal Year
----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Outpatients at year end 96 129 108 60 72
Outpatient treatments 15,300 18,364(2) 10,903(1) 9,500 9,800
Acute inpatient treatments 1,800 1,387 843 419 748
- ----------
(1) Includes outpatient and homecare treatments of DSF and DMI, substan-
tially all of the assets of which companies were sold on October 31,
1997, as well as the acute care inpatient treatments of the Florida
operations conducted by DCAMS. See "Dialysis Operations" above and Item
7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(2) Includes 4,400, 4,548 and 3,060 home patient treatment equivalents for
1997, 1996 and 1995, respectively, which patients are billed for
dialysis treatment supplies rather than per treatment and is converted
into a per treatment basis pursuant to a formula developed by Medicare.
<PAGE> 15
Since DCA sold four of its dialysis centers in 1989, it has incurred
operational losses. Although DCA has reflected income over the years, this
was due to interest income, including interest on funds received through
advances to the Company. In December, 1995 a new DCA subsidiary, Renal
Services of Pa., Inc. was established to implement DCA's growth strategy
to obtain new inpatient dialysis services at hospitals and to assist in
establishing or acquiring outpatient dialysis centers. A new dialysis
center in Carlisle, PA was developed and became operational in the third
quarter of 1997 and construction has begun for a new dialysis facility in
Manahawkin, New Jersey, with plans to initiate another new outpatient
facility in Toms River, New Jersey. In October, 1997 DCA sold its Florida
operations for $5,065,000 of which $4,585,000 was in cash and the balance
in the purchaser's common stock. DCA plans to use these proceeds for
further expansion.
Regulation
Techdyne
Techdyne's operations are subject to certain federal, state and
local regulatory requirements relating to environmental waste management
and health and safety matters. Management believes that Techdyne complies
with applicable regulations pertaining to health and safety in the workplace
and the use, storage, discharge and disposal of chemicals used in its manu-
facturing processes. Techdyne periodically generates and temporarily
handles limited amounts of materials that are considered hazardous waste
under applicable law. The current costs of compliance are not material.
Nevertheless, no assurances can be given that additional or modified
requirements will not be imposed in the future, and if so imposed, will
not involve substantial additional expenditures. These regulations
provide for civil and criminal fines, injunctions and other sanctions
and, in certain instances, allow third parties to sue to enforce compliance.
DCA
The dialysis operations must adhere to stringent regulations of
federal and state authorities. Each dialysis center is subject to provider
inspections by state agencies. DCA must comply with rules and regulations
established by HCFA regarding charges, procedures and policies. Each of
the dialysis facilities must be certified by HCFA. DCA's operations are
subject to the terms of the Social Security Act and similar state laws
which prohibit the payment of patient referral fees for treatments that
are otherwise paid in whole or in part by Medicare, Medicaid or a similar
state program, generally known as the "Anti-kickback Statute." As required
by Medicare regulation, each of DCA's dialysis centers is supervised by a
medical director, a licensed nephrologist or otherwise qualified physician.
The medical directors are in private practice and are one of the most
important sources of the dialysis center's business, since it is primarily
the physician's patients that utilize the services of the dialysis facility.
Certain of DCA's medical directors join with DCA in forming the subsidiary
to operate the new dialysis facility with which they will be affiliated and
receive a minority interest in that subsidiary. Such interest does not
fall within the "safe harbor" of the Anti-kickback Statute. Although DCA
endeavors in good faith to comply with all governmental regulations and
this arrangement has not been challenged, there can be no assurance that
DCA will not be required to change its practices or experience a material
adverse effect as a result of any such potential challenge.
The Omnibus Budget Reconciliation Act of 1993 contains the Physician
Ownership and Referral Act known as "Stark II" which, in tandem with the
Anti-kickback Statute, also restricts physician referrals for certain
"designated health services" to entities with which a physician or an
immediate family member has a "financial relationship." Designated health
services include, among others, outpatient prescription
<PAGE> 16
drugs, durable medical equipment and inpatient and outpatient hospital
services. As indicated, DCA in some instances provides certain of its
physician directors of its dialysis centers with a financial interest in
that facility. Financial relationships under Stark II include an ownership
interest or a compensation arrangement between the physician and the entity,
subject to several exceptions including personal service arrangements and
relationships with group practices meeting specific conditions. Although
management believes it meets certain of the enumerated exceptions, recent
rules promulgated by HCFA appear to indicate that dialysis operations as
provided by DCA are not deemed designated health services, since Congress
did not intend to include dialysis services and items provided incident to
dialysis operations to be within the Stark II prohibitions. The President
and Congress are in the process of attempting to reform the healthcare
system. It is possible that federal and state governments will impose
additional restrictions upon activities of the type conducted by DCA, which
might have a materially adverse effect on the Company's business and
results of operations.
DCA must comply with certain other rules and regulations of HCFA,
which agency sets the reimbursement rates for dialysis treatments and
other medical services. See "Business - Dialysis Operations - Medicare
Reimbursement" above. Although none of DCA's business arrangements has
been the subject of investigation by any governmental authority, no
assurance can be given that legislative developments will not require
restructuring business arrangements or that such will comply or be subject
to governmental review.
In August, 1996, President Clinton signed the "Health Insurance
Portability and Accountability Act of 1996," a package of health insurance
reforms which include a variety of provisions important to health care
providers, such as significant changes to the Medicare and Medicaid fraud
and abuse laws, some of which were self-executing provisions effective
January 1, 1997, while other provisions were implemented by regulations
which became effective July 1, 1997. These regulations substantially
increased the government's power to curb Medicare fraud through investi-
gation, and criminal and civil penalties.
DCA's dialysis centers are subject to hazardous waste laws and
non-hazardous medical waste regulation. Most of the waste is non-
hazardous waste, which is disposed of by medical waste sanitation
agencies which are primarily responsible for compliance with such laws.
There are a variety of regulations promulgated under OSHA relating to
employees exposed to blood and other potentially infectious materials
requiring employers, including dialysis centers, to provide protection,
including providing employees subject to exposure with hepatitis B vaccina-
tion, protective equipment, written exposure control plan and training in
infection control and waste disposal.
The Company's record of compliance with federal, state and local
governmental laws and regulations has been excellent.
Any loss by DCA of its various federal certifications, its authori-
zation to participate in the Medicare or Medicaid programs or its licenses
under the laws of any state or other governmental authority from which a
substantial portion of its revenues is derived or a change resulting from
health care reform reducing dialysis reimbursement or reducing or elim-
inating coverage for dialysis services would have a material adverse
effect on DCA's business.
Patents and Trade Names
The Company sells certain of its medical supplies and products under
the trade name Medicore(tm). Certain of its lancets are marketed under
the trade names Medi-Lance(tm) and Lady Lite(tm).
<PAGE> 17
The Company is the assignee of three patents relating to its lancets.
The issuance of a patent does not assure protection against the development
of similar, if not superior processes, know-how and products. The Company
does not rely on patents or trademarks in its electro-manufacturing opera-
tions and manufacturing of medical products. Dependency is placed more on
design, engineering, manufacturing cost containment, quality and marketing
skills to establish or maintain market position.
Competition
The medical supply operations are extremely competitive and the
Company is not a significant competitive factor in this area.
In electro-mechanical manufacturing, Techdyne faces competition from
many areas including divisions of large electronic and high-technology
firms as well as from numerous smaller, specialized companies. Competitive
price advantages may also be available to competitors with less expensive
off-shore operations. Management believes the primary competitive factors
to be price, quality of production, prompt customer service, timely
delivery, engineering expertise and technical assistance to customers.
Among this mix of competitive standards, management believes it is very
competitive with respect to delivery time, quality, cost and customer
service. Management also believes its competitive position is enhanced
through Techdyne (Scotland)'s European manufacturing and marketing
operations. See "Business - Electro-Mechanical Manufacturing" above.
Due to the number and variety of competitors, reliable data relative to
Techdyne's competitive position in the electronic components and assembly
industry is difficult to develop and is not known.
The operation of kidney dialysis centers is very competitive with
numerous local providers, many owned by physicians, and several major
operators, some of which are public companies, which have substantially
greater financial resources and many more centers and patients than the
Company. This provides these larger facilities with a significant
advantage in competing for acquisitions of dialysis facilities and the
ability to attract and retain qualified nephrologists, who are normally a
substantial source of patients for the dialysis enter and who are respon-
sible for the supervision and operation of the centers. Hospitals and
other outpatient dialysis centers compete with the Company's dialysis
operations. Competitive factors that are most significant in dialysis
treatments are the quality of care and service, convenience of location
and pleasantness of environment. Peritoneal dialysis, a more convenient
and less expensive dialysis procedure, presents an additional competitive
aspect to hemodialysis treatment. The Company is not a significant
competitive factor in kidney dialysis services primarily based upon its
limited number of centers and size.
Employees
The Company and its subsidiaries employ approximately 524 full time
employees of which 14 are administrative, 37 are with the dialysis opera-
tions, 7 are engaged in the medical supply operations, and 470 are with
Techdyne's electro-mechanical manufacturing operations (domestic and
Scotland). In addition, Techdyne utilizes approximately 131 temporary
workers, retained through local agencies, on a regular basis.
Item 2. Properties
The Company leases 2,800 square feet for its executive offices in
Hialeah, Florida, and at a different location in Hialeah, Florida, leases
<PAGE> 18
5,000 square feet for its medical supply operations, each lease through
December 31, 2002. It also leases 3,900 square feet of space for other
executive offices in Hasbrouck Heights, New Jersey through March 31, 2001.
DCA acquired two properties in 1987, one in Easton, Maryland
consisting of land and a one and one-half story frame building of
approximately 8,000 square feet, of which 5,400 square feet is leased
to the purchaser of one of the dialysis centers DCA sold in 1989 and a
competitor of DCA. The lease expires March 31, 1998 with a five year
renewal option. That tenant also leases an additional 2,040 square feet
at this facility on a month-to-month basis. The second property consists
of land and a 15,230 square foot brick building in Lemoyne, Pennsylvania.
DCA constructed a 3,400 square foot center at this facility, approved for
13 dialysis stations, with space available for expansion. DCA leases this
facility to its subsidiary. DCA maintains its executive offices at this
facility which accounts for approximately 2,500 square feet of space.
See "Certain Relationships and Related Transactions" of the Company's
Proxy Statement relating to the Annual Meeting of Shareholders to be held
on June 10, 1998, which is incorporated herein by reference.
The properties are subject to mortgages from a Maryland banking
institution. As of December 31, 1997, the remaining principal amount of
the mortgages aggregated approximately $420,000. Each mortgage extends
through November, 2003, bears interest at 1% over the prime rate, and is
secured by the real property and DCA's personal property at those
locations. The bank also has a lien on rents due to DCA and security
deposits from leases of the properties. Written approval of the bank is
required for all leases, assignments or subletting, alterations and
improvements and sales of the properties. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
As lessor, DCA also leases approximately 2,200 square feet at its
Lemoyne, Pennsylvania property to two other unrelated parties for their
own business activities unrelated to dialysis services or to the Company.
The leases expire between March, 1998 and February, 1999.
The dialysis facility in Wellsboro, Pennsylvania consists of
approximately 3,500 square feet, with 12 dialysis stations and is leased
for five years through September 27, 2000. The Carlisle, Pennsylvania
dialysis facility, approximately 4,340 square feet of space accommodating
12 dialysis stations which became operational in July, 1997, is leased by
the Company's subsidiary, DSPC under a five year lease through June 30,
2002. DSNJ signed a five year lease for its new dialysis facility in
Manahawkin, New Jersey for approximately 5,000 square feet designed for
12 dialysis stations. Construction of this facility is underway.
The Lemoyne and Wellsboro facilities, both of which initiated
operations in 1995, are currently operating at approximately 68% and 77%
capacity, respectively, and Carlisle has operated at 55% capacity since
opening in July, 1997. The existing dialysis facilities could accommodate
greater patient volume, particularly if they increase hours and/or days of
operation without adding additional dialysis stations or any additional
capital expenditures.
The dialysis stations are equipped with modern dialysis equipment
under a November, 1996 master-lease/purchase agreement ("1996 Master
Lease") with a $1.00 purchase option at the end of the term. Information
regarding the general character of these dialysis facilities is provided
in Item 1, "Business - DCA Operations." DCA maintains additional executive
offices with its Parent at 2337 West 76th Street, Hialeah, Florida 33016.
Techdyne's domestic operations are headquartered in Hialeah, Florida
which consists of 28,000 square feet of space for its executive offices,
manufacturing facilities and warehousing, leased from the Company under
five year leases expiring March 31, 2000. These facilities are located
in two adjacent
<PAGE> 19
buildings acquired by the Company from Techdyne in 1990 which also
included the purchase of a parcel of land adjacent to these buildings
used for parking. See "Certain Relationships and Related Transactions"
of the Company's Proxy Statement relating to the Annual Meeting of Share-
holders to be held on June 10, 1998 incorporated herein by reference. The
Company owns a small parcel of land near Techdyne's offices in Hialeah,
Florida, also used as a parking lot, and a small, undeveloped parcel
adjacent to Techdyne's warehouse available for future expansion.
In 1997, Techdyne significantly increased its manufacturing facilities
by executing a lease through March, 2002 for 5,500 square feet of manu-
facturing and office space in Massachusetts, primarily for manufacture of
wire harnesses and to a lesser extent PCBs. Techdyne tripled its manu-
facturing space in Austin, Texas to 18,225 square feet under a lease to
April, 2002 (a minimal portion has been sublet on a month-to-month basis)
and expanded its manufacturing facility in Houston, Texas for 15,000 square
feet, including a warehouse, also leased until April, 2002. Each lease has
one five year renewal.
In July, 1997, Techdyne acquired Lytton and with that acquisition
leased a 77,800 square foot manufacturing and office facility under a lease
to July 31, 2002 with two renewals of five years each. The landlord, a
limited liability company, is owned by the President of Lytton and his
wife, the latter having sold Lytton to Techdyne. See "Certain Relation-
ships and Related Transactions." Techdyne has a right of first refusal
and an option to purchase these premises. This lease is guaranteed by
the Company.
Techdyne (Scotland) owns an approximately 31,000 square foot facility
in Livingston, Scotland subject to a 15-year mortgage due July, 2009 which
has a U.S. dollar equivalency of approximately $569,000 at December 31,
1997. See Item 1, "Business - Techdyne Operations" and Item 7, "Manage-
ment's Discussion and Analysis of Financial Condition and Results of
Operations."
Techdyne maintains state-of-the-art manufacturing, quality control,
testing and packaging equipment at all of its facilities. The Company
believes that its equipment and facilities are adequate for its current
operations.
Item 3. Legal Proceedings
The Company is not involved in or subject to any claims or litigation
of a material nature or that any adverse outcome would have a material
adverse effect on the Company's financial condition. See Note 7 to "Notes
to Consolidated Financial Statements."
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the Company's
fiscal year to a vote of security holders through the solicitation of
proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
(a) The Company's Common Stock traded on the American Stock Exchange
until June 3, 1996 when its Common Stock commenced trading on the Nasdaq
National Market under the symbol "MDKI." The table below reflects for the
periods indicated the high and low closing sales prices for the Company's
Common Stock as reported by the Nasdaq National Market.
<PAGE> 20
Sale Price
----------
High Low
---- ---
1996
- ----
1st Quarter 9 3/8 4
2nd Quarter 6 5/8 3 3/4
3rd Quarter 5 3/8 3 1/4
4th Quarter 5 3/4 2 3/8
1997
- ----
1st Quarter 5 2 5/8
2nd Quarter 4 1/2 2
3rd Quarter 3 3/8 2 1/8
4th Quarter 3 1 7/8
(b) As of March 5, 1998, there were 1,340 shareholders of record.
The Company estimates, based upon its 1997 proxy solicitation, that its
Common Stock is beneficially held by approximately 3,200 shareholders.
(c) The Company has not paid any cash dividends in the last two years.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction
with the consolidated financial statements, related notes and other
financial information included herein.
Consolidated Statements of Operations Data
(in thousands except per share amounts)
Years Ended December 31
---------------------------------------------------
1997(1) 1996(2) 1995 1994 1993
------- ------- ---- ---- ----
Revenues $44,119 $34,719 $36,660 $24,552 $18,958
Net income 1,752 2,417 2,251 864 18
Income per
common share:
Basic $.31 $.44 $.41 $.17 $--
Diluted $.28 $.39 $.37 $.16 $--
Consolidated Balance Sheet Data
(in thousands)
December 31
---------------------------------------------------
1997(1) 1996(2) 1995 1994 1993
------- ------- ---- ---- ----
Working capital $17,708 $13,844 $ 7,034 $ 4,871 $ 2,497
Total assets 39,855 27,085 21,247 15,955 11,322
Long-term debt 5,240 1,677 964 1,667 918
Stockholders'
equity(3) 15,360 13,021 9,754 8,027 5,881
(Notes on next page)
<PAGE> 21
- ----------
(1) Reflects (i) five months operations of Lytton, and its assets,
liabilities and stockholders' equity, which company was acquired by
Techdyne on July 31, 1997; and (ii) the sale of the Florida dialysis
operations on October 31, 1997 for $5,065,000 of which consideration
$4,585,000 was cash with the balance consisting of 13,873 shares of
common stock of the purchaser. See Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
Note 12 to "Notes to Consolidated Financial Statements."
(2) In 1996, the Company recorded estimated costs of $305,000 for shutdown
of its durable medical equipment operations.
(3) In 1993, the Company changed its method of accounting for income taxes
and implemented, on a retroactive basis, Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes." Prior
year amounts have been restated for the $188,000 retroactive effect
of adopting Statement No. 109.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Information
The statements contained in this Annual Report on Form 10-K that
are not historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of the 1934. The Private Securities Litigation Reform Act of
1995 (the "Reform Act") contains certain safe harbors regarding forward-
looking statements. Certain of the forward-looking statements include
management's expectations, intuitions and beliefs with respect to the
growth of the Company, the nature of the electronics industry in which
its 63% owned public subsidiary, Techdyne, is engaged as a manufacturer,
the character and development of the dialysis industry in which its 66%
owned public subsidiary, DCA, is engaged, the Company's business strategies
and plans for future operations, its needs for capital expenditures,
capital resources, liquidity and operating results, and similar matters
that are not historical facts. Such forward-looking statements are subject
to substantial risks and uncertainties that could cause actual results to
materially differ from those expressed in the statements, including general
economic and business conditions, opportunities pursued by the Company,
competition, changes in federal and state laws or regulations affecting
the Company, and other factors discussed periodically in the Company's
filings. Many of the foregoing factors are beyond the control of the
Company. Among the factors that could cause actual results to differ
materially are the factors detailed in the risks discussed in the "Risk
Factors" section included in the Company's Registration Statement, Form
S-3, as filed with the Securities and Exchange Commission ("Commission")
(effective May 15, 1997) and the Registration Statements of the Company's
subsidiaries, Techdyne's Registration Statements as filed with the
Commission, Form SB-2 (effective September 13, 1995) and Forms S-3
(effective November 11, 1996 and November 4, 1997, respectively), and
DCA's Registration Statement, Form SB-2, as filed with the Commission
(effective on April 17, 1996). Accordingly, readers are cautioned not to
place undue reliance on such forward-looking statements which speak only
as of the date made and which the Company undertakes no obligation to
revise to reflect events after the date made.
Techdyne's electronic and electro-mechanical manufacturing operations
continue to depend upon a relatively small number of customers for a
significant percentage of its net revenue. Significant reductions in
sales to any of Techdyne's large customers would have a material adverse
effect on Techdyne's and the
<PAGE> 22
Company's results of operations. In the past, certain of Techdyne's
customers have either terminated their manufacturing arrangement with or
significantly reduced or delayed the volume of manufacturing services
ordered. The Company's and Techdyne's results also depend to a substan-
tial extent on the success of Techdyne's OEM customers in marketing their
products.
The industry segments of Techdyne's customers, manufacturing in the
telecommunications, data processing, instrumentation and food preparation
equipment industries, and the electronics industry as a whole, are subject
to rapid technological change and product obsolescence. Discontinuance or
modification of products containing components manufactured by Techdyne
could adversely affect the Company's and Techdyne's results of operations.
The electronics industry is also subject to economic cycles and has in the
past experienced, and is likely in the future to experience, recessionary
periods, which could have a material adverse effect on the Company's and
Techdyne's business, financial condition and results of operations.
Due to Techdyne's utilization of just-in-time inventory techniques, the
timely availability of many components to Techdyne is dependent on
Techdyne's ability to continuously develop accurate forecasts of customer
volume requirements. Component shortages could result in manufacturing and
shipping delays or increased component prices which could have a material
adverse effect on Techdyne's and the Company's results of operations. It
is important for Techdyne, and there are significant risks involved, to
efficiently manage inventory, proper timing of expenditures and allocations
of physical and personnel resources in anticipation of future sales, the
evaluation of economic conditions in the electronics industry and the mix
of products, whether PCBs, wire harnesses, cables, or turnkey products, for
manufacture.
Operating results can also be influenced by development and intro-
duction of new products by Techdyne's customers. The market for the
Company's manufacturing services is characterized by rapidly changing
technology. To continue to grow and be a successful competitor, the
Company must be able to maintain and enhance its technological capabil-
ities, develop and market manufacturing services which meet changing
customer needs and successfully anticipate or respond to technological
changes in manufacturing processes on a cost-effective and timely basis.
Although management believes that Techdyne's operations utilize the
assembly and testing technologies and equipment currently required by
Techdyne's customers, there can be no assurance that Techdyne's process
development efforts will be successful or that the emergence of new
technologies, industry standards or customer requirements will not render
its technology, equipment or processes obsolete or uncompetitive. In
addition, new assembly and testing technologies and equipment required
to remain competitive are likely to require significant capital investment.
Techdyne has been expanding its geographic and customer base and
management intends to continue to expand within the United States by
continuing to establish new manufacturing facilities and operations in
areas to better serve existing customers and to attract new OEMs, as well
as direct acquisition of contract manufacturing businesses complimentary
to Techdyne's operations. The Company will be competing with much larger
electronic manufacturing entities for such expansion opportunities.
Further, any such transactions may result in potentially dilutive issuance
of equity securities, the incurrence of debt and amortization expenses
related to goodwill and other intangible assets, and other costs and
expenses, all of which could materially adversely affect the Company's
and Techdyne's financial results. Such transactions also involve
numerous business risks, including difficulties in successfully
integrating acquired operations, technologies and products or formalizing
anticipated synergies, and the diversion of management's attention from
other business concerns. In the event that any such transaction does
occur, there can be no assurance as to the beneficial effect on Techdyne
and the Company's business and financial results.
<PAGE> 23
Techdyne's, and in turn, the Company's results of operations are
also affected by other factors, including price competition, the level
and timing of customer orders, fluctuations in material costs, the over-
head efficiencies achieved in managing the costs of its operations,
experience in manufacturing a particular product, the timing of expendi-
tures in anticipation of increased orders, and selling, general and
administrative expenses. Accordingly, gross margins and operating
income margins have generally improved during periods of high volume
and high capacity utilization. Techdyne generally has idle capacity and
reduced operating margins during periods of lower-volume production.
Quality control is also essential to Techdyne's operations, since
customers demand strict compliance with design and product specifications.
Any adverse change in Techdyne's excellent quality and process controls
could adversely affect its relationship with customers and ultimately
its and the Company's revenues and profitability. See Item 1, "Business -
Electro - Mechanical Manufacturing - Quality and Process Control."
With respect to the Company's dialysis operations engaged in through
DCA, essential to the Company's profitability is Medicare reimbursement
which is at a fixed rate determined by HCFA. The level of DCA's, and
therefore, the Company's revenues and profitability may be adversely
affected by potential legislation resulting in rate cuts. Additionally,
operating costs tend to increase over the years without any comparable
increases, if any, in the prescribed dialysis treatment rates, which
usually remain fixed and have decreased over the years. There also may
be reductions in commercial third-party reimbursement rates.
The dialysis industry is subject to stringent and extensive regula-
tions of federal and state authorities. There are a variety of anti-
kickback regulations, extensive prohibitions relating to self-referrals,
violations of which are punishable by criminal or civil penalties,
including exclusion from Medicare and other governmental programs.
Although the Company has never been challenged under these regulations
and believes it complies in all material respects with such laws and
regulations, there can be no assurance that there will not be unantici-
pated changes in healthcare programs or laws or that DCA will not be
required to change its practice or experience material adverse effects
as a result of any such challenges or changes.
DCA's future growth depends primarily on the availability of suitable
dialysis centers for acquisition or development in appropriate and
acceptable areas, and DCA's ability to develop these new potential
dialysis centers at costs within its budget while competing with larger
companies, some of which are public companies or divisions of public
companies with greater personnel and financial resources who have a
significant advantage in acquiring and/or developing facilities in areas
targeted by the Company. DCA opened its center in Carlisle, Pennsylvania
in July, 1997 and its fourth center in Manahawkin, New Jersey is presently
under construction. Additionally, there is intense competition for
retaining qualified nephrologists, who normally are the sole source of
patient referrals and are responsible for the supervision of the dialysis
centers and for nursing and technical staff at reasonable rates. There
is no certainty as to when any new centers or inpatient service contracts
with hospitals will be implemented, or the number of stations, or patient
treatments such may involve, or if such will ultimately be profitable.
Newly established dialysis centers, although contributing to increased
revenues, also adversely affect results of operations due to start-up
costs and expenses with a smaller developing patient base.
"Year 2000" Impact
The year 2000 computer information processing challenge associated
with the upcoming millennium change, with which all companies, public and
private, are faced to ensure continued proper
<PAGE> 24
operations and reporting of financial condition, has been assessed by
management of the Company and its subsidiaries and is being addressed.
The singular area impacting DCA is in its electronic billing and
maintenance of receivables. Management has evaluated its computer systems
and discussed the year 2000 issue with its computer software provider with
respect to its billing and maintenance of receivables. The software
provider is proceeding to deal with modifying the software used by DCA
to alleviate any interruptions in electronic billing and to have the new
software system available during fiscal 1998. The Company believes the
conversion of DCA's internal software program will be completed in a
timely manner. The Company does not presently have an estimate of the
cost of the new software modifications, but does not anticipate any
significant expenses to be incurred. As more information is made
available to the Company as to the costs to obtain a modified software
program for DCA, it will provide that disclosure.
In 1997 Techdyne commenced upgrading its operations software program
by acquiring a new Visual Manufacturing software package. It has been and
will be integrating this new software system into all of its facilities
except Lytton and Techdyne (Scotland). The software program is also
anticipated to be installed into Lytton's and Techdyne (Scotland)'s
operations sometime in early 1999, most likely with more sophisticated
modifications based upon the Company's experience with and internal
technological advances to the system. It is anticipated that the Visual
Manufacturing software will be fully integrated by 1999. This system is
anticipated to resolve the "year 2000" issue for Techdyne because the
software is already year 2000 compliant.
In addition to addressing each subsidiaries' own internal software
systems, the Company is communicating with its payors, suppliers, customers
and other key third parties with whom it deals to determine the extent of
their year 2000 problem and what actions they are taking to assess and
address that issue. To the extent such third parties are materially
adversely affected by the year 2000 issue and if it is not timely
corrected, the Company's relationship with such parties and its operations
could be adversely affected. No assurance can be given that the modifica-
tions of the Company's software systems or those of its key suppliers and
payors will be successful and that any such year 2000 compliance failures
will not have a material adverse effect on the Company's business or
results of operations.
Results of Operations
1997 Compared to 1996
Consolidated revenues increased by approximately $9,400,000 (27%) in
1997 compared to the previous year. Sales revenues increased by $9,208,000
(31%) compared to the preceding year. 1997 revenues included a $4,431,000
gain on the sale of certain assets of DCA's subsidiaries with 1996 having
included a $1,521,000 gain on securities offering of DCA, and a gain of
$2,584,000 on the sale of marketable securities attributable to the sale
of Viragen (a former subsidiary of the Company) common stock for which
the carrying value had been written-off in previous periods. See Note 2
to "Notes to Consolidated Financial Statements." Other income decreased by
$273,000 for 1997 compared to the previous year which included $140,000
from a litigation settlement and $228,000 on the Viragen note recovery.
Techdyne sales increased approximately $8,903,000 (37%) for the year
ended December 31, 1997 compared to the preceding year. The increase was
attributable principally to the inclusion of sales by Lytton totaling
$7,170,000 since August 1, 1997. There was an increase in domestic sales
of $12,184,000 (87%) that was offset by a decrease in European sales of
$3,281,000 (33%) compared to the
<PAGE> 25
same period of the preceding year. The decrease in European-based sales
was largely attributable to a decrease of approximately $5,580,000 in
sales to Compaq which was partially offset by sales to new and existing
customers.
Approximately 63% of Techdyne's consolidated sales and 54% of the
Company's consolidated sales for 1997 were made to six customers.
Customers generating in excess of 10% of Techdyne's consolidated sales
with their respective portions of Techdyne's and the Company's consoli-
dated sales include IBM which accounted for 19% and 17% and EMC and its
related suppliers for 10% and 8%, respectively. Approximately $2,727,000
(38%) of Lytton's sales since its acquisition by Techdyne on July 31, 1997
were to its major customer. Significant reductions in sales to any of
Techdyne's major customers would have a material effect on the Company's
results of operation if such sales are not replaced.
Revenues of Techdyne's Scottish-based subsidiary Techdyne (Scotland)
continue to be highly dependent on sales to Compaq, which accounted for
approximately 42% and 84% of the sales of Techdyne (Scotland) for 1997
and 1996, respectively. The bidding for Compaq orders has become more
competitive which has resulted in substantially reduced Compaq sales and
lower profit margins on remaining Compaq sales. Techdyne (Scotland) is
pursuing new business development and has offset some of the lost Compaq
business with sales to other customers and is also continuing cost
reduction efforts to remain competitive on Compaq business. However,
there can be no assurance as to the success of such efforts.
Medical product sales revenues decreased by approximately $304,000
(18%) for 1997 compared to the previous year. The decrease reflected lost
revenues from All American Medical & Supply Corp. ("All American"), the
Company's home healthcare durable subsidiary which discontinued operations
in March, 1997.
Medical services revenues, represented by the revenues of the
Company's dialysis division, DCA, increased by $544,000 (14%) for 1997
compared to the preceding year. This growth was largely attributable to
increased revenues of approximately $533,000 at the Lemoyne, Pennsylvania
facility, which commenced operations in June 1995 and $329,000 from a new
dialysis center located in Carlisle, Pennsylvania, which commenced opera-
tions in July 1997. These additional revenues were offset by approximately
$312,000 of lost revenues from the sale of the Company's Florida dialysis
operations on October 31, 1997. Although the operations of the new Carlisle
center have resulted in additional revenues, during its developmental, this
center will adversely affect the Company's results of operations.
Cost of goods sold as a percentage of consolidated sales remained
relatively stable, increasing to 83% for the year ended December 31, 1997
compared to 82% for the preceding year.
Cost of goods sold for Techdyne as a percentage of sales remained
relatively stable, escalating to 87% for the year ended December 31, 1997
compared to 86% for the preceding year.
Cost of goods sold by the medical products division decreased to 63%
for 1997 compared to 68% for the preceding year, which reflects relatively
low margins in 1996 for the Company's medical durable subsidiary, All
American in the preceding year. The Company decided to shutdown the medical
durable subsidiary during the first quarter of 1997 due to its unprofitable
operations.
Selling, general and administrative expenses increased $404,000 for
1997 compared to the preceding year. This increase reflected the selling,
general and administrative expenses of Lytton
<PAGE> 26
commencing August 1, 1997 ($730,000) after Lytton was acquired by Techdyne
on July 31, 1997, as well as substantially increased operations of
Techdyne's Round Rock, Texas and Massachusetts facilities. The increase
also reflected DCA's opening of a new Pennsylvania dialysis center in
Carlisle and its expansion of the facility in Lemoyne, Pennsylvania,
which was offset by the decline in costs resulting from DCA's sale of
its Florida dialysis operations on October 31, 1997 and the shutdown of
All American ($652,000 including shutdown costs of approximately $305,000).
Included in 1997 was stock compensation expense that occurred during the
fourth quarter of 1997 in the amount of $322,000 in conjunction with
forgiveness of notes from option exercises of DCA common stock compared
to a similar expense of $344,000 in the preceding year.
Interest expense increased by approximately $175,000 for 1997
compared to the preceding year. This increase included interest of
$100,000 associated with Techdyne's financing of the Lytton acquisition
and interest from Lytton's financing and debt agreements of $71,000.
A substantial portion of the Company's outstanding borrowings are
tied to the prime interest rate. The prime rate was 8.50% at December 31,
1997 and 8.25% at December 31, 1996.
For fiscal 1998, the Company will adopt the provisions of Financial
Accounting Standards Board Statements No. 130, "Reporting Comprehensive
Income" and No. 131, "Disclosure About Segments of an Enterprise and
Related Information," which it is anticipated will not have a material
effect on its consolidated financial statements or significantly change
its segment reporting disclosures. See Note 1 to "Notes to Consolidated
Financial Statements."
1996 Compared to 1995
Consolidated revenues decreased approximately $1,941,000 (5%) in 1996
compared to the previous year. Sales revenues decreased $4,460,000 (13%)
in 1996 compared to the preceding year. 1996 revenues included a
$1,521,000 gain on a securities offering of DCA, the Company's dialysis
subsidiary, with 1995 revenues including a $2,002,000 gain on a securities
offering of Techdyne, the Company's electronic and electro-mechanical
subsidiary. See Note 8 to "Notes to Consolidated Financial Statements."
Gain on sale of marketable securities represents a gain attributable to
the sale of Viragen common stock for which the carrying value had been
written-off in previous periods (see Note 2 to "Notes to Consolidated
Financial Statements") with the 1996 gain amounting to $2,584,000 compared
to $183,000 for the preceding year. Other income increased approximately
$600,000, including a $228,000 gain on the Viragen note recovery (see Note
2 to "Notes to Consolidated Financial Statements"); $140,000 from a litiga-
tion settlement (see Note 7 to "Notes to Consolidated Financial Statements");
and an increase in interest income of $254,000 resulting from interest on
Scotland funds invested which were previously tied up in receivables and
inventory prior to the cutback in Compaq business in the third quarter of
1996 and interest on funds invested resulting from the Techdyne and DCA
public offerings.
Techdyne sales decreased $6,237,000 (21%) in 1996 compared to the
preceding year. Domestic sales of Techdyne decreased $4,019,000 (22%) and
European-based sales decreased $2,218,000 (18%) in 1996 compared to the
preceding year. The decrease in domestic sales compared to the preceding
year was largely attributable to a decrease in sales of $5,337,000 to Avid
Technology which was offset to some degree by a net increase in sales to
other customers. The decrease in European-based sales was largely
attributable to a decrease of $2,160,000 in sales to Compaq by Techdyne
(Scotland).
<PAGE> 27
Approximately 73% of Techdyne have consolidated sales and 60% of the
Company's consolidated sales for 1996 were made to four customers.
Customers generating in excess of 10% of Techdyne's consolidated sales
with their respective portions of Techdyne's and the Company's consolidated
sales included Compaq which accounted for 35% and 29%, IBM for 18% and 14%
and EMC and its related suppliers for 12% and 9%, respectively. The loss
of, or substantially reduced sales to any of these customers would have an
adverse effect on the Company's operations if such sales are not replaced.
The Company is pursuing new business development efforts to replace lost
sales, although there can be no assurance as to the success of such efforts.
Revenues of Techdyne's Scottish-based subsidiary Techdyne (Scotland),
continue to be highly dependent on sales to Compaq, which accounted for
approximately 84% and 86% of the sales of Techdyne (Scotland) for 1996 and
1995, respectively. The bidding for Compaq orders in Scotland has become
more competitive, which resulted in substantially reduced Compaq sales and
lower profit margins on remaining Compaq sales. Techdyne (Scotland) is
pursuing new business development efforts to replace significant reductions
in Compaq business and is pursuing cost reduction efforts to remain com-
petitive with respect to Compaq, although there can be no assurance as to
the success of such efforts.
Medical product sales revenues increased $310,000 (15%) for 1996
compared to the preceding year. This increase included sales of approxi-
mately $297,000 attributable to All American Medical & Surgical Supply
Corp., the Company's home healthcare durable subsidiary which commenced
operations in January, 1996.
Medical services sales revenues, which represents revenues of DCA,
the Company's dialysis division, increased $1,526,000 (66%) for 1996
compared to the preceding year. This increase was largely attributable
to increased revenues of approximately $1,292,000 (243%) compared to the
preceding year for the Company's new dialysis centers which commenced
operations in Lemoyne, Pennsylvania in June, 1995 and Wellsboro, Pennsyl-
vania in October, 1995. Although the new Lemoyne and Wellsboro, Pennsyl-
vania centers have resulted in increased revenues, during their develop-
mental stage, these centers will adversely affect the Company's results
of operations.
Cost of goods sold as a percentage of consolidated sales amounted
to 82% of sales for 1996 and the preceding year.
Cost of goods sold for Techdyne remained relatively stable,
increasing to 86% compared to 85% for the preceding year.
Cost of goods sold for the medical products division increased to 68%
for 1996 compared to 61% for the preceding year, which reflects reduced
margins on the principal product of the medical supply division and
relatively low margins for the Company's medical durable subsidiary,
All American Medical & Surgical Supply Corp. which the Company decided
to shutdown due to unprofitable operations.
Cost of medical services sales decreased to 65% for 1996 compared to
69% for the preceding year, largely as a result of a decrease in healthcare
salaries as a percentage of sales due to the increased sales revenues
generated by the Company's new Pennsylvania facilities.
Selling, general and administrative expenses increased $1,463,000 for
1996 compared to the preceding year. This increase included the Company's
two new Pennsylvania dialysis centers and the Company's new subsidiary,
All American Medical & Surgical Supply Corp. which commenced operations in
January, 1996. The Company has recorded approximately $305,000 in shutdown
costs for
<PAGE> 28
All American. Also included was stock compensation expense during the
second quarter of 1996 of approximately $344,000 for forgiveness of notes
from option exercises and accrued interest.
Interest expense decreased by approximately $29,000 in 1996 compared
to the preceding year as a result of changes in both average outstanding
borrowings and average interest rates associated with those borrowings.
The bulk of the Company's outstanding borrowings are related to real
property and tied to the prime interest rate. The prime rate was 8.25% at
December 31, 1996 and 8.5% at December 31, 1995, respectively.
Liquidity and Capital Resources
Working capital totaled $17,708,000 at December 31, 1997, which
reflected an increase of $3,864,000 (28%) during 1997. This increase
includes working capital of Lytton that totaled $1,874,000 at December 31,
1997.
Included in the changes in components of working capital was an
increase of $299,000 in cash and cash equivalents, which included net cash
used in operating activities of $3,024,000, net cash provided by investing
activities of $358,000 including proceeds from sale of subsidiaries'
assets ($4,584,000), net cash expended in the Lytton acquisition
($2,166,000) and additions to property plant and equipment ($2,135,000),
and net cash provided by financing activities of $3,084,000 (including
net proceeds from exercise of stock options and warrants ($696,000),
borrowings to fund the Lytton acquisition ($2,500,000), Lytton line of
credit borrowings ($549,000), payment on long-term debt ($430,000) and
repurchase of the Company's and a subsidiary's common stock ($223,000).
In February 1996, Techdyne refinanced its loan agreement with a
Florida bank. The refinancing provided for a $2,000,000 line of credit,
due on demand, secured by Techdyne's accounts receivable, inventory,
furniture, fixtures and intangible assets and bore interest at the bank's
prime rate plus 1.25%. In conjunction with Techyne's acquisition of Lytton
July 31, 1997, this line of credit was modified and increased to $2,500,000
with the interest rate reduced to prime plus .75% and various other modifi-
cations. The line was fully drawn down in connection with this acquisition
and $2,500,000 remained outstanding at the same interest rate of 9.25%
until the line was refinanced in December 1997.
The $2,500,000 line of credit was replaced effective December 29,
1997 with a five-year $1,500,000 ("notional amount under interest rate swap
agreement") commercial term loan with monthly principal payments of $25,000
plus interest at 8.60% and a $1,600,000 commercial revolving line of credit
with interest at prime of which $1,000,000 was outstanding at December 31,
1997. The commercial term loan matures December 15, 2002 and the commercial
line of credit, no longer a demand line, matures May 1, 2000. Techdyne
entered the swap agreement to obtain an acceptable fixed interest rate and
has no intent of prepaying the related debt. Accordingly, Techdyne does not
consider that it has any risk of significant loss under the agreement
although early termination of the swap agreement could either result in a
gain or loss based on the movement in interest rates in relation to the
Company's fixed rate. See Note 2 to "Notes to Consolidated Financial
Statements".
<PAGE> 29
The Company had obtained two other term loans from its Florida bank.
One is a $712,500 term loan, which had a remaining principal balance of
$663,000 at December 31, 1997 and $691,000 at December 31, 1996, is secured
by two buildings and land owned by the Parent. The second term loan for
$200,000, which had a remaining principal balance of $127,000 at December
31, 1997 and $167,000 at December 31, 1996 is secured by Techdyne's
tangible personal property, goods and equipment. The Parent has guaranteed
these loans and subordinated the intercompany indebtedness due from
Techdyne, provided that Techdyne may make payments to the Parent on this
subordinated debt from funds from Techdyne's security offering and from
earnings. Techdyne further agreed that in the event that it should sell
its interest in Techdyne (Scotland), which is not anticipated, 50% of the
selling price would be used to repay the $712,500 term loan facility.
Techdyne was in default of certain financial reporting requirements
regarding these loans as of December 31, 1996 for which the bank granted
waivers as of December 31, 1996 and extending through December 31, 1997.
See Note 2 to "Notes to Consolidated Financial Statements."
Techdyne has outstanding borrowings of $145,000 from a local bank
with interest payable monthly with the note, which was renewed during
1997, maturing April 2000. Techdyne (Scotland) has a line of credit with
a Scottish bank, with an U.S. dollar equivalency of approximately $330,000
at December 31, 1997 and $342,000 at December 31, 1996 that is secured by
assets of Techdyne (Scotland) and guaranteed by the Company. This line of
credit operates as an overdraft facility. No amounts were outstanding
under this line of credit as of December 31, 1997 or December 31, 1996.
In July, 1994 Techdyne (Scotland) purchased the facility housing its
operations for approximately $730,000, obtaining a 15-year mortgage which
had a U.S. dollar equivalency of approximately $569,000 and $622,000 at
December 31, 1997 and December 31, 1996, respectively, based on exchange
rates in effect at each of these dates.
On July 31, 1997, Techdyne acquired Lytton, which is engaged in the
manufacture and assembly of PCBs and other electronic products for
commercial customers. This acquisition required $2,500,000 cash at closing,
funded by the modified bank line of credit, as well as 300,000 shares of
Techdyne's common stock which had a fair value of approximately $1,031,000
based on the closing price of Techdyne common stock on the date of acquisi-
tion. Techdyne has guaranteed $2,000,000 minimum proceeds ($2,400,000 if
certain earnings objectives are met over a specified twelve month period)
to the seller with respect to these shares. The Stock Purchase Agreement
also provides for incentive consideration to be paid in cash based on
specific sales levels of Lytton for each of three successive specified
years. Based upon the closing price of Techdyne's common stock on December
31, 1997, the shares issued in the Lytton acquisition had a fair value of
$1,313,000 which could result in additional consideration of approximately
$687,000 payable in either in cash or in approximately 157,000 shares of
Techdyne's stock based upon the closing stock price of $4.375. If the
earnings objective is met, an additional $400,000 would be payable in cash
or approximately 91,000 shares of common stock based on the December 31,
1997 closing stock price. The Lytton acquisition has expanded Techdyne's
customer base, broadened its product line, enhanced its manufacturing
capabilities and provided a new geographic area to better serve Techdyne's
existing customer base with opportunities to attract new customers.
During 1988, DCA, the Company's dialysis subsidiary, obtained
mortgages totaling $1,080,000 on its two buildings, one in Lemoyne,
Pennsylvania and the other in Easton, Maryland, which housed two of DCA's
dialysis centers. These centers were sold in October, 1989. The mortgages
had a combined remaining balance of $504,000 and $576,000 at December 31,
1996 and December 31, 1995, respectively. DCA was in default of certain
covenants principally relating to net worth and debt service
<PAGE> 30
ratio requirements under these loan agreements as of December 31, 1996.
The lender has waived compliance with these covenants as of December 31,
1996 and through December 31, 1997.
The bank has liens on the real and personal property of DCA, including
a lien on all rents due and security deposits from the rental of these
properties. The loans contained a provision allowing the bank mandatory
repayment upon 90 days written notice after five years which has resulted
in the unpaid principal balances being reflected as a current liability.
The loans were modified effective December 1, 1997 and the call provision
was removed thereby eliminating the necessity of carrying the entire debt
balance as current. The unaffiliated Maryland dialysis center continues
to lease space from DCA in its Maryland building. The Pennsylvania center
relocated in 1995 to its own new facility at DCA's Pennsylvania building,
commencing treatments in June of that year.
DCA has an equipment purchase agreement for kidney dialysis machines
for its dialysis facilities which had a remaining principal balance of
$285,000 and $272,000 at December 31, 1997 and December 31, 1996, respec-
tively, which included additional financing of $190,000 during 1997 as
well as a decrease of $112,000 resulting from the purchaser of the Florida
operations assuming the equipment financing obligations related to those
operations.
During the third quarter of 1997, options to purchase 400,000 shares
of the Company's common stock, originally granted in September 1994, were
exercised at $1.25 per share by a consultant to the Company and its
affiliate, providing proceeds of $500,000 to the Company.
During 1997, the Company sold 10,000 shares of Viragen stock realizing
a gain and cash proceeds of $49,000. The carrying value of these securities
was previously written off. Under the provisions of FASB Statement No.
115, the remaining shares at December 31, 1997 have been recorded at an
estimated fair value of $283,000 with the unrealized gain, net of income
tax effect, credited to a separate component of stockholder's equity.
There is a convertible note issued by Techdyne, convertible at $1.75
per share for intercompany indebtedness due to the Company, which amounted
to approximately $2,292,000 including accrued interest at December 31,
1997, including $875,000 of the note that was converted into 500,000
shares of Techdyne common stock in November 1997. In connection with
Techdyne's 1995 public offering, during 1997 the Company recognized a
gain on warrant exercises of approximately $90,000 with applicable income
taxes of $34,000 which resulted in a net gain of approximately $56,000.
Techdyne is seeking to expand its operations possibly through suitable
acquisitions of companies in similar businesses. No assurance can be given
that its present funding, including the proceeds from its securities
offering would be sufficient to finance such acquisitions or that suffi-
cient outside financing from banking institutions would be available to
fund such expansion.
Techdyne has established a new manufacturing facility in Milford,
Massachusetts with the facility having an initial five-year lease term and
occupancy commencing in April 1997. This facility is intended to assist in
meeting increased customer demand in the Northeastern United States, as
well as to increase service levels to customers in the Northeast and to
penetrate new markets. Techdyne has increased its manufacturing capacity
at its Houston and Round Rock, Texas facilities to meet increased customer
demand in the Southwestern United States. Most of the expenditures related
to its new facilities, including leasehold improvements, equipment and
furniture and fixtures, and the costs of expansion of existing facilities
were provided from the proceeds from the Techdyne's 1995 security offering.
<PAGE> 31
DCA, having operated on a larger scale in the past, is seeking to
expand its outpatient dialysis treatment facilities and inpatient dialysis
care. Such expansion, whether through acquisition of existing centers or
the development of its own dialysis centers, requires capital, which was
the basis for DCA's securities offering. No assurance can be given that
DCA will be successful in implementing its growth strategy or that the
funds from the public sale of the DCA securities will be adequate to
finance expansion or that sufficient outside financing would be available
to fund expansion.
DCA has entered into agreements with several medical directors, and
intends to establish dialysis centers in New Jersey and in Pennsylvania.
It is anticipated that a New Jersey facility, which is currently under
construction, will be operational in the third quarter of 1998 and lease
negotiations are currently underway for new Pennsylvania and New Jersey
facilities with medical director agreements having been negotiated for
both of those facilities.
In February 1998, DCA redeemed the 20% minority interest in two of
its subsidiaries whose assets were included in the Florida dialysis
operations sale for a total consideration of $625,000, including $385,000
cash and one-half of the securities of the purchaser received on the sale
of DCA's Florida operations valued at $240,000 with the total value of
$480,000 for securities received having been guaranteed by the purchaser.
In November 1997, the Company announced its intent to repurchase up
to $1,000,000 of its outstanding common stock. As of December 31, 1997,
8,200 shares had been repurchased for approximately $17,000.
The bulk of the Company's cash balances are carried in interest-
yielding vehicles at various rates and mature at different intervals
depending on the anticipated cash requirements of the Company.
The Company anticipates that current levels of working capital and
working capital from operations will be adequate to successfully meet
liquidity demands for at least the next twelve months, including the debt
and financing obligations incurred in the acquisition of Lytton.
Inflation
Inflationary factors have not had a significant effect on the
Company's operations. The Company attempts to pass on increased costs
and expenses incurred in the electronic and electro-mechanical products
division by increasing selling prices when and where possible and by
developing different and improved products for its customers that can be
sold at targeted profit margins. However, in the Company's medical
services segment, revenue per dialysis treatment is subject to reimburse-
ment rates established and regulated by the federal government. These
rates do not automatically adjust for inflation. Any rate adjustments
relate to legislation and executive and Congressional budget demands, and
have little to do with the actual cost of doing business. Therefore,
dialysis services revenues cannot be voluntary increased to keep pace
with increases in nursing and other patient care costs.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted as a separate section to this
report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
<PAGE> 32
PART III
Item 10. Directors and Executive Officers of the Registrant
Information on directors of the Company is included under the caption
"Election of Directors" of the Company's Proxy Statement relating to the
Annual Meeting of Shareholders to be held on Wednesday, June 10, 1998,
which is incorporated herein by reference.
The executive officers of the Company are elected each year by the
Board of Directors at its first meeting following the Annual Meeting of
Shareholders to serve during the ensuing year and until their respective
successors are elected and qualified. There are no family relationships
between any of the executive officers and directors of the Company. The
following information indicates the position and age of the executive
officers at March 12, 1998, and their business experience during the
prior five years.
Current Position and Position
Name Age Areas of Responsibility Held Since
- ---- --- ----------------------- ----------
Thomas K. Langbein 52 Chairman of the Board 1980
of Directors, Chief
Executive Officer and
President
Seymour Friend 77 Vice President and 1981
Director 1975
Daniel R. Ouzts 51 Vice President (Finance) 1986
and Controller 1983
Thomas K. Langbein was appointed as Chairman of the Board of Directors,
Chief Executive Officer and President in 1980. Mr. Langbein is an officer
and director of most of the Company's subsidiaries and was appointed
President and Chief Executive Officer of Techdyne in April, 1990. Barry
Pardon succeeded to the Presidency of Techdyne in November, 1991 at which
time Mr. Langbein reassumed the position of Chairman of the Board. He has
been a director of Techdyne since it was acquired by the Company in 1982.
He is also a director of Techdyne's subsidiary, Lytton, and of Techdyne's
foreign subsidiary, Techdyne (Scotland). Mr. Langbein is Chairman of the
Board and Chief Executive Officer of DCA. Mr. Langbein is President, sole
shareholder and director of Todd & Company, Inc. ("Todd") a broker-dealer
registered with the Commission and a member of the National Association of
Securities Dealers, Inc. Mr. Langbein devotes most of his time to the
affairs of the Company, Techdyne and DCA. See "Executive Compensation"
and "Certain Relationships and Related Transactions" of the Company's
Proxy Statement relating to the Annual Meeting of Shareholders to be held
on June 10, 1998, incorporated herein by reference.
<PAGE> 33
Seymour Friend is a real estate investor and devotes a portion of his
time to the affairs of the Company.
Daniel R. Ouzts, a certified public accountant, joined the Company
in 1980 as Controller of its plasma division. In 1983 he became Controller
of the Company and DCA, and in 1986 became Vice-President of Finance of
the Company and Techdyne. Mr. Ouzts also serves as Controller for Techdyne
since 1986. In June, 1996, Mr. Ouzts was appointed Vice President of
Finance and Treasurer of DCA. See "Certain Relationships and Related
Transactions" of the Company's Proxy Statement relating to the Annual
Meeting of Shareholders to be held on June 10, 1998, incorporated herein
by reference.
Other Significant Employees
Current Position and Position
Name Age Areas of Responsibility Held Since
- ---- --- ----------------------- ----------
Barry Pardon 46 President and 1991
Director of Techdyne 1990
Barry Pardon joined Techdyne in November, 1980 as national sales
manager and initiated the independent manufacturer representatives sales
force. Mr. Pardon became Vice President of Marketing of Techdyne in 1981,
was appointed Executive Vice President (Marketing) in January, 1988, and
appointed President in November, 1991. Mr. Pardon is Chairman of the Board
and President of Lytton and is a director of Techdyne (Scotland).
Item 11. Executive Compensation
Information on executive compensation is included under the caption
"Executive Compensation" of the Company's Proxy Statement relating to the
Annual Meeting of Shareholders to be held on June 10, 1998, incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information on beneficial ownership of the Company's voting securities
by each director and all officers and directors as a group, and for each of
the named executive officers disclosed in the Summary Compensation Table
(see "Executive Compensation" of the Company's Proxy Statement relating to
the Annual Meeting of Shareholders, incorporated herein by reference),
and by any person known to beneficially own more than 5% of any class of
voting security of the Company, is included under the caption "Beneficial
Ownership of the Company's Securities" of the Company's Proxy Statement
relating to the Annual Meeting of Shareholders to be held on June 10, 1998,
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information on certain relationships and related transactions is
included under the caption "Certain Relationships and Related Transactions"
of the Company's Proxy Statement relating to the Annual Meeting of Share-
holders to be held on June 10, 1998, incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following is a list of documents filed as part of this report.
<PAGE> 34
1. All financial statements - See Index to Consolidated Financial
Statements.
2. Financial statement schedules - See Index to Consolidated
Financial Statements.
3. Refer to subparagraph (c) below.
(b) Reports on Form 8-K filed during fourth quarter.
1. The Company filed an Amended Current Report on Form 8-K/A#1 on
October 15, 1997 indicating based on the significance of the
Lytton Incorporated acquisition by Techdyne, Inc. as reported
on the Company's Current Report on Form 8-K dated August 14,
1997, no financial statements or pro forma financial information
of the Company is required.
2. The Company filed a Current Report on Form 8-K dated November 12,
1997, Item 2, Acquisition or Disposition of Assets, reflecting
Dialysis Corporation of America's (a 66% owned public subsidiary)
sale of its Florida dialysis operations with pro forma financial
information.
(c) Exhibits
(3)(i) Restated Certificate of Incorporation, Articles of Incorpora-
tion, as amended.
(ii) By-laws, as amended.
(4) Instruments defining the rights of security holders,
including indentures.
(i) 1989 Stock Option Plan.
(ii) Form of Stock Option Agreement issued pursuant to the 1989
Stock Option Plan.
(iii) Form of Additional Non-Qualified Stock Option Agreement
issuable under the Stock Option Agreement.
(10) Material contracts.
(i) Employment Agreement between the Company and Thomas K.
Langbein dated May, 1994, (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 ("1994 Form 10-K"), Part IV, Item 14(a)
3 (10)(i)).*
(ii) Lease between the Company and Heights Plaza Associates, dated
April 30, 1981.
<PAGE> 35
(iii) Amendment to lease between the Company and Heights Plaza
Associates, dated March 31, 1996.
(iv) Lease Agreement between the Company and Techdyne, Inc.(1)
dated July 17, 1990 (incorporated by reference to Techdyne
Inc.'s Annual Report on Form 10-K for the year ended December
31, 1991, Part IV, Item 14(a) 3 (10)(i)).
(v) Lease Renewal Letter from Techdyne, Inc.(1) dated December 19,
1994 (incorporated by reference to Techdyne's Registration
Statement on Form SB-2, Registration No. 33-94998-A
("Techdyne's Form SB-2"), Part II, Item 27, 10(b)).*
(vi) Royalty Agreement between the Company and Viragen, Inc.(2)
dated November 7, 1986.
(vii) Amended Royalty Agreement between the Company and Viragen,
Inc.(2) dated November 21, 1989.
(viii) Employment Agreement between Techdyne (Scotland) Limited(3)
and John Clark Grieve dated March 11, 1988 (incorporated by
reference to Techdyne's Annual Report on Form 10-K for the
year ended December 31, 1997, ("Techdyne 1997 Form 10-K")
Part IV, Item 14(a)(10)(v)).*
(ix) Guarantee of Techdyne (Scotland) Limited(3) Line of Credit
with The Royal Bank of Scotland Plc dated March 3, 1989
(incorporated by reference to the Techdyne 1997 Form 10-K,
Part IV, Item 14(a)(10)(vi)).*
(x) Promissory Note of Techdyne, Inc. (1) to the Company dated
April 10, 1991 (incorporated by reference to Techdyne's Form
SB-2, Part II, Item 27, 3(4)).*
(xi) Lease between the Company and Viragen, Inc.(2) dated December
8, 1992.
(xii) Addendum to Lease between the Company and Viragen, Inc.(2)
dated January 15, 1993.
(xiii) Lease Renewal Letter by the Company to Viragen, Inc.(2) lease
dated August 12, 1997.
(xiv) Loan Agreement between Dialysis Corporation of America(4) and
Mercantile-Safe Deposit and Trust Company dated November 30,
1988 (incorporated by reference to Dialysis Corporation of
America's Form 10-K for the year ended December 31, 1997
("DCA 1997 Form 10-K"), Part IV, Item 14(a)(10)(v)).*
(xv) Lease Agreement between Dialysis Services of Pennsylvania,
Inc. - Wellsboro(5) and James and Roger Stager dated January
15, 1995 (incorporated by reference to the Company's 1994
Form 10-K, Part IV, Item 14(a) 3 (10)(lxii)).*
(xvi) Lease Agreement between Dialysis Corporation of America(4) and
Service All Group, Inc. and Terry Sheppard dated March 24,
1995 (incorporated by reference to the Company's 1994 Form
10-K, Part IV, Item 14(a) 3 (10)(lxviii)).*
<PAGE> 36
(xvii) Lease between Dialysis Corporation of America(4) and Dialysis
Services of Pennsylvania, Inc. - Lemoyne(5) dated December 1,
1995 (incorporated by reference to the Company's 1995 Form
10-K, Part IV, Item 14(a) 3 (10)(lxii)).*
(xviii) Medical Director Agreement between Dialysis Services of Pen-
nsylvania, Inc. - Wellsboro(5) and George Dy, M.D. dated
September 29, 1994 [*] (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994 as amended January, 1995 ("September,
1994 Form 10-Q"), Part II, Item 6(a)(10)(i)).*
(xix) Agreement for In-Hospital Dialysis Services between Dialysis
Services of Pennsylvania, Inc. - Wellsboro(5) and Soldiers &
Sailors Memorial Hospital dated September 28, 1994 [*]
(incorporated by reference to the Company's September, 1994
Form 10-Q, Part II, Item 6(a)(10)(ii)).*
(xx) Medical Director Agreement between Dialysis Services of
Pennsylvania, Inc. - Lemoyne(5) and Herbert I. Soller, M.D.
dated January 30, 1995 [*] (incorporated by reference to the
Company's 1994 Form 10-K, Part IV, Item 14(a) 3 (10)(lx)).*
(xxi) Agreement for In-Hospital Dialysis Services between Dialysis
Services of Pennsylvania, Inc. - Lemoyne(5) and Capital Health
System, Inc. d/b/a Harrisburg Hospital dated June 1, 1995. [*]
(incorporated by reference to Dialysis Corporation of America's
Registration Statement on Form SB-2, Registration No.
33-80877-A ("DCA Form SB-2 Registration"), Part II, Item 27,
10(q)).*
(xxii) Agreement for In-Hospital Dialysis Services between Dialysis
Services of Pennsylvania, Inc. - Lemoyne(5) and Pinnacle
Health Hospitals dated June 1, 1997 [*] (incorporated by
reference to Dialysis Corporation of America's June 1997
Form 8-K, Part II, Item 7(c)(10)(i)).*
(xxiii) Agreement between Renal Services of Pa., Inc.(5) and
Christine Durr dated December 1, 1995 (incorporated by
reference to DCA Form SB-2 Registration, Part II, Item 27,
10(r)).*
(xxiv) Tenant Subordination Agreement by J.A. Hunt Services, Inc.,
dated February, 1997 (incorporated by reference to Dialysis
Corporation of America's Annual Report on Form 10-K for the
year ended December 31, 1996 ("DCA 1996 Form 10-K"), Part IV,
Item 14(a) 3 (10)(xxviii)).*
(xxv) Form of Exclusive Sales Representative Agreement between
Techdyne, Inc.(1) and sales representative ** (incorporated
by reference to the Company's 1994 Form 10-K, Part IV, Item
14(a) 3 (10)(lxiv)).*
(xxvi) 1994 Stock Option Plan of Techdyne, Inc.(1) (incorporated by
reference to the Company's 1994 Form 10-K, Part IV, Item 14(a)
3 (10)(lxv)).*
[*] Confidential portions omitted have been filed separately with the
Securities and Exchange Commission.
<PAGE> 37
(xxvii) Form of Stock Option Certificate issued under 1994 Stock
Option Plan of Techdyne, Inc.(1) (incorporated by reference
to the Company's 1994 Form 10-K, Part IV, Item 14(a) 3 (10)
(lxvi)).*
(xxviii) Form of Stock Option Agreement dated February 17, 1995 issued
to directors of Techdyne, Inc.(1) *** (incorporated by ref-
erence to the Company's 1994 Form 10-K, Part IV, Item 14(a)
3 (10)(lxvii)).*
(xxix) Lease Agreement between the Company and Brett D. Anderson and
Suzanne M. Anderson dated November 17, 1992.
(xxx) Lease Renewal Letter from the Company to Brett and Suzanne
Anderson dated October 20, 1997.
(xxxi) Mortgage between Techdyne (Scotland) Limited(3) and The Royal
Bank of Scotland dated August 8, 1994 (incorporated by ref-
erence to the Company's June, 1994 Form 10-Q, Part II, Item
6(a)(28)(vi)).*
(xxxii) Agreement ("Missives") between Techdyne (Scotland) Limited(3)
and Livingston Development Corporation regarding Purchase by
Techdyne (Scotland) Limited(3) of its Facility dated June 15,
1994 (incorporated by reference to the Company's June, 1994
Form 10-Q, Part II, Item 6(a)(28)(vii)).*
(xxxiii) Loan and Security Agreement between Techdyne, Inc.(1) and
Barnett Bank of South Florida, N.A. ("Barnett Bank") for
$2,000,000 dated February 8, 1996 (incorporated by reference
to Techdyne, Inc.'s Current Report on Form 8-K, dated February
23, 1996 ("Techdyne February 1996 Form 8-K), Item 7(c)(99)(i)).*
(xxxiv) Loan Agreement for $712,500 between Techdyne, Inc.(1) and
Barnett Bank dated February 8, 1996 (incorporated by reference
to Techdyne February 1996 Form 8-K, Item 7(c)(99)(v)).*
(xxxv) Promissory Note for $712,500 from Techdyne, Inc.(1) to Barnett
Bank, dated February 8, 1996 (incorporated by reference to
Techdyne February 1996 Form 8-K, Item 7(c)(99)(vi)).*
(xxxvi) Mortgage and Security Agreement between the Company and
Barnett Bank dated February 8, 1996 (incorporated by reference
to Techdyne February 1996 Form 8-K, Item 7(c)(99)(vii)).*
(xxxvii) Assignment of Leases, Rents and Profits by the Company in
favor of Barnett Bank dated February 8, 1996 (incorporated
by reference to Techdyne February 1996 Form 8-K, Item
7(c)(99)(viii)).*
(xxxviii) Promissory Note for $200,000 from Techdyne, Inc.(1) to Barnett
Bank dated February 8, 1996 (incorporated by reference to
Techdyne February 1996 Form 8-K, Item 7(c)(99)(ix)).*
<PAGE> 38
(xxix) Security Agreement between Techdyne, Inc.(1) and Barnett Bank
dated February 8, 1996 (incorporated by reference to Techdyne
February 1996 Form 8-K, Item 7(c)(99)(x)).*
(xl) First Amendment to Loan and Security Agreement, Loan Agreement
and Security Agreement between Techdyne, Inc.(1) and Barnett
Bank, N.A. dated July 31, 1997 (incorporated by reference to
Techdyne's Current Report on Form 8-K dated August 12, 1997
("Techdyne August, 1997 Form 8-K"), Item 7(c)(99)(i)).*
(xli) Revolving Demand Promissory Note from Techdyne, Inc.(1) to
Barnett Bank, N.A. dated July 31, 1997 (incorporated by
reference to Techdyne's August, 1997 Form 8-K, Item
7(c)(99)(ii)).*
(xlii) Unconditional and Continuing Guaranty of Payments and Per-
formance by the Company in favor of Barnett Bank, N.A. dated
July 31, 1997 (incorporated by reference to Techdyne's August,
1997 Form 8-K, Item 7(c)(99)(iii)).*
(xliii) Subordination Agreement among the Company, Barnett Bank, N.A.
and the Company dated July 31, 1997 (incorporated by reference
to Techdyne's August, 1997 Form 8-K, Item 7(c)(99)(iv)).*
(xliv) Second Amendment to Loan and Security Agreement between
Techdyne, Inc.(1) and Barnett Bank, N.A. dated as of December
29, 1997 (incorporated by reference to Techdyne's Form 8-K
dated January 20, 1998 ("Techdyne January, 1998 Form 8-K"),
Item 7(c)(99)(i)).*
(xlv) Revolving Promissory Note form Techdyne, Inc.(1) to Barnett
Bank, N.A. for $1,600,000 dated as of December 29, 1997
(incorporated by reference to Techdyne's January, 1998 Form
8-K, Item 7(c)(99)(ii)).*
(xlvi) Unconditional and Continuing Guaranty of Payment and Per-
formance(6) by the Company in favor of Barnett Bank, N.A.
dated as of December 29, 1997 (incorporated by reference to
Techdyne's January, 1998 Form 8-K, Item 7(c)(99)(iii)).*
(xlvii) Subordination Agreements(7) among the Company, Barnett Bank,
N.A. and Techdyne, Inc.(1) (incorporated by reference to
Techdyne's January, 1998 Form 8-K, Item 7(c)(99)(iv)).*
(xlviii) Loan Agreement for $1,500,000 between Techdyne, Inc.(1) and
Barnett Bank, N.A. dated as of December 29, 1997 (incorporated
by reference to Techdyne's January, 1998 Form 8-K, Item
7(c)(99)(v)).*
(xlvix) Promissory Note from Techdyne, Inc.(1) to Barnett Bank, N.A.
for $1,500,000 dated as of December 29, 1997 (incorporated by
reference to Techdyne's January, 1998 Form 8-K, Item 7(c)(99)
(vi)).*
(l) Commercial Security Agreement between Techdyne, Inc.(1) and
Barnett Bank, N.A. dated as of December 29, 1997 (incorporated
by reference to Techdyne's January, 1998 Form 8-K, Item
7(c)(99)(vii)).*
<PAGE> 39
(li) International Swap Dealers Association, Inc. Master Agreement
between Techdyne, Inc.(1) and Barnett Bank, N.A. dated as of
December 22, 1997 (incorporated by reference to Techdyne's
January, 1998 Form 8-K, Item 7(c)(99)(viii)).*
(lii) Employment Agreement between Techdyne, Inc.(1) and Barry
Pardon dated March 13, 1996(incorporated by reference to
Techdyne, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1995, Part IV, Item 14(a)(10)(viii)).*
(liii) Service Agreement between the Company and Techdyne Inc.(1),
dated October 25, 1996 (incorporated by reference to
Techdyne's Registration Statement on Form S-3, Registration
No. 333-15371, Part II, Item 16, Exhibit 10(a)).*
(liv) Lease Agreement between Techdyne, Inc.(1) and Route 495
Commerce Park Limited Partnership dated March 25, 1997
(incorporated by reference to Techdyne's Quarterly Report
on Form 10-Q for the first quarter of 1997, Item 6(a), Part
II(10)).*
(lv) Lease Agreement between Techdyne, Inc.(1) and PruCrow Indus-
trial Properties, L.P. dated April 30, 1997 (incorporated by
reference to Techdyne's Current Report on Form 8-K dated June
4, 1997 ("Techdyne June, 1997 Form 8-K"), Item 7(c)(10)(i)).*
(lvi) Lease Agreement between Techdyne, Inc.(1) and EGP Houston
Partners Ltd. dated April 29, 1997 (incorporated by reference
to Techdyne's June, 1997 Form 8-K, Item 7(c)(10)(ii)).*
(lvii) Stock Purchase Agreement between Patricia A. Crossley, Lytton
Incorporated(3) and Techdyne, Inc.(1) dated July 31, 1997
(incorporated by reference to Techdyne's August, 1997 Form
8-K, Item 7(c)(2)(i)).*
(lviii) 1995 Stock Option Plan of Dialysis Corporation of America(4)
(incorporated by reference to the Company's 1995 Form 10-K,
Part IV, Item 14(a) 3 (10)(lxiii).*
(lix) Form of Stock Option Certificate dated November 10, 1995
issued under 1995 Stock Option Plan of Dialysis Corporation
of America(4) (incorporated by reference to the Company's
1995 Form 10-K, Part IV, Item 14(a) 3 (10)(lxiv).*
(lx) 1995 Stock Option Plan of Dialysis Corporation of America(4)
(November 10, 1995) (incorporated by reference to DCA Form
SB-2, Part II, Item 27, 10(5)).*
(lxi) Form of Dialysis Corporation of America(4) Stock Option Cer-
tificate under 1995 Stock Option Plan (November 10, 1995)
(incorporated by reference to DCA Form SB-2, Part II, Item
27, 10(4)).*
(lxii) Form of Dialysis Corporation of America(4) Non-Qualified
Stock Option granted to Medical Directors of Dialysis Corpora-
tion of America(4) (incorporated by reference to DCA's 1996
Form 10-K, Part IV, Item 14(a) 3 (10)(xxi)).*
<PAGE> 40
(lxiii) Lease between Dialysis Services of PA., Inc. - Carlisle(5)
and Lester P. Burkholder, Jr. and Kirby K. Burkholder dated
November 1, 1996 (incorporated by reference to DCA's 1996
Form 10-K, Part IV, Item 14(a) 3 (10)(xxiii)).*
(lxiv) Lease between Dialysis Services of NJ., Inc. - Manahawkin(5)
and William P. Thomas dated January 30, 1997 (incorporated by
reference to DCA's 1996 Form 10-K, Part IV, Item 14(a) 3
(10)(xxiv)).*
(lxv) Addendum to Lease Agreement between William P. Thomas and
Dialysis Services of NJ., Inc. - Manahawkin(5) dated June 4,
1997 (incorporated by reference to DCA's 1997 Form 10-K, Part
IV, Item 14(c)(10)(xxi)).*
(lxvi) Medical Director Agreement between Dialysis Services of NJ,
Inc. - Manahawkin(5) and Oceanview Medical Group, P.A. dated
September 5, 1996 [*] (incorporated by reference to Dialysis
Corporation of America's Quarterly Report on Form 10-Q for
the period ended September 30, 1996 ("DCA September 30, 1996
Form 10-Q"), Part II, Item 6(a), Part II, Exhibit 10(i)).*
(lxvii) Medical Director Agreement between Dialysis Services of PA.,
Inc. - Carlisle(5) and Herb Soller, M.D. dated October 1, 1996
[*] (incorporated by reference to DCA's September 30, 1996
Form 10-Q, Part II, Item 6(a), Part II, Exhibit 10(ii)).*
(lxviii) Equipment Master Lease Agreement BC-105 between Dialysis
Corporation of America(4) and B. Braun Medical, Inc. dated
November 22, 1996 (incorporated by reference to DCA's 1996
Form 10-K, Part IV, Item 14(a) 3 (10)(xxvii)).*
(lxix) Schedule of Leased Equipment 0597 commencing June 1, 1997 to
Master Lease BC-105 (incorporated by reference to Dialysis
Corporation of America's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 ("DCA June 30, 1997 10-Q"),
Part II, Item 6(a), Part II, Exhibit 10(i)).*
(lxx) Schedule of Leased Equipment 0697 commencing July 1, 1997 to
Master Lease BC-105 (incorporated by reference to DCA's June
30, 1997 Form 10-Q, Part II, Item 6(a), Part II, Exhibit
10(ii)).*
(lxxi) Assignment and Assumption of Lease and Release by and among
Dialysis Corporation of America(4), Renal Care Group of the
Southeast, Inc., Renal Care Group, Inc. and B. Braun Medical,
Inc. dated October 31, 1997 (incorporated by reference to
Dialysis Corporation of America's Current Report on Form 8-K
dated November 12, 1997 ("DCA November, 1997 Form 8-K"), Part
II, Item 7(c)(2.4)).*
(lxxii) Assignment and Assumption of Lease and Release by and among
Dialysis Services of Florida, Inc. - Fort Walton Beach(5),
Renal Care Group of the Southeast, Inc., Renal Care Group,
Inc. and JACO, L.C. dated October 31, 1997 (incorporated by
reference to DCA's November, 1997 Form 8-K, Part II, Item
7(c)(2.2)).*
(lxxiii) Form of Techdyne, Inc.(1) 1997 Stock Option Plan (incorporated
by reference to Techdyne's Current Report on Form 8-K dated
June 24, 1997 ("Techdyne June, 1997 Form 8-K"), Item
7(c)(4)(i)).*
[*] Confidential portions omitted have been filed separately with the
Securities and Exchange Commission.
<PAGE> 41
(lxxiv) Form of Techdyne, Inc.(1) 1997 Incentive Stock Option
(incorporated by reference to Techdyne's June, 1997 Form 8-K,
Item 7(c)(4)(ii)).*
(lxxv) Form of Techdyne, Inc.(1) 1997 Non-Qualified Stock Option
(incorporated by reference to Techdyne's June, 1997 Form 8-K,
Item 7(c)(4)(iii)).*
(21) Subsidiaries of the registrant.
(23) Consent of experts and counsel.
(i) Consent of Independent Certified Public Accountant.
(27) Financial Data Schedule (for SEC use only).
- ----------
(1) 63% owned subsidiary.
(2) Former public subsidiary of the Company; spun-off in 1986.
(3) 100% owned subsidiary of Techdyne, Inc.
(4) 66% owned subsidiary.
(5) 100% owned subsidiary of Dialysis Corporation of America.
(6) Each of the $1,000,000 Revolving Loan and $1,500,000 Term Loan has
been unconditionally guaranteed by the Company and each unconditional
guarantee agreement is substantially similar to the exhibit filed for
the Revolving Loan.
(7) The Company has subordinated indebtedness due to it from Techdyne,
Inc. to the Revolving and Term Loans; each Subordination Agreement is
substantially similar to the exhibit filed for the Revolving Loan.
* Documents incorporated by reference not included in Exhibit Volume.
** There are six such Agreements, all the same but for the territory
assigned.
*** Options to directors are the same except as to amounts of underlying
shares purchasable.
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MEDICORE, INC.
By/s/ THOMAS K. LANGBEIN
--------------------------------
THOMAS K. LANGBEIN, Chairman
of the Board of Directors, Chief
Executive Officer and President
March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
Chairman of the Board
/s/ THOMAS K. LANGBEIN of Directors, Chief Executive
- ----------------------- Officer and President March 27, 1998
Thomas K. Langbein
/s/ SEYMOUR FRIEND Vice President and Director March 27, 1998
- -----------------------
Seymour Friend
Vice-President, Principal
/s/ DANIEL R. OUZTS Financial Officer and
- ----------------------- Controller March 27, 1998
Daniel R. Ouzts
/s/ PETER D. FISCHBEIN Director March 27, 1998
- -----------------------
Peter D. Fischbein
/s/ ANTHONY C. D'AMORE Director March 27, 1998
- -----------------------
Anthony C. D'Amore
/s/ ROBERT P. MAGRANN Director March 27, 1998
- -----------------------
Robert P. Magrann
<PAGE> 43
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a) (1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1997
MEDICORE, INC.
HIALEAH, FLORIDA
<PAGE>
FORM 10-K--ITEM 14(a)(1) and (2)
MEDICORE, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Medicore, Inc.
and subsidiaries are included in Item 8:
Page
----
Consolidated Balance Sheets--December 31, 1997 and 1996............. F-3
Consolidated Statements of Income--Years ended December 31, 1997,
1996, and 1995................................................... F-4
Consolidated Statements of Stockholders' Equity--Years ended
December 31, 1997, 1996 and 1995................................. F-5
Consolidated Statements of Cash Flows--Years ended December 31,
1997, 1996, and 1995............................................. F-6
Notes to Consolidated Financial Statements--December 31, 1997....... F-7
The following financial statement schedule of Medicore, Inc. and
subsidiaries is included in Item 14(d):
Schedule II-Valuation and qualifying accounts.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Medicore, Inc.
We have audited the accompanying consolidated balance sheets of Medicore,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. Our audits
also included the Financial Statement Schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and signif-
icant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Medicore, Inc. and subsidiaries at December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in con-
formity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
March 25, 1998
Miami, Florida
F-2
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1997 1996
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $11,099,418 $10,795,298
Marketable securities 726,538 1,405,579
Accounts receivable, less allowances of
$231,000 in 1997 and $385,000 in 1996 6,298,089 3,711,600
Inventories, less allowance for
obsolescence of $238,000 in 1997
and $169,000 in 1996 8,683,439 3,637,556
Prepaid expenses and other current assets 862,613 589,502
Deferred tax asset 1,294,535 ---
----------- -----------
Total Current Assets 28,964,632 20,139,535
PROPERTY AND EQUIPMENT
Land and improvements 1,017,255 1,024,455
Building and building improvements 3,066,889 2,986,126
Equipment and furniture 9,129,583 6,364,188
Leasehold improvements 715,316 392,607
----------- -----------
13,929,043 10,767,376
Less accumulated depreciation and
amortization 5,024,016 4,728,167
----------- -----------
8,905,027 6,039,209
DEFERRED EXPENSES AND OTHER ASSETS 141,844 204,361
COSTS IN EXCESS OF NET TANGIBLE
ASSETS ACQUIRED, less accumulated
amortization of $438,000 in 1997
and $356,000 in 1996 2,850,016 701,747
----------- -----------
$40,861,519 $27,084,852
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank borrowings $ 548,698 $ ---
Accounts payable 4,384,430 2,726,817
Accrued expenses and other
current liabilities 2,342,197 1,412,623
Current portion of long-term debt 1,073,924 832,851
Income taxes payable 1,758,423 788,976
Deferred income taxes --- 534,120
----------- -----------
Total Current Liabilities 10,107,972 6,295,387
LONG-TERM DEBT 5,240,034 1,677,367
DEFERRED INCOME TAXES 2,592,843 2,155,603
MINORITY INTEREST IN SUBSIDIARIES 6,843,412 3,935,037
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
authorized 12,000,000 shares;
5,856,940 issued, 5,848,740 shares
outstanding in 1997; 5,456,940
shares issued and outstanding in 1996 58,569 54,569
Capital in excess of par value 13,040,877 11,493,255
Retained earnings 2,850,517 609,546
Foreign currency translation adjustment (31,128) (7,371)
Unrealized gain on marketable
securities for sale 175,213 871,459
Treasury stock at cost; 8,200
shares at December 31, 1997 (16,790) ---
----------- -----------
Total Stockholders' Equity 16,077,258 13,021,458
----------- -----------
$40,861,519 $27,084,852
=========== ===========
See notes to consolidated financial statements.
F-3
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
REVENUES
Sales $38,888,233 $29,680,520 $34,140,573
Gain on sale of
subsidiaries' assets 4,430,663
Gain on subsidiary securities
offering and warrants
exercise 89,898 1,521,127 2,002,277
Realized gain on sale of
marketable securities 49,493 2,583,500 182,670
Other income 661,195 934,259 334,560
----------- ----------- -----------
44,119,482 34,719,406 36,660,080
COST AND EXPENSES
Cost of goods sold 32,198,701 24,247,403 28,072,444
Selling, general and
administrative expense 6,615,768 6,211,485 4,748,113
Interest expense 393,515 217,615 246,393
----------- ----------- -----------
39,207,984 30,676,503 33,066,950
----------- ----------- -----------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 4,911,498 4,042,903 3,593,130
Income tax provision 953,000 1,350,746 1,295,626
----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST 3,958,498 2,692,157 2,297,504
Minority interest in income
of consolidated subsidiaries 1,717,527 274,888 46,233
----------- ----------- -----------
NET INCOME $ 2,240,971 $ 2,417,269 $ 2,251,271
=========== =========== ===========
Earnings per share:
Basic $.39 $.44 $.41
==== ==== ====
Diluted $.36 $.39 $.37
==== ==== ====
See notes to consolidated financial statements.
F-4
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Capital in Retained Foreign Notes Gain on
Common Excess of Earnings Currency Receivable Treasury Marketable
Stock Par Value (Deficit) Translation Options Stock Securities Total
------ ---------- --------- ----------- ---------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 54,549 $11,540,704 $(4,058,994) $ (227,745) $(326,400) $1,044,918 $8,027,032
Exercise of subsidiary stock
options 249 249
Foreign currency translation
adjustments (9,513) (9,513)
Sale of 172,500 shares of
Viragen (160,425) (160,425)
Net decrease in valuation of
remaining Viragen Shares (354,175) (354,175)
Net income 2,251,271 2,251,271
------- ----------- ---------- --------- ----------- --------- -------- -----------
Balance at December 31, 1995 54,549 11,540,953 (1,807,723) (237,258) (326,400) 530,318 9,754,439
Issuance of 2,000 shares of
common stock as compensation 20 5,540 5,560
Forgiveness of stock option
notes June 1996 326,400 326,400
Exercise of subsidiary stock
options (3,652) (3,652)
Conversion of portion of
Techdyne note (49,586) (49,586)
Foreign currency translation
adjustments 229,887 229,887
Sale of 681,800 shares of
Viragen (380,172) (380,172)
Net increase in valuation of
remaining Viragen shares 721,313 721,313
Net income 2,417,269 2,417,269
------- ----------- ---------- --------- ----------- --------- -------- -----------
Balance December 31, 1996 54,569 11,493,255 609,546 (7,371) 0 0 871,459 13,021,458
Exercise of stock options for
400,000 shares of common stock 4,000 713,000 717,000
Exercise of subsidiary stock
options (66,534) (66,534)
Conversion of portion of
Techdyne note (48,217) (48,217)
Repurchase of stock by
subsidiary (28,155) (28,155)
Subsidiary stock issuance for
acquisition 977,528 977,528
Foreign currency translation
adjustments (23,757) (23,757)
Sale of 10,000 shares of Viragen (32,364) (32,364)
Net decrease in valuation of
remaining Viragen shares (663,882) (663,882)
Repurchase of 8,200 common
shares (16,790) (16,790)
Net income 2,240,971 2,240,971
------- ----------- ---------- --------- ----------- --------- -------- -----------
Balance at December 31, 1997 $58,569 $13,040,877 $2,850,517 $(31,128) $ -0- $(16,790) $175,213 $16,077,258
======= =========== ========== ========= =========== ========= ======== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $2,240,971 $2,417,269 $2,251,271
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Gain of sale of subsidiaries' assets (4,430,663) --- ---
Depreciation 1,019,253 657,640 542,702
Amortization 106,126 79,329 69,980
Bad debt expense (net recovery) 42,276 275,408 136,221
Gain on Viragen note collection --- (227,703) ---
Provision for inventory obsolescence 153,011 91,913 294,860
Stock compensation expense 322,125 5,560 ---
Gain on sale of securities (49,493) (2,583,500) (182,671)
Minority interest 1,717,527 274,888 46,233
Forgiveness of option notes and accrued interest --- 344,871 ---
Deferred income taxes (493,000) 581,266 777,680
Gain on subsidiary stock offering and warrants exercise (89,899) (1,521,127) (2,002,277)
Increase (decrease) relating to operating activities from:
Accounts receivable (1,735,304) (63,409) (474,008)
Inventories (2,615,706) 320,742 (1,276,376)
Prepaid expenses and other current assets (237,547) 160,999 (373,819)
Accounts payable 374,871 (867,608) 1,246,694
Accrued expenses and other current liabilities (101,702) (249,504) 510,124
Income taxes payable 753,219 279,708 210,398
----------- ----------- ----------
Net cash (used in) provided by operating activities (3,023,935) (23,258) 1,777,012
INVESTING ACTIVITIES
Proceeds from sale of subsidiaries' assets 4,583,662 --- ---
Acquisition of subsidiary (2,166,011) --- ---
Additions to property and equipment, net of minor disposals (2,135,213) (797,968) (1,283,597)
Payments received on note receivable from Viragen, Inc. --- 373,948 21,470
Proceeds from sale of securities 49,493 2,583,500 217,717
Deferred expenses and other assets 30,801 98,041 (149,417)
Purchase portion of minority interest in subsidiary --- --- (15,250)
----------- ----------- ----------
Net cash provided by (used in) investing activities 362,733 2,257,521 (1,209,077)
FINANCING ACTIVITIES
Borrowings to finance subsidiary acquisition 2,500,000 --- ---
Short-term line of credit borrowings 548,698 --- ---
Net proceeds from subsidiary stock offering --- 3,445,158 3,320,784
Proceeds from long-term borrowings --- 181,476 ---
Payments on long-term borrowings (430,976) (270,945) (433,673)
Proceeds from exercise of stock options and warrants 695,953 59,700 400
Subsidiary repurchase of stock (206,250) --- ---
Repurchase of stock (16,790) --- ---
Dividend payments to minority shareholders (3,966) (7,467) (28,842)
Deferred financing costs (2,657) (14,438) (11,944)
----------- ----------- ----------
Net cash provided by (used in) financing activities 3,084,012 3,393,484 2,846,725
Effect of exchange rate fluctuations on cash (118,690) 142,085 (20,684)
----------- ----------- ----------
Increase in cash and cash equivalents 304,120 5,769,832 3,393,976
Cash and cash equivalents at beginning of year 10,795,298 5,025,466 1,631,490
----------- ----------- ----------
Cash and cash equivalents at end of year $11,099,418 $10,795,298 $5,025,466
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business: Techdyne is an international contract manufacturer of
electronic and electro-mechanical products primarily manufactured to customer
specifications in the data processing, telecommunication, instrumentation and
food preparation equipment industries. DCA owns and operates three kidney
dialysis centers located in Pennsylvania and has agreements to provide
inpatient dialysis treatments to various hospitals and provides supplies
and equipment for dialysis home patients. The Company is also engaged in
the manufacture and distribution of medical supplies.
Consolidation: The Consolidated Financial Statements include the
accounts of Medicore, Inc., Medicore's 66.0% owned subsidiary, Dialysis
Corporation of America ("DCA") and Medicore's 62.9% owned subsidiary,
Techdyne, Inc. ("Techdyne") and its subsidiaries Lytton Incorporated
("Lytton"), Techdyne (Scotland) Limited ("Techdyne (Scotland)"), and
Techdyne (Livingston) Limited which is a subsidiary of Techdyne (Scotland),
collectively known as the Company. All material intercompany accounts and
transactions have been eliminated in consolidation.
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Sale of Stock By Subsidiaries: The Company follows an accounting policy
of recognizing income on sales of stock by its subsidiaries, which includes
exercise of warrants issued in subsidiary stock offerings.
Marketable Securities: The Company follows Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities". Under this Statement, the Company is required to
classify its marketable equity securities as either trading or available-
for-sale. The Company does not purchase securities for the purpose of
short-term sales; accordingly, its securities are classified as available-
for-sale. Marketable securities are recorded at fair value. Unrealized
gains and losses relating to available-for-sale securities are included
as a separate component of shareholders' equity, net of income tax effect,
until realized. Realized gains and losses are computed based on the cost of
securities sold using the specific identification method. Marketable
securities are comprised of the following:
December 31, December 31,
1997 1996
---------- ------------
Viragen, Inc.
(259,268 shares with $1.09 per
share market value at December 31,
1997; 269,268 shares with $5.22 per
share market value at December 31,
1996) $282,602 $1,405,579
Renal Care Group, Inc.
(13,873 shares with $32.00 per
share market value at December 31,
1997) 443,936 ---
-------- ----------
$726,538 $1,405,579
======== ==========
F-7
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Inventories: Inventories are valued at the lower of cost (first-in,
first-out method) or market value. The cost of finished goods and work in
process consists of direct materials, direct labor and an appropriate
portion of fixed and variable manufacturing overhead. Inventories are
comprised of the following:
December 31, December 31,
1997 1996
------------ ------------
Electronic and mechanical components, net:
Finished goods $ 554,903 $ 486,863
Work in process 1,772,724 478,481
Raw materials and supplies 5,997,682 2,083,990
---------- ----------
8,325,309 3,049,334
Medical supplies 358,130 588,222
---------- ----------
$8,683,439 $3,637,556
========== ==========
Property and Equipment: Property and equipment is stated at cost.
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets for financial reporting purposes and by accel-
erated methods for income tax purposes. Effective January 1, 1996, the
Company adopted the provisions of Financial Accounting Standards Board
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of". The adoption of the
provisions of FAS 121 had no material effect on the results of operations,
financial condition or cash flows of the Company. The Company, based on
current circumstances, does not believe any indicators of impairment are
present.
Costs in Excess of Net Tangible Assets Acquired: The costs in excess of
net tangible assets acquired are being amortized over 25 years. If, in the
opinion of management, an impairment in value occurs, based on the undis-
counted cash flow method, any necessary additional writedowns will be
charged to expense.
Deferred Expenses: Deferred expenses, except for deferred loan costs,
are amortized on the straight-line method, over their estimated benefit
period ranging to 60 months. Deferred loan costs are amortized over the
lives of the respective loans.
Income Taxes: Deferred income taxes at the end of each period are
determined by applying enacted tax rates applicable to future periods in
which the taxes are expected to be paid or recovered to differences between
financial accounting and tax basis of assets and liabilities.
The Company filed consolidated federal and state tax returns with
Techdyne until October 2, 1995, the date Techdyne's securities offering
was completed, after which Techdyne files separate income tax returns with
its income tax liability reflected on a separate return basis. DCA was
likewise included in the consolidated tax returns of the Company until
the completion of its public offering in April 1996, after which it files
separate income tax returns with its income tax liability reflected on a
separate return basis. See Note 8.
Stock Based Compensation: The Company follows Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB 25)
and related Interpretations in accounting for its employee stock options.
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation"(FAS 123) permits a company to elect to follow
the accounting provisions of APB 25 rather than the alternative fair value
accounting provided under FAS 123 but requires pro forma net income
F-8
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
and earnings per share disclosures as well as various other disclosures not
required under APB 25 for companies following APB 25.
Foreign Currency Translation: The financial statements of the foreign
subsidiary have been translated into U.S. dollars in accordance with State-
ment of Financial Accounting Standards No. 52. All balance sheet accounts
have been translated using the current exchange rates at the balance sheet
date. Income statement amounts have been translated using the average
exchange rate for the year. The translation adjustments resulting from the
change in exchange rates from year to year have been reported separately as
a component of stockholders' equity. Foreign currency transaction gains and
losses, which are not material, are included in results of operations.
These gains and losses result from exchange rate changes between the time
transactions are recorded and settled and, for unsettled transactions,
exchange rate changes between the time transactions are recorded and the
balance sheet date.
Other Income: Other income is comprised as follows:
Year Ended December 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
Interest income $448,950 $414,207 $160,470
Gain on Viragen note recovery --- 227,703 ---
Litigation settlement --- 139,645 ---
Other 212,245 152,704 174,090
--------- -------- --------
$661,195 $934,259 $334,560
======== ======== ========
Earnings Per Share: In February 1997, the Financial Accounting
Standards Board issued FAS 128, "Earnings Per Share", which was adopted on
December 31, 1997. The Company has adopted FAS 128 which requires it to
change the method previously used to compute earnings per share and to
restate all prior periods. The new requirements for calculating basic
earnings per share exclude the dilutive effect of stock options and
warrants. Earnings per share under the diluted computation required under
FAS 128 includes stock options and warrants using the treasury stock method
using average market price.
Following is a reconciliation of amounts used in the basic and diluted
computations:
Year Ended December 31,
-----------------------------------
1997 1996 1995
---------- ---------- ----------
Net income, numerator basic-
computation $2,240,971 $2,417,269 $2,251,271
Adjustment due to subsidiaries'
dilutive securities (102,697) (61,971) (70,596)
---------- ---------- ----------
Net income as adjusted, numerator-
diluted computation $2,138,274 $2,355,798 $2,180,675
========== ========== ==========
Weighted average shares, denominator-
basic computation 5,733,104 5,456,251 5,454,940
Effect of dilutive stock securities:
Stock options 285,088 552,872 449,027
---------- ---------- ----------
Weighted average shares, as
adjusted, denominator-diluted
computation 6,018,192 6,009,123 5,903,967
========== ========== ==========
Earnings per share:
Basic $.39 $.44 $.41
==== ==== ====
Diluted $.36 $.39 $.37
==== ==== ====
F-9
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Cash and Cash Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents. The carrying amounts, reported in the balance sheet for
cash and cash equivalents approximate their fair values. The credit risk
associated with cash and cash equivalents are considered low due to the
high quality of the financial institutions in which these assets are
invested.
Customer Payment Terms: The majority of the Company's sales are made
at payment terms of net amount due in 30-45 days, depending on the customer.
Reclassifications: Certain reclassifications have been made to the
1996 and 1995 financial statements to conform to the 1997 presentation.
Estimated Fair Value of Financial Instruments: The carrying value of
cash, accounts receivable and debt in the accompanying financial statements
approximate their fair value because of the short-term maturity of these
instruments, and in the case of debt because such instruments bear variable
interest rates which approximate market.
New Pronouncements: The Company will adopt the provisions of Financial
Accounting Standards Board Statement No. 130, "Reporting Comprehensive
Income" (FAS 130) in 1998 which is required by FAS 130 for fiscal years
beginning after December 15, 1997. FAS 130 requires the presentation of
comprehensive income and its components in the financial statements and
the accumulated balance of other comprehensive income separately from
retained earnings and additional paid in capital in the equity section of
the balance sheet. The Company does not believe that adoption of FAS 130
will have a material effect on its financial statements. The Company will
also adopt the provisions of Financial Accounting Standards Board Statement
No. 131, "Disclosures About Segments of an Enterprise and Related Informa-
tion" (FAS 131) in 1998 which is required by FAS 131 for fiscal years
beginning after December 15, 1997. FAS 131 establishes standards for
reporting information about operating segments in annual financial state-
ments with operating segments representing components of an enterprise
evaluated by the enterprise's chief operating decision maker for purposes of
making decisions regarding resource allocation and performance evaluation.
The Company does not believe that adoption of FAS 131 will significantly
change its segment reporting disclosures.
NOTE 2--TRANSACTIONS WITH VIRAGEN, INC.
The Company owns approximately 259,000 shares of Viragen (formerly a
majority-owned subsidiary of the Company) common stock as of December 31,
1997. During 1997, 1996 and 1995 the Company sold approximately 10,000
shares, 682,000 shares and 173,000 shares of Viragen stock and recognized
gains of approximately $49,000, $2,584,000 and $183,000, respectively. In
accordance with the Company's accounting policy, these shares are reflected
at fair value, using quoted market prices by the Nasdaq Stock Market, and
the unrealized gain is inclined as a separate component of shareholders'
equity. The closing bid price of Viragen common stock was $1.09 as of
December 31, 1997 and $5.22 as of December 31, 1996. The closing bid price
as of March 19, 1998 was $2.06.
F-10
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 2--TRANSACTIONS WITH VIRAGEN, INC.--Continued
The Company had a second mortgage and related note due from Viragen.
In March, 1996, Viragen prepaid $165,000 on this note and paid off the
remaining principal and accrued interest in August 1996. As a result of
Viragen repaying amounts which had been offset by an allowance for amounts
previously written off as uncollectable, the Company recognized a gain of
approximately $228,000 in 1996.
The Company has a royalty agreement with Viragen, pursuant to which it
is to receive a royalty on Viragen's net sales of interferon and related
products. The agreement provides for aggregate royalty payments of $2.4
million to be paid based on the following percentages of Viragen sales:
5% of the first $7 million, 4% of the next $10 million, and 3% of the next
$55 million. The effective date of the agreement was November 15, 1994,
with royalty payments due quarterly, commencing March 31,1995. In addition,
a payment of approximately $108,000, under a previous royalty agreement, is
due on the final payment under the new agreement.
NOTE 3--LONG-TERM DEBT
On February 8, 1996, Techdyne refinanced its term loan by entering into
three loan agreements with a Florida bank. One credit facility was a
$2,000,000 line of credit due on demand secured by Techdyne's accounts
receivable, inventory, furniture, fixtures and intangible assets and bore
interest at the bank's prime rate plus 1.25%. In conjunction with Techdyne's
acquisition of Lytton on July 31, 1997, the line of credit was modified
and increased to $2,500,000 with the interest rate reduced to prime plus
.75% and various other modifications. The line was fully drawn down in
connection with the Lytton acquisition with $2,500,000 remaining out-
standing, with interest due at 9.25%, until the line was refinanced in
December 1997.
The $2,500,000 line of credit agreement was refinanced and replaced
effective December 29, 1997 with a five year $1,500,000 commercial term
loan and $1,600,000 commercial revolving line of credit. The $1,600,000
line of credit had an outstanding balance of $1,000,000 at December 31,
1997. This line matures May 1, 2000 and has monthly payments of interest
at prime. Both credit facilities are collateralized by the corporate assets
of Techdyne. The new commercial term loan matures December 15, 2002 with
monthly principal payments of $25,000 plus interest. In connection with
the term loan, the Company entered into an interest rate swap agreement
with the bank to manage Techdyne's exposure to interest rates by effec-
tively converting a variable note obligation with an interest rate of
LIBOR plus 2.25% to a fixed rate of 8.60%. Early termination of the swap
agreement, either through prepayment or default on the term loan, may
result in a cost or a benefit to Techdyne. The December 29, 1997 re-
financing represents a noncash financing activity which is a supplemental
disclosure required by Financial Accounting Standards Board Statement No.
95 "Statement of Cash Flows" (FAS 95).
F-11
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 3--LONG-TERM DEBT--Continued
The bank extended two commercial term loans to Techdyne in February
1996, one for $712,500 for five years expiring on February 7, 2001 at an
annual rate of interest equal to 8.28% with a monthly payment of principal
and interest of $6,925 based on a 15-year amortization schedule with the
unpaid principal and accrued interest due on the expiration date. This term
loan had an outstanding balance of approximately $663,000 at December 31,
1997 and $691,000 at December 31, 1996 and is secured by a mortgage on
properties in Hialeah, Florida owned by the Company, two of which prop-
erties are leased to Techdyne and one parcel being vacant land used as a
parking lot. Under this term loan, Techdyne is obligated to adhere to a
variety of affirmative and negative covenants.
The second commercial term loan was for the principal amount of
$200,000 for a period of five years bearing interest at a per annum rate of
1.25% over the bank's prime rate and requiring monthly principal payments
with accrued interest of $3,333 through expiration on February 7, 2001.
This $200,000 term loan which had a balance of approximately $127,000 at
December 31, 1997 and $167,000 at December 31, 1996 is secured by all of
Techdyne's tangible personal property, goods and equipment, and all cash
or noncash proceeds of such collateral.
The February 1996 financing under the term loans provided cash proceeds
to Techdyne of approximately $181,000 and included payment of the balance
due under Techdyne's previous term loan of $517,000 and payment of a mort-
gage of the Company, including accrued interest, on a building leased to
Techdyne of $215,000 which represent noncash financing activities which
is a supplemental disclosure required by FAS 95.
The Company has unconditionally guaranteed the payment and performance
by Techdyne of the revolving loan and the three commercial term loans and
has subordinated Techdyne's intercompany indebtedness to the Company to
the bank's interest. There are cross defaults between the revolving and
term loans exclusive of the $200,000 term loan.
Lytton has a $1,500,000 revolving bank line of credit requiring monthly
interest payments at prime plus 1/2% which matures August 1, 1998. The
interest rate on this loan was 9% as of December 31, 1997. Lytton has a
$1,000,000 installment loan with the same bank maturing August 1, 2002 at an
annual rate of 9% until July 1999, with monthly payments of $16,667 plus
interest, at which time, Lytton will have an option to convert the note to
a variable rate. The balance outstanding on this loan was approximately
$933,000 as of December 31, 1997. Lytton also has a $500,000 equipment
loan agreement with the same bank payable over four years through August 1,
2002
F-12
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 3--LONG-TERM DEBT--Continued
with the same interest rate as the installment loan. There was no outstanding
balance on this loan as of December 31, 1997. All of these bank loans are
secured by the business assets of Lytton.
Long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
Term loan secured by real property with a carrying value of
$1,005,000 at December 31, 1997. Monthly payments
of principal and interest as described above. $662,533 $690,894
Term loan secured by tangible personal property, goods and equipment
with a carrying value of $4,223,000 at December 31, 1997. Monthly
payments of principal and interest as described above. 126,764 166,764
Commercial term loan secured by corporate assets of
Techdyne with a carrying value of approximately
$14,449,000 as of December 31, 1997. Monthly
payments of principal and interest as described above. 1,500,000
Three-year revolving line of credit agreement
maturing May 1, 2000. Secured by corporate assets
of Techdyne with a carrying value of approximately
$14,449,000 at December 31, 1997. Monthly
payments of interest as described above. 1,000,000
Mortgage note secured by land and building with a net book value of
$865,000 at December 31, 1997. Quarterly payments of approximately
$20,000 based on exchange rates at December 31, 1997 for 15 years
commencing October, 1994 including interest at 2%
above bank base rate. 569,431 622,214
Promissory note secured by three certificates of deposit.
A single principal payment is due on April 21, 2000
with interest payable monthly at prime. 145,000 145,000
Mortgage note secured by land and building with a net book value of
$436,000 at December 31, 1997. Monthly principals payments of
$3,333 plus interest at 1% over the prime rate through November
2003. The loan is redeemable at the bank's option after November
30, 1993, and is, therefore, reflected as current at December 31,
1996. Loan modified in December 1997 with the call provision
removed. 240,036 280,032
Mortgage note secured by land and building with a net book value of
$742,000 at December 31, 1997. Monthly principal payments of $2,667
plus interest at 1% over the prime rate through November 2003.
The loan is redeemable at the bank's option after November 30,
1993 and is therefore, reflected as current at December 31, 1996.
Loan modified in December 1997 with the call provision removed. 191,963 223,968
Equipment financing agreement secured by DCA equipment with a net
book value of $311,000 at December 31, 1997. Combined monthly
payments pursuant to various schedules of $8,179 as of December
31, 1997 as described below, including principal and interest,
with interest at rates ranging from 8% to 12%. 284,518 271,586
</TABLE>
F-13
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 3--LONG-TERM DEBT--Continued
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
--------- --------
<S> <C> <C>
Mortgage note secured by land with a net book value of $107,000
at December 31, 1996. Monthly principal payments of $1,083
plus interest at 1.50% and 2% as of December 31, 1997 and
1996, respectively, over the prime rate. The entire unpaid
principal balance and accrued interest is due. 69,295 82,334
Installment loan requiring monthly payments of $16,667 plus
interest at 9%. The loan is secured by all business assets of
Lytton with a carrying value of approximately $7,041,000.
Monthly payments of principal and interest as described above. 933,333
Equipment loan requiring monthly payments of $4,298 including
interest at 5.5% and maturing in April 2002. The loan is secured
by equipment of Lytton with a carrying value of approximately
$614,000 at December 31, 1997. 198,445
Equipment financing obligations requiring combined monthly payments of
$19,647 as of December 31, 1997 as described below, including
interest at rates ranging from 8.55% to 10.09% and secured by the
related assets of Lytton with a carrying value of approximately
$532,000 at December 31, 1997. 390,033
Other 2,607 27,426
---------- ----------
6,313,958 2,510,218
Less current portion 1,073,924 832,851
---------- ----------
$5,240,034 $1,677,367
========== ==========
</TABLE>
The prime rate was 8.50% as of December 31, 1997 and 8.25% as of
December 31, 1996.
The Company re-paid a mortgage in February 1996 through Techdyne's
bank loan refinancing. This represents noncash financing activity which is a
supplemental disclosure required by FAS 95.
The DCA equipment financing agreement provides financing for kidney
dialysis machines for DCA's facilities in Pennsylvania and was amended in
1996 to include equipment for DCA's Florida facility. The initial principal
balance was approximately $195,000. Additional financing totaled approxi-
mately $124,000 in 1996 and $189,000 in 1997. In conjunction with DCA's
sale of its Florida dialysis operations on October 31, 1997, the purchaser
assumed approximately $112,000 of these financing obligations . The balance
outstanding under this agreement amounted to approximately $285,000 at
December 31, 1997 and $272,000 at December 31, 1996. Payments under the
agreement are pursuant to various schedules extending through July 2002.
Financing under the equipment financing agreement is a noncash financing
activity which is a supplemental disclosure required by FAS 95.
Lytton conducts a portion of its operations with equipment acquired
under equipment financing obligations which extend through July 1999. The
present value of annual future minimum payments required under these
financing obligations is included in the schedule of long-term debt above.
Financing under these agreements is a noncash financing activity which is a
supplemental disclosure required by FAS 95.
F-14
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 3--LONG-TERM DEBT--Continued
Techdyne (Scotland) has established a line of credit with a Scottish
bank with a U.S. dollar equivalency of approximately $330,000 at December
31, 1997. This line of credit operates as an overdraft facility and is
secured by assets of Techdyne (Scotland) with a carrying value of approxi-
mately $4,992,000 at December 31, 1997, and is guaranteed by Techdyne. No
amounts were outstanding under this line of credit as of December 31, 1997.
Scheduled maturities of long-term debt outstanding at December 31, 1997
are: 1998 - $1,074,000; 1999 - $927,000; 2000 - $1,940,000; 2001- $1,301,000;
2002- $593,000; thereafter - $479,000. Interest payments on all of the above
debt amounted to $355,000, $224,000 and $246,000 in 1997, 1996 and 1995.
The Company's various debt agreements contain certain restrictive
covenants that, among other things, restrict the payment of dividends,
restrict rent commitments, restrict additional indebtedness, prohibit
issuance or redemption of capital stock and require maintenance of
certain financial ratios.
NOTE 4--INCOME TAXES
At December 31, 1996, the Company had net operating loss carryforwards
of approximately five million dollars that expire in years 2003 through 2010.
These net operating loss carryforwards are only available to offset future
Techdyne (US) taxable income which became a 62.5% owned subsidiary pursuant
to its public offering completed on October 2, 1995 and which began filing
separate federal and state income tax returns with its income tax liability
reflected on a separate return basis subsequent to that date. Techdyne's
new subsidiary, Lytton, will be included in Techdyne's consolidated federal
tax return effective August 1, 1997 with Techdyne's net operating loss
carryforwards able to be utilized to offset any income taxable for federal
tax return purposes generated by Lytton. See Note 11.
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
are as follows:
December 31,
----------------------
1997 1996
------- -------
Deferred tax liabilities:
Tax over book depreciation $ 408,000 $ 314,000
Gain on sale of Techdyne and DCA stock 2,067,000 2,053,000
Unrealized gain on marketable
securities 106,343 534,120
Other 11,500 1,880
---------- ----------
Total deferred tax liability 2,592,843 2,903,000
Deferred tax assets:
Obsolescence and other reserves 373,000 125,000
Inventory capitalization 113,000 79,000
Accrued expenses and other 227,000 229,000
---------- ----------
Sub-total 713,000 433,000
F-15
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 4--INCOME TAXES--Continued
December 31,
----------------------
1997 1996
------- -------
Net operating loss carryforward 1,432,000 1,368,000
Valuation allowance (850,465) (1,587,723)
---------- ----------
Net deferred tax asset 1,294,535 213,277
---------- ----------
Net deferred tax liability $1,298,308 $2,689,723
========== ==========
Due to the uncertainty as to the realizability of deferred tax assets, a
valuation allowance of $850,465 and $1,587,723 was recorded as of December
31, 1997 and December 31, 1996, respectively.
Deferred taxes in the accompanying balance sheets consist of the following
components:
December 31,
-------------------------
1997 1996
------- -------
Current deferred tax asset $1,294,535 $ 213,277
Long-term deferred tax asset --- ---
Long-term deferred tax liability 2,592,843 2,903,000
---------- ----------
Net long-term deferred tax
liability 2,592,843 2,903,000
---------- ----------
Net deferred tax liability $1,298,308 $2,689,723
========== ==========
A deferred tax liability of $2,067,000 at December 31, 1997 and
$2,053,000 at December 31, 1996, respectively, resulted from income tax
expense recorded on gains recognized for financial reporting purposes, but
not for income tax purposes, resulting in a difference between book and
tax basis of the Company's investment in Techdyne and DCA. This
temporary difference would reverse upon the occurrence of certain events
relating to the divestiture of Techdyne and DCA. This deferred tax
liability has been classified as noncurrent along with the remaining
portion of noncurrent deferred tax liabilities resulting from differences
in book and tax depreciation of Techdyne (Scotland). A current deferred
tax liability has been recorded for the unrealized gain on marketable
securities. See Note 2.
For financial reporting purposes, income before income taxes includes
the following components:
Year Ended December 31,
-----------------------------------------
1997 1996 1995
---------- ---------- ----------
United States $5,201,054 $3,260,262 $2,086,741
Foreign (289,556) 782,641 1,506,389
---------- ---------- ----------
$4,911,498 $4,042,903 $3,593,130
========== ========== ==========
Significant components of the provision (benefit) for income taxes are
as follows:
Year Ended December 31,
--------------------------------------------
1997 1996 1995
---------- --------- ---------
Current:
Federal $1,306,000 $ 440,000 $ 24,660
Foreign (96,000) 259,270 493,286
State 236,000 70,000 ---
---------- ---------- ----------
$1,446,000 769,270 517,946
Deferred:
Federal (493,000) 578,000 761,000
Foreign --- 3,476 16,680
---------- ---------- ----------
493,000 581,476 777,680
---------- ---------- ----------
$ 953,000 $1,350,746 $1,295,626
========== ========== ==========
F-16
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 4--INCOME TAXES--Continued
The reconciliation of income tax attributable to income before income
taxes and minority interests computed at the U.S. federal statutory rate
(34%) to income tax expense is as follows:
Year Ended December 31,
------------------------------------------
1997 1996 1995
-------- ---------- ----------
Tax at statutory rate $1,669,909 $1,374,587 $1,221,664
Increase (reduction) in
taxes resulting from:
State income taxes-net
of federal income tax
effect 180,770 49,898 ---
Lower effective income
taxes of other countries 13,096 (7,826) (15,064)
Change in valuation
allowance (737,258) (65,913) 89,026
Other (173,517) --- ---
---------- ---------- ----------
$ 953,000 $1,350,746 $1,295,626
========== ========== ==========
Undistributed earnings of the Company's foreign subsidiary amounted to
approximately $2,736,000 at December 31, 1997 and $2,930,000 at December 31,
1996. Those earnings are considered to be indefinitely reinvested and,
accordingly, no provision for U.S. federal and state income taxes has been
provided thereon. Upon distribution of those earnings in the form of
dividends or otherwise, the Company would be subject to both U.S. income
taxes (subject to an adjustment for foreign tax credits) and withholding
taxes payable. Determination of the amount of unrecognized deferred U.S.
income tax liability is not practicable because of the complexities
associated with its hypothetical calculation; however, foreign tax credits
may be available to reduce some portion of the U.S. liability. Withholding
taxes of approximately $137,000 and $147,000 would be payable upon remit-
tance of all previously unremitted earnings at December 31, 1997 and
December 31, 1996, respectively.
Income tax payments were approximately $811,000 in 1997, $487,000 in
1996 and $300,000 in 1995.
NOTE 5--STOCK OPTIONS AND STOCK COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as is
discussed below, Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock Based Compensation" (FAS123), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's stock
options equals the market price of the underlying stock on the date of
grant, no compensation expense was recognized.
F-17
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 5--STOCK OPTIONS AND STOCK COMPENSATION--Continued
In September 1994, the Company granted options to a consulting firm to
purchase 400,000 shares of common stock exercisable at $1.25 per share
through September 30, 1997. Options for 200,000 shares were transferred by
the consulting firm to another party in September 1996. The options vested
on the basis of 25% of the aggregate as of the end of each quarter beginning
with the quarter ended December 31, 1994. Options for 200,000 shares were
exercised in August 1997 and the remaining options for 200,000 shares were
exercised in September 1997.
In September 1994, options to purchase 480,000 shares of common stock
at $.69 per share were exercised. The Company received cash payment of the
par value and the balance in three year promissory notes, presented in the
Stockholders' Equity section of the balance sheet, with interest at 5.36%.
The notes were secured by the 480,000 shares purchased, held in escrow by
the Company, with voting rights held by the shareholders until default, if
any, under the notes. In June 1996, the Company forgave the balances due
under the notes including accrued interest and accordingly recorded approx-
imately $344,000 in compensation expense.
The Company has 1,000,000 shares of common stock reserved for future
issuance pursuant to its 1989 Stock Option Plan. On April 18, 1995, the
Company granted non-qualified stock options for 809,000 shares of its
common stock, of which there are 806,000 outstanding at December 31, 1997,
as a service award to officers, directors, and certain employees of the
Company and certain of its subsidiaries under its 1989 Plan. The options
were exercisable at $3.00 per share, reduced to $2.38 per share on December
31, 1996, through April 17, 2000. On June 11, 1997, the Company's board of
directors granted a five-year non-qualified stock option under the 1989
Plan for 35,000 shares immediately exercisable with an exercise price of
$3.75 to a new board member, which exercise price was reduced to $2.38
per share on September 10, 1997, the fair market value on that date. In-
cluding the June 1997 grant, there are 841,000 options outstanding under
the 1989 plan.
On May 6, 1996, the Company adopted a Key Employee Stock Plan reserving
100,000 shares of its common stock for issuance from time to time to
officers, directors, key employees, advisors and consultants as bonus or
compensation for performances and or services rendered to the Company or
otherwise providing substantial benefit for the Company. 2,000 shares under
this plan have been issued to the managing director of the Company's
European operations for which the Company recorded approximately $6,000 in
compensation expense during the second quarter of 1996.
In May 1994, Techdyne adopted a stock option plan for up to 250,000
options. Pursuant to this plan, in May 1994, the board of directors granted
227,500 options of which there are 171,600 outstanding as of December 31,
1997, to certain of its officers, directors, and employees. These options
are exercisable for a period of five years at $1 per share.
F-18
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 5--STOCK OPTIONS AND STOCK COMPENSATION--Continued
On February 27, 1995 Techdyne granted non-qualified stock options, not
part of the 1994 Plan, to directors of Techdyne and its subsidiary for
142,500 shares exercisable at $1.75 per share for five years. In April
1995, Techdyne granted a non-qualified stock option for 10,000 shares, not
part of the 1994 Plan, to its general counsel at the same price and terms
as the directors' options.
In June 1997, Techdyne's board of directors adopted a Stock Option Plan
for up to 500,000 options, and pursuant to the plan the Board guaranteed
375,000 options exercisable for five years through June 22, 2002 at $3.25
per share the closing price of the common stock on the date of grant.
In November 1995, DCA adopted a stock option plan for up to 250,000
options. Pursuant to this plan, in November 1995, DCA's board of directors
granted 210,000 options to certain of its officers, directors and employees
of which there are 19,000 outstanding as of December 31, 1997. These options
vested immediately and are exercisable for a period of five years through
November 9, 2000 at $1.50 per share. On December 31, 1997, 162,500 options
were exercised by officers for which the Company received cash payments of
the par value and the Company forgave the remaining balance due and
recorded compensation expense of $322,000.
In August 1996, DCA's board of directors granted 15,000 medical
directors at its three kidney dialysis centers. Following the sale of DCA's
Florida operations on October 31, 1997 5,000 of these options were not
exercised and expired. These options vested immediately and are exercisable
for a period of three years through August 18, 1999 at $4.75 per share.
Pro forma information regarding net income and earnings per share is
required by FAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that State-
ment. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-
average assumptions for option grants in 1997, option modifications in 1996,
and options grants in 1995, respectively: risk-free interest rates of 5.59%,
5.65% and 6.75%; no dividend yield; volatility factor of the expected market
price of the Company's common stock of .97 for the options issued during
1997, .68 for the option modifications in 1996 and option grants in 1995;
and an expected life for the 1997 options of 2.5 years, and for the options
modified in 1996 of .75 years and for the 1995 options of 2.5 years.
The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options which have no vesting restric-
tions and are fully transferable. In addition, option valuation models
require the input of highly subjective input assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different than those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
F-19
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 5--STOCK OPTIONS AND STOCK COMPENSATION--Continued
For purposes of pro forma disclosures, the estimated fair value of
options is amortized to expense over the options' vesting period. The
Company's pro forma information which includes the pro forma effect of its
own options, as well as the pro forma effects related to the Company's
interest in Techdyne and DCA pro forma adjustments follows:
1997 1996 1995
---------- ---------- ----------
Pro forma net income $1,671,720 $2,067,004 $1,868,863
========== ========== ==========
Pro forma earnings per share
Basic $.29 $.35 $.32
==== ==== ====
Diluted $.26 $.23 $.31
==== ==== ====
A summary of the Company's stock option activity, and related
information for the years ended December 31, follows, with its newly
modified options being reflected as grants and the original grants being
modified reflected as cancellations:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- --------------------------- --------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
--------- -------------- --------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 1,207,000 $2.01 1,209,000 $2.42 $ 400,000 $1.25
Granted 35,000 2.47 809,000 2.38 809,000 3.00
Cancellations (809,000) 3.00
Exercised (400,000) 1.25
Forfeited (1,000) 3.00
Expired (1,000) 2.38 (1,000) 3.00
---------- ------------
Outstanding-end of year 841,000 2.38 1,207,000 2.01 1,209,000 2.42
======= ========= =========
Exercisable at end of year 841,000 2.38 803,500 1.82 400,000 1.25
======= ========== ==========
Weighted-average fair value of
options granted, including
modified options, during the year $2.47 $.59 $1.37
===== ==== =====
</TABLE>
The weighted average remaining contractual life of those options is 2.38
years.
The Company has 1,339,000 shares reserved for future issuance at
December 31, 1997.
The fair value of Techdyne options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted
average assumptions for the options issued during 1997 and 1995, respec-
tively: risk-free interest rate of 5.59% and 6.75%; no dividend yield;
volatility factor of the expected market price of Techdyne common stock
of .60% and .56%; and an expected life of the options of 2.5 years for
the options issued during 1997 and 2.5 years for the options issued during
1995.
F-20
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 5--STOCK OPTIONS AND STOCK COMPENSATION--Continued
A summary of Techdyne's stock option activity, and related information
for the years ended December 31, follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- --------------------------- ----------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
--------- --------------- --------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of
year 326,500 378,400 227,500
Granted 375,000 3.25 --- 152,500 1.75
Exercised (300) 1.00 (50,700) 1.00 (400) 1.00
Expired (2,100) 1.00 (1,200) 1.00 (1,200) 1.00
------- ------- -------
Outstanding-end of year: 699,100 326,500 378,400
======= ======= =======
Outstanding and exercisable
at end of year:
May 1994 options 171,600 1.00 174,000 1.00 150,900 1.00
February and April 1995
options 152,500 1.75 152,500 1.75 227,500 1.75
June 1997 options 375,000 3.25 --- ---
-------
699,100 326,500 378,400
======= ======= =======
Weighted-average fair
value of options granted
during the year $1.33 $.69
===== ====
</TABLE>
The remaining contractual life for the 1994 options is 1.39 years for
the 1995 options is 2.2 years and for the 1997 options is 4.47 years.
The fair value of DCA options was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted average
assumptions for options issued during 1996 and 1995, respectively:
risk-free interest rates of 5.75% and 6.5%; no dividend yield; volatility
factor of DCA common stock of .50 for both years; and a weighted average
expected life of the options of 1.5 years and 2.5 years.
A summary of DCA's stock option activity, and related information for
the years ended December 31, follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ----------------------------- ----------------------------
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- ---------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of
year: 209,000 210,000 ---
Granted 15,000 4.75 210,000 $1.50
Exercised (162,500) 1.50 (6,000) 1.50 ---
Forfeited --- --- ---
Expired (17,500) 2.43 (10,000) 1.50 ---
------- -------
Outstanding-end of year 29,000 209,000 210,000
======= ======= =======
Outstanding and exercisable
at end of year:
November 1995 options 19,000 1.50 194,000 1.50 210,000 1.50
August 1996 options 10,000 4.75 15,000 4.75 ---
------- -------
29,000 209,000 210,000
======= ======= =======
Weighted-average fair value
of options granted during
the year $1.30 $ .54
===== =====
</TABLE>
F-21
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 5--STOCK OPTIONS AND STOCK COMPENSATION--Continued
The remaining contractual life for the August 1996 options is 1.6
years and for the November 1995 options is 2.9 years.
NOTE 6--OPERATIONS BY INDUSTRY SEGMENT, GEOGRAPHIC LOCATION AND FOREIGN
OPERATIONS
Industry segment and geographical data and foreign operations for the
years ended December 31, 1997, 1996 and 1995, included on pages 1 and 2 of
Form 10-K are an integral part of these financial statements. The following
summarizes additional information about the reported industry segments:
Year Ended December 31,
-----------------------------------------
1997 1996 1995
-------- -------- --------
DEPRECIATION EXPENSE
Medical Services $278,761 $199,315 $116,510
Medical Products 31,355 33,053 19,735
Electro-Mechanical 616,663 368,619 332,602
CAPITAL EXPENDITURES
Medical Services $825,427 $386,502 $877,545
Medical Products 4,595 149,505 7,132
Electro-Mechanical 1,396,260 704,304 530,669
A majority of the Company's electro-mechanical sales are to certain
major customers. The loss of, or substantially reduced sales to, any of
these customers would have an adverse effect on the Company's operations,
if such sales were not replaced, as occurred with Compaq and Avid as noted
below.
Electro-mechanical sales to major customers comprising 10% or more of
the Company's sales are as follows:
Year Ended December 31,
---------------------------------------
Customers 1997 1996 1995
--------- ---------- ---------- -----------
Compaq Computer Corp.(1) --- $8,497,000 $10,849,000
Avid Technology(1)(2) --- 5,653,000
IBM(3) $6,437,000 4,275,000 ---
- ------------------------------------
(1) Less than 10% of sales for 1997.
(2) Less than 10% of sales for 1996.
(3) Less than 10% of sales for 1995.
Sales to PMI Food Equipment Group by Lytton for the five months ended De-
cember 31, 1997, since Lytton's acquisition by Techdyne, amounted to approx-
imately $2,727,000 representing 15% of Techdyne's and 13% of the Company's
sales during this period and 8% of Techdyne's and 7% of the Company's sales
for the year ended December 31, 1997.
F-22
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 6--OPERATIONS BY INDUSTRY SEGMENT, GEOGRAPHIC LOCATION AND FOREIGN
OPERATIONS--Continued
Included in the sales to Compaq were sales by Techdyne (Scotland) of
approximately $2,847,000 in 1997 and $8,427,000 in 1996, which accounted
for 42% and 84% of the sales of Techdyne (Scotland) for 1997 and 1996,
respectively. Increased competition in the bidding for this Compaq business
has resulted in a substantial loss of Compaq sales by Techdyne (Scotland)
commencing in the third quarter of 1996 and reduced profit margins on
remaining Compaq sales.
The Company experienced a loss of a majority of it sales to Avid in
1996 as a result of a change in one of the products it produced for Avid.
Medical services revenues, which represent revenues of the Company's
dialysis division, are attributable to payments received under Medicare,
which is supplemented by Medicaid or comparable benefits in the state in
which the Company operates. Reimbursement rates under these programs are
subject to regulatory changes and governmental funding restrictions.
Although the Company is not aware of any future rate changes, significant
changes in reimbursement rates could have a material effect on the Company's
operations.
Medical product sales are highly dependent on government contracts
which have become increasingly difficult to secure due to changes in
government procurement procedures. Significant reductions in government
contract revenues would have a material adverse effect on the operations
of the Medical Products Division. During 1996 the Company has decided to
shutdown the durable medical equipment portion of its medical products
business due to its unprofitable operations and recorded in 1996 approxi-
mately $305,000 in costs in connection with this shutdown. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results
of Operations".
NOTE 7--COMMITMENTS AND CONTINGENCIES
Commitments
The Company and its subsidiaries have leases on several facilities,
which expire at various dates. The aggregate lease commitments at December
31, 1997 are approximately: 1998--$738,000; 1999--$738,000; 2000--
$702,000; 2001--$624,000; 2002--$348,000. Total rent expense was
approximately $748,000 in 1997, $608,000 in 1996 and $533,000 in 1995.
Lytton leases its operating facilities from an entity which is owned by
Lytton former owner and its president. The operating lease, which expires
July 31, 2002, requires monthly lease payments of approximately $17,900 for
the first year, adjusted in subsequent years for the change in the Consumer
Price Index, and contains renewal options for a period of five to ten years
at the then fair market rental value.
F-23
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 7--COMMITMENTS AND CONTINGENCIES--Continued
Effective January 1, 1997, DCA established a 401(k) savings plan
(salary deferral plan) with an eligibility requirement of one year of
service and 21 year old age requirement. DCA has made no contributions
under this plan as of December 31, 1997.
Lytton sponsors a 401(k) Profit Sharing Plan covering substantially all
of its employees. The discretional profit sharing and matching expense since
the Company acquired Lytton on July 31, 1997 through December 31, 1997
amounted to approximately $16,000.
Contingencies
In the first quarter of 1996, a temporary worker provided by a temporary
personnel agency was injured while working at Techdyne. The worker was
insured through the temporary personnel agency. While the full extent of the
temporary worker's injuries and the ultimate costs associated with those
injuries are not presently known, the Company anticipates that its insurance
is adequate to cover any potential claims which might arise.
NOTE 8--SUBSIDIARY STOCK OFFERINGS
In October 1995, Techdyne completed a public offering of its securities
resulting in net proceeds of approximately $3,321,000, for which the Company
recognized a gain of approximately $1,241,000 net of applicable income taxes
of $761,000. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
DCA completed a public offering in April 1996, with net offering
proceeds of approximately $3,445,000, for which the Company has recorded
a gain of approximately $943,000, net of applicable income taxes of
$578,000. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
In accordance with its accounting policy, the Company recognized a gain
of approximately $56,000, net of applicable income taxes of approximately
$34,000 during 1997 related to Techdyne warrant exercises.
F-24
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 9--RELATED PARTY TRANSACTIONS
During 1997, 1996 and 1995, the Company paid premiums of approximately
$529,000, $516,000, and $490,000, respectively, for insurance through a
director and stockholder, and the relative of a director and stockholder.
During 1997, 1996 and 1995, legal fees of approximately $191,000,
$202,000, and $217,000, respectively, were paid by the Company and its
public subsidiaries to an officer of the Company and DCA.
Lytton has a deferred compensation agreement with its President dated
August 1, 1997 in the amount of $200,140. The agreement calls for monthly
payments of $8,339 provided that Lytton's cash flow is adequate to cover
these payments with interest to be calculated on any unpaid balance as of
August 1, 1999. During the period ended December 31, 1997 a total of
$33,357 was paid under this agreement.
NOTE 10--QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following summarizes certain quarterly operating data:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996
---------------------------------------- ----------------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- ------- -------- ------- -------- -------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $7,758 $8,087 $10,628 $12,415 $8,230 $7,524 $6,634 $7,293
Gross profit 1,593 1,550 1,764 1,782 1,593 1,396 1,288 1,156
Gain on sale of
subsidiaries' assets 4,431
Gain on subsidiary
securities offering
and warrant exercise 61 29 1,521
Realized gain on sale of
marketable securities 49 562 924 308 790
Net income 266 116 31 1,828 725 1,281 333 78
Earnings per share:
Basic $.05 $.02 $.01 $.31 $.13 $.23 $.06 $.01
Diluted $.04 $.02 $-- $.30 $.11 $.21 $.05 $.01
</TABLE>
Since the computation of earnings per share is made independently for
each quarter using the treasury stock method, the total of four quarters
earnings do not necessarily equal earnings per share for the year.
The Company recorded a deferred tax credit of approximately $700,000 in
the fourth quarter of 1997, shutdown costs of its durable medical operations
of approximately $305,000 in the fourth quarter of 1996 and expensing of
startup costs of new dialysis centers of approximately $80,000 in 1995.
F-25
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 11--ACQUISTION
On July 31, 1997, Techdyne acquired Lytton, which manufactures and
assembles printed circuit boards and other electronic products. The purchase
price included $2,500,000 cash, paid at closing, and issuance of 300,00
shares of Techdyne's common stock which has been registered for the seller.
Techdyne has guaranteed that the seller will realize a minimum of $2,000,000
from the sale of these shares of common stock. The difference of $968,750
between the fair value of the common stock on the acquisition date and the
guaranteed value has been included as part of the cost of the acquisi-
tion, and is reflected as additional paid in capital.
In addition, additional contingent consideration may be due if Lytton
reaches pre-defined earnings and sales levels over the next three years.
When the contingency is resolved and if additional consideration is due,
the then current fair value of the consideration will be recorded as good-
will, which will be amortized over the remainder of the initial 25 year
life.
The acquisition was accounted for under the purchase method of
accounting and, accordingly, the results of operation of Lytton have been
included in the accompanying consolidated condensed statement of income
since August 1, 1997. The total purchase price in excess of the fair value
of net assets acquired.
The net purchase price was allocated as follows:
Working capital, other than cash $ 1,398,588
Property, plant and equipment 1,959,751
Other assets 3,000
Goodwill 2,230,113
Other liabilities (1,335,432)
-------------
$ 4,256,010
============
Net cash portion of purchase price,
including costs $ 2,166,010
Estimated costs of acquisition 90,000
Common stock issued 2,000,000
------------
$ 4,256,010
============
F-26
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 11--ACQUISTION--Continued
The following pro forma consolidated condensed financial information
reflects the Lytton acquisition as if it had occurred on January 1, 1996.
The pro forma financial information does not purport to represent what the
Company's actual results of operations would have been had the sale
occurred as of January 1, 1996 and may not be indicative of operating
results for any future periods.
SUMMARY PRO FORMA INFORMATION
Year Ended December 31,
---------------------------------
1997 1996
----------- -----------
Total revenues $54,818,000 $50,818,000
=========== ===========
Net income $ 2,501,000 $ 2,648,000
=========== ===========
Earnings per share:
Basic $.44 $.49
==== ====
Diluted $.40 $.43
==== ====
NOTE 12--SALE OF SUBSIDIARIES' ASSETS
On October 31, 1997, DCA concluded a sale ("Sale") of substantially all
of the assets of two of its 80% owned subsidiaries, Dialysis Services of
Florida, Inc. - Ft. Walton Beach ("DSF") (dialysis operations) and Dialysis
Medical, Inc. ("DMI") (Florida Method 2 home patient operations), and an
in-patient hospital service agreement of its 100% owned subsidiary, DCA
Medical Services, Inc. pursuant to an Asset Purchase Agreement. Considera-
tion for the assets sold was $5,065,000 consisting of $4,585,000 in cash
and $480,000 of the purchaser's common stock which the purchaser has agreed
to register within one year. Provided that the shares are sold within 30
days of their registration, the purchaser has agreed to make up any dif-
ference by which the sales proceeds are less than $480,000 in cash or
additional registered shares of the purchaser at its discretion. These
shares are carried at their market value of approximately $444,000 at
December 31, 1997 with the difference between the guaranteed value and
the market value being reflected as a receivable from the purchaser. In
February 1998, the Company acquired, in a transaction acounted for as a
purchase, the remaining 20% minority interests in two of the subsidiaries
whose assets were sold. The purchase price totaled $625,000, which
included one-half of the common shares originally received as part of the
consideration of the Sale.
The pro forma consolidated condensed financial information presented
below reflects the Sale as if it had occurred on January 1, 1996. For
purposes of pro forma statement of operations information, no assumption
has been made that expenses have been eliminated which were included in
corporate expense allocations by the Company and DCA to the business opera-
tions sold and which were included in the actual result of operations of
these businesses. Such expenses amounted to approximately $125,000 and
$253,000 for the years ended December 31, 1997 and December 31, 1996,
respectively. No assumption has been included in the pro forma infor-
mation as to investment income to be realized from investment of the
proceeds of the sale.
The summary pro forma information, which excludes the gain on the
Sale, is not necessarily representative of what the Company's results of
operations would have been if the Sale had actually occurred as of January
1, 1996 and may not be indicative of the Company's operating results for
any future periods.
F-27
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1997
NOTE 12--SALE OF SUBSIDIARIES' ASSETS--Continued
SUMMARY PRO FORMA INFORMATION
Year Ended December 31,
----------------------------
1997 1996
----------- -----------
Total revenue $37,978,000 $32,685,000
=========== ===========
Net income $ 517,000 $ 2,112,000
=========== ===========
Earnings (loss) per share:
Basic $.09 $.39
==== ====
Diluted $.07 $.34
==== ====
DCA has recorded a gain on the sale of approximately $2,747,000,
representing a pre-tax gain of approximately $4,431,000, net of estimated
income taxes of approximately $1,684,000, of which approximately $537,000
of the net after tax gain relates to the 20% minority interest in two of
the subsidiaries whose assets were sold. The Company's portion of the net
gain of $2,210,000 amounts to approximately $1,527,000 with the balance of
approximately $683,000 applicable to minority interest.
NOTE 13-REPURCHASE OF COMMON STOCK
In November 1997, the Company announced its intent to repurchase up to
$1,000,000 of its outstanding common stock. The shares that may be reacquired
may be used to fund stock option obligations. As of December 31, 1997, the
Company had repurchased 8,200 shares of common stock at a cost of approxi-
mately $17,000 which is reflected as treasury stock.
F-28
<PAGE>
EXHIBIT INDEX
(3)(i) Restated Certificate of Incorporation, Articles of Incorpora-
tion, as amended.
(ii) By-laws, as amended.
(4) Instruments defining the rights of security holders,
including indentures.
(i) 1989 Stock Option Plan.
(ii) Form of Stock Option Agreement issued pursuant to the 1989
Stock Option Plan.
(iii) Form of Additional Non-Qualified Stock Option Agreement
issuable under the Stock Option Agreement.
(10) Material contracts.
(i) Employment Agreement between the Company and Thomas K.
Langbein dated May, 1994, (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 ("1994 Form 10-K"), Part IV, Item 14(a)
3 (10)(i)).*
(ii) Lease between the Company and Heights Plaza Associates, dated
April 30, 1981.
(iii) Amendment to lease between the Company and Heights Plaza
Associates, dated March 31, 1996.
(iv) Lease Agreement between the Company and Techdyne, Inc.(1)
dated July 17, 1990 (incorporated by reference to Techdyne
Inc.'s Annual Report on Form 10-K for the year ended December
31, 1991, Part IV, Item 14(a) 3 (10)(i)).
(v) Lease Renewal Letter from Techdyne, Inc.(1) dated December 19,
1994 (incorporated by reference to Techdyne's Registration
Statement on Form SB-2, Registration No. 33-94998-A
("Techdyne's Form SB-2"), Part II, Item 27, 10(b)).*
(vi) Royalty Agreement between the Company and Viragen, Inc.(2)
dated November 7, 1986.
(vii) Amended Royalty Agreement between the Company and Viragen,
Inc.(2) dated November 21, 1989.
(viii) Employment Agreement between Techdyne (Scotland) Limited(3)
and John Clark Grieve dated March 11, 1988 (incorporated by
reference to Techdyne's Annual Report on Form 10-K for the
year ended December 31, 1997, ("Techdyne 1997 Form 10-K")
Part IV, Item 14(a)(10)(v)).*
(ix) Guarantee of Techdyne (Scotland) Limited(3) Line of Credit
with The Royal Bank of Scotland Plc dated March 3, 1989
(incorporated by reference to the Techdyne 1997 Form 10-K,
Part IV, Item 14(a)(10)(vi)).*
(x) Promissory Note of Techdyne, Inc. (1) to the Company dated
April 10, 1991 (incorporated by reference to Techdyne's Form
SB-2, Part II, Item 27, 3(4)).*
(xi) Lease between the Company and Viragen, Inc.(2) dated December
8, 1992.
(xii) Addendum to Lease between the Company and Viragen, Inc.(2)
dated January 15, 1993.
(xiii) Lease Renewal Letter by the Company to Viragen, Inc.(2) lease
dated August 12, 1997.
(xiv) Loan Agreement between Dialysis Corporation of America(4) and
Mercantile-Safe Deposit and Trust Company dated November 30,
1988 (incorporated by reference to Dialysis Corporation of
America's Form 10-K for the year ended December 31, 1997
("DCA 1997 Form 10-K"), Part IV, Item 14(a)(10)(v)).*
(xv) Lease Agreement between Dialysis Services of Pennsylvania,
Inc. - Wellsboro(5) and James and Roger Stager dated January
15, 1995 (incorporated by reference to the Company's 1994
Form 10-K, Part IV, Item 14(a) 3 (10)(lxii)).*
(xvi) Lease Agreement between Dialysis Corporation of America(4) and
Service All Group, Inc. and Terry Sheppard dated March 24,
1995 (incorporated by reference to the Company's 1994 Form
10-K, Part IV, Item 14(a) 3 (10)(lxviii)).*
(xvii) Lease between Dialysis Corporation of America(4) and Dialysis
Services of Pennsylvania, Inc. - Lemoyne(5) dated December 1,
1995 (incorporated by reference to the Company's 1995 Form
10-K, Part IV, Item 14(a) 3 (10)(lxii)).*
(xviii) Medical Director Agreement between Dialysis Services of Pen-
nsylvania, Inc. - Wellsboro(5) and George Dy, M.D. dated
September 29, 1994 [*] (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994 as amended January, 1995 ("September,
1994 Form 10-Q"), Part II, Item 6(a)(10)(i)).*
(xix) Agreement for In-Hospital Dialysis Services between Dialysis
Services of Pennsylvania, Inc. - Wellsboro(5) and Soldiers &
Sailors Memorial Hospital dated September 28, 1994 [*]
(incorporated by reference to the Company's September, 1994
Form 10-Q, Part II, Item 6(a)(10)(ii)).*
(xx) Medical Director Agreement between Dialysis Services of
Pennsylvania, Inc. - Lemoyne(5) and Herbert I. Soller, M.D.
dated January 30, 1995 [*] (incorporated by reference to the
Company's 1994 Form 10-K, Part IV, Item 14(a) 3 (10)(lx)).*
(xxi) Agreement for In-Hospital Dialysis Services between Dialysis
Services of Pennsylvania, Inc. - Lemoyne(5) and Capital Health
System, Inc. d/b/a Harrisburg Hospital dated June 1, 1995. [*]
(incorporated by reference to Dialysis Corporation of America's
Registration Statement on Form SB-2, Registration No.
33-80877-A ("DCA Form SB-2 Registration"), Part II, Item 27,
10(q)).*
(xxii) Agreement for In-Hospital Dialysis Services between Dialysis
Services of Pennsylvania, Inc. - Lemoyne(5) and Pinnacle
Health Hospitals dated June 1, 1997 [*] (incorporated by
reference to Dialysis Corporation of America's June 1997
Form 8-K, Part II, Item 7(c)(10)(i)).*
(xxiii) Agreement between Renal Services of Pa., Inc.(5) and
Christine Durr dated December 1, 1995 (incorporated by
reference to DCA Form SB-2 Registration, Part II, Item 27,
10(r)).*
(xxiv) Tenant Subordination Agreement by J.A. Hunt Services, Inc.,
dated February, 1997 (incorporated by reference to Dialysis
Corporation of America's Annual Report on Form 10-K for the
year ended December 31, 1996 ("DCA 1996 Form 10-K"), Part IV,
Item 14(a) 3 (10)(xxviii)).*
(xxv) Form of Exclusive Sales Representative Agreement between
Techdyne, Inc.(1) and sales representative ** (incorporated
by reference to the Company's 1994 Form 10-K, Part IV, Item
14(a) 3 (10)(lxiv)).*
(xxvi) 1994 Stock Option Plan of Techdyne, Inc.(1) (incorporated by
reference to the Company's 1994 Form 10-K, Part IV, Item 14(a)
3 (10)(lxv)).*
(xxvii) Form of Stock Option Certificate issued under 1994 Stock
Option Plan of Techdyne, Inc.(1) (incorporated by reference
to the Company's 1994 Form 10-K, Part IV, Item 14(a) 3 (10)
(lxvi)).*
(xxviii) Form of Stock Option Agreement dated February 17, 1995 issued
to directors of Techdyne, Inc.(1) *** (incorporated by ref-
erence to the Company's 1994 Form 10-K, Part IV, Item 14(a)
3 (10)(lxvii)).*
(xxix) Lease Agreement between the Company and Brett D. Anderson and
Suzanne M. Anderson dated November 17, 1992.
(xxx) Lease Renewal Letter from the Company to Brett and Suzanne
Anderson dated October 20, 1997.
(xxxi) Mortgage between Techdyne (Scotland) Limited(3) and The Royal
Bank of Scotland dated August 8, 1994 (incorporated by ref-
erence to the Company's June, 1994 Form 10-Q, Part II, Item
6(a)(28)(vi)).*
(xxxii) Agreement ("Missives") between Techdyne (Scotland) Limited(3)
and Livingston Development Corporation regarding Purchase by
Techdyne (Scotland) Limited(3) of its Facility dated June 15,
1994 (incorporated by reference to the Company's June, 1994
Form 10-Q, Part II, Item 6(a)(28)(vii)).*
(xxxiii) Loan and Security Agreement between Techdyne, Inc.(1) and
Barnett Bank of South Florida, N.A. ("Barnett Bank") for
$2,000,000 dated February 8, 1996 (incorporated by reference
to Techdyne, Inc.'s Current Report on Form 8-K, dated February
23, 1996 ("Techdyne February 1996 Form 8-K), Item 7(c)(99)(i)).*
(xxxiv) Loan Agreement for $712,500 between Techdyne, Inc.(1) and
Barnett Bank dated February 8, 1996 (incorporated by reference
to Techdyne February 1996 Form 8-K, Item 7(c)(99)(v)).*
(xxxv) Promissory Note for $712,500 from Techdyne, Inc.(1) to Barnett
Bank, dated February 8, 1996 (incorporated by reference to
Techdyne February 1996 Form 8-K, Item 7(c)(99)(vi)).*
(xxxvi) Mortgage and Security Agreement between the Company and
Barnett Bank dated February 8, 1996 (incorporated by reference
to Techdyne February 1996 Form 8-K, Item 7(c)(99)(vii)).*
(xxxvii) Assignment of Leases, Rents and Profits by the Company in
favor of Barnett Bank dated February 8, 1996 (incorporated
by reference to Techdyne February 1996 Form 8-K, Item
7(c)(99)(viii)).*
(xxxviii) Promissory Note for $200,000 from Techdyne, Inc.(1) to Barnett
Bank dated February 8, 1996 (incorporated by reference to
Techdyne February 1996 Form 8-K, Item 7(c)(99)(ix)).*
(xxix) Security Agreement between Techdyne, Inc.(1) and Barnett Bank
dated February 8, 1996 (incorporated by reference to Techdyne
February 1996 Form 8-K, Item 7(c)(99)(x)).*
(xl) First Amendment to Loan and Security Agreement, Loan Agreement
and Security Agreement between Techdyne, Inc.(1) and Barnett
Bank, N.A. dated July 31, 1997 (incorporated by reference to
Techdyne's Current Report on Form 8-K dated August 12, 1997
("Techdyne August, 1997 Form 8-K"), Item 7(c)(99)(i)).*
(xli) Revolving Demand Promissory Note from Techdyne, Inc.(1) to
Barnett Bank, N.A. dated July 31, 1997 (incorporated by
reference to Techdyne's August, 1997 Form 8-K, Item
7(c)(99)(ii)).*
(xlii) Unconditional and Continuing Guaranty of Payments and Per-
formance by the Company in favor of Barnett Bank, N.A. dated
July 31, 1997 (incorporated by reference to Techdyne's August,
1997 Form 8-K, Item 7(c)(99)(iii)).*
(xliii) Subordination Agreement among the Company, Barnett Bank, N.A.
and the Company dated July 31, 1997 (incorporated by reference
to Techdyne's August, 1997 Form 8-K, Item 7(c)(99)(iv)).*
(xliv) Second Amendment to Loan and Security Agreement between
Techdyne, Inc.(1) and Barnett Bank, N.A. dated as of December
29, 1997 (incorporated by reference to Techdyne's Form 8-K
dated January 20, 1998 ("Techdyne January, 1998 Form 8-K"),
Item 7(c)(99)(i)).*
(xlv) Revolving Promissory Note form Techdyne, Inc.(1) to Barnett
Bank, N.A. for $1,600,000 dated as of December 29, 1997
(incorporated by reference to Techdyne's January, 1998 Form
8-K, Item 7(c)(99)(ii)).*
(xlvi) Unconditional and Continuing Guaranty of Payment and Per-
formance(6) by the Company in favor of Barnett Bank, N.A.
dated as of December 29, 1997 (incorporated by reference to
Techdyne's January, 1998 Form 8-K, Item 7(c)(99)(iii)).*
(xlvii) Subordination Agreements(7) among the Company, Barnett Bank,
N.A. and Techdyne, Inc.(1) (incorporated by reference to
Techdyne's January, 1998 Form 8-K, Item 7(c)(99)(iv)).*
(xlviii) Loan Agreement for $1,500,000 between Techdyne, Inc.(1) and
Barnett Bank, N.A. dated as of December 29, 1997 (incorporated
by reference to Techdyne's January, 1998 Form 8-K, Item
7(c)(99)(v)).*
(xlvix) Promissory Note from Techdyne, Inc.(1) to Barnett Bank, N.A.
for $1,500,000 dated as of December 29, 1997 (incorporated by
reference to Techdyne's January, 1998 Form 8-K, Item 7(c)(99)
(vi)).*
(l) Commercial Security Agreement between Techdyne, Inc.(1) and
Barnett Bank, N.A. dated as of December 29, 1997 (incorporated
by reference to Techdyne's January, 1998 Form 8-K, Item
7(c)(99)(vii)).*
(li) International Swap Dealers Association, Inc. Master Agreement
between Techdyne, Inc.(1) and Barnett Bank, N.A. dated as of
December 22, 1997 (incorporated by reference to Techdyne's
January, 1998 Form 8-K, Item 7(c)(99)(viii)).*
(lii) Employment Agreement between Techdyne, Inc.(1) and Barry
Pardon dated March 13, 1996(incorporated by reference to
Techdyne, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1995, Part IV, Item 14(a)(10)(viii)).*
(liii) Service Agreement between the Company and Techdyne Inc.(1),
dated October 25, 1996 (incorporated by reference to
Techdyne's Registration Statement on Form S-3, Registration
No. 333-15371, Part II, Item 16, Exhibit 10(a)).*
(liv) Lease Agreement between Techdyne, Inc.(1) and Route 495
Commerce Park Limited Partnership dated March 25, 1997
(incorporated by reference to Techdyne's Quarterly Report
on Form 10-Q for the first quarter of 1997, Item 6(a), Part
II(10)).*
(lv) Lease Agreement between Techdyne, Inc.(1) and PruCrow Indus-
trial Properties, L.P. dated April 30, 1997 (incorporated by
reference to Techdyne's Current Report on Form 8-K dated June
4, 1997 ("Techdyne June, 1997 Form 8-K"), Item 7(c)(10)(i)).*
(lvi) Lease Agreement between Techdyne, Inc.(1) and EGP Houston
Partners Ltd. dated April 29, 1997 (incorporated by reference
to Techdyne's June, 1997 Form 8-K, Item 7(c)(10)(ii)).*
(lvii) Stock Purchase Agreement between Patricia A. Crossley, Lytton
Incorporated(3) and Techdyne, Inc.(1) dated July 31, 1997
(incorporated by reference to Techdyne's August, 1997 Form
8-K, Item 7(c)(2)(i)).*
(lviii) 1995 Stock Option Plan of Dialysis Corporation of America(4)
(incorporated by reference to the Company's 1995 Form 10-K,
Part IV, Item 14(a) 3 (10)(lxiii).*
(lix) Form of Stock Option Certificate dated November 10, 1995
issued under 1995 Stock Option Plan of Dialysis Corporation
of America(4) (incorporated by reference to the Company's
1995 Form 10-K, Part IV, Item 14(a) 3 (10)(lxiv).*
(lx) 1995 Stock Option Plan of Dialysis Corporation of America(4)
(November 10, 1995) (incorporated by reference to DCA Form
SB-2, Part II, Item 27, 10(5)).*
(lxi) Form of Dialysis Corporation of America(4) Stock Option Cer-
tificate under 1995 Stock Option Plan (November 10, 1995)
(incorporated by reference to DCA Form SB-2, Part II, Item
27, 10(4)).*
(lxii) Form of Dialysis Corporation of America(4) Non-Qualified
Stock Option granted to Medical Directors of Dialysis Corpora-
tion of America(4) (incorporated by reference to DCA's 1996
Form 10-K, Part IV, Item 14(a) 3 (10)(xxi)).*
(lxiii) Lease between Dialysis Services of PA., Inc. - Carlisle(5)
and Lester P. Burkholder, Jr. and Kirby K. Burkholder dated
November 1, 1996 (incorporated by reference to DCA's 1996
Form 10-K, Part IV, Item 14(a) 3 (10)(xxiii)).*
(lxiv) Lease between Dialysis Services of NJ., Inc. - Manahawkin(5)
and William P. Thomas dated January 30, 1997 (incorporated by
reference to DCA's 1996 Form 10-K, Part IV, Item 14(a) 3
(10)(xxiv)).*
(lxv) Addendum to Lease Agreement between William P. Thomas and
Dialysis Services of NJ., Inc. - Manahawkin(5) dated June 4,
1997 (incorporated by reference to DCA's 1997 Form 10-K, Part
IV, Item 14(c)(10)(xxi)).*
(lxvi) Medical Director Agreement between Dialysis Services of NJ,
Inc. - Manahawkin(5) and Oceanview Medical Group, P.A. dated
September 5, 1996 [*] (incorporated by reference to Dialysis
Corporation of America's Quarterly Report on Form 10-Q for
the period ended September 30, 1996 ("DCA September 30, 1996
Form 10-Q"), Part II, Item 6(a), Part II, Exhibit 10(i)).*
(lxvii) Medical Director Agreement between Dialysis Services of PA.,
Inc. - Carlisle(5) and Herb Soller, M.D. dated October 1, 1996
[*] (incorporated by reference to DCA's September 30, 1996
Form 10-Q, Part II, Item 6(a), Part II, Exhibit 10(ii)).*
(lxviii) Equipment Master Lease Agreement BC-105 between Dialysis
Corporation of America(4) and B. Braun Medical, Inc. dated
November 22, 1996 (incorporated by reference to DCA's 1996
Form 10-K, Part IV, Item 14(a) 3 (10)(xxvii)).*
(lxix) Schedule of Leased Equipment 0597 commencing June 1, 1997 to
Master Lease BC-105 (incorporated by reference to Dialysis
Corporation of America's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 ("DCA June 30, 1997 10-Q"),
Part II, Item 6(a), Part II, Exhibit 10(i)).*
(lxx) Schedule of Leased Equipment 0697 commencing July 1, 1997 to
Master Lease BC-105 (incorporated by reference to DCA's June
30, 1997 Form 10-Q, Part II, Item 6(a), Part II, Exhibit
10(ii)).*
(lxxi) Assignment and Assumption of Lease and Release by and among
Dialysis Corporation of America(4), Renal Care Group of the
Southeast, Inc., Renal Care Group, Inc. and B. Braun Medical,
Inc. dated October 31, 1997 (incorporated by reference to
Dialysis Corporation of America's Current Report on Form 8-K
dated November 12, 1997 ("DCA November, 1997 Form 8-K"), Part
II, Item 7(c)(2.4)).*
(lxxii) Assignment and Assumption of Lease and Release by and among
Dialysis Services of Florida, Inc. - Fort Walton Beach(5),
Renal Care Group of the Southeast, Inc., Renal Care Group,
Inc. and JACO, L.C. dated October 31, 1997 (incorporated by
reference to DCA's November, 1997 Form 8-K, Part II, Item
7(c)(2.2)).*
(lxxiii) Form of Techdyne, Inc.(1) 1997 Stock Option Plan (incorporated
by reference to Techdyne's Current Report on Form 8-K dated
June 24, 1997 ("Techdyne June, 1997 Form 8-K"), Item
7(c)(4)(i)).*
(lxxiv) Form of Techdyne, Inc.(1) 1997 Incentive Stock Option
(incorporated by reference to Techdyne's June, 1997 Form 8-K,
Item 7(c)(4)(ii)).*
(lxxv) Form of Techdyne, Inc.(1) 1997 Non-Qualified Stock Option
(incorporated by reference to Techdyne's June, 1997 Form 8-K,
Item 7(c)(4)(iii)).*
(21) Subsidiaries of the registrant.
(23) Consent of experts and counsel.
(i) Consent of Independent Certified Public Accountant.
(27) Financial Data Schedule (for SEC use only).
- ----------
[*] Confidential portions omitted have been filed separately with the
Securities and Exchange Commission.
(1) 63% owned subsidiary.
(2) Former public subsidiary of the Company; spun-off in 1986.
(3) 100% owned subsidiary of Techdyne, Inc.
(4) 66% owned subsidiary.
(5) 100% owned subsidiary of Dialysis Corporation of America.
(6) Each of the $1,000,000 Revolving Loan and $1,500,000 Term Loan has
been unconditionally guaranteed by the Company and each unconditional
guarantee agreement is substantially similar to the exhibit filed for
the Revolving Loan.
(7) The Company has subordinated indebtedness due to it from Techdyne,
Inc. to the Revolving and Term Loans; each Subordination Agreement is
substantially similar to the exhibit filed for the Revolving Loan.
* Documents incorporated by reference not included in Exhibit Volume.
** There are six such Agreements, all the same but for the territory
assigned.
*** Options to directors are the same except as to amounts of underlying
shares purchasable.
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
AUTOMATED MEDICAL LABORATORIES, INC.
The undersigned, Lloyd Rothenberg, President, and Raphael B. Shouger,
Secretary of AUTOMATED MEDICAL LABORATORIES, INC., a corporation organized
under the laws of Florida, pursuant to a Certificate of Incorporation
originally filed on November 29, 1961 under the name Biscayne Medical
Laboratories, Inc., do hereby certify that by unanimous vote of its
directors and a majority vote of its shareholders at a Special Meeting of
Shareholders held on August 26, 1974, the corporation approved the fol-
lowing restatement of its Certificate of Incorporation into a single
certificate which shall read in its entirety as follows:
ARTICLE I - NAME
The name of the Corporation shall be
AUTOMATED MEDICAL LABORATORIES, INC.
ARTICLE II - PURPOSES
The purpose for which the corporation is formed is to engage in any
or all activities or businesses permitted under the laws of the United
States and under the laws of the State of Florida and to exercise all of
the corporate powers provided for by the laws of the State of Florida.
ARTICLE III - AUTHORIZED SHARES
The aggregate number of shares which the Corporation shall have
authority to issue is 4,000,000 shares of Common Stock, $.01 par value.
The Corporation may issue and deliver unissued or treasury shares, option
rights, or securities having conversion or option rights, whether presently
or hereafter authorized, in such manner and for such consideration as from
time to time may be fixed by the Board of Directors, without first offering
them to existing shareholders. The Board of Directors may accept property,
labor or payment for shares of capital stock at a just valuation fixed by
the Board of Directors. The stock of the Corporation shall not be assess-
able, nor shall the holders thereof or their property be liable for the
debts of the Corporation, to any extent whatever.
ARTICLE IV - CAPITAL
The amount of capital with which this corporation shall commence
business shall not be less than FIVE HUNDRED ($500.00) DOLLARS.
ARTICLE V - PLACE OF BUSINESS
The principal place of business of this corporation shall be 7501 N.W.
66th Street, Miami, Florida 33166 or such other location decided upon by
the Board of Directors.
<PAGE>
ARTICLE VI - EXISTENCE
The duration of the Corporation shall be perpetual.
ARTICLE VII - DIRECTORS
The number of directors of the Corporation shall be such number, not
less than three, as may be fixed from time to time by the Board of
Directors in the manner prescribed in the By-Laws of the Corporation.
The Board of Directors shall be entitled to fill any vacancies in the
Board of Directors caused by reason of an increase in the number of direc-
tors or otherwise.
ARTICLE VIII - POWERS OF DIRECTORS
The business of the Corporation shall be managed and its corporate
powers shall be exercised by its Board of Directors. The Board of Direc-
tors shall have the power, without shareholder action. To exercise all
of the corporate power to which the Corporation is entitled under Florida
law including but not limited to:
1. the power to cause the Corporation to indemnify each director and
officer of the Corporation against all or any portion of any
expenses reasonably incurred by him in connection with or arising
out of any action, suit or proceeding in which he may be involved,
by reason of his being or having been an officer or director of
the Corporation (whether or not he continues to be an officer or
director at the time of incurring such expenses) to the extent
and scope permitted by the laws of the State of Florida.
2. the power to remove a director for cause where, in the judgment of
the majority of the other directors, the continuation of the
director in office would be detrimental to the interests of the
Corporation. The Board of Directors may suspend a director for
a reasonable period pending final determination that cause exists
for such removal.
3. the power to cause the corporation to loan money to, or guarantee
an obligation of, or otherwise assist any officer or other
employee of the corporation or of any subsidiary, including,
when authorized by a majority of the entire board, an officer or
employee who is also a director of the Corporation, whenever, in
the judgment of the Board of Directors, such loan, guarantee or
assistance may reasonably be expected to benefit the Corporation.
ARTICLE IX - GENERAL
A director of the Corporation shall not, in the absence of actual
fraud, be disqualified by his office from dealing or contracting with the
Corporation, either as a vendor, purchaser or otherwise; and, in the
absence of an actual fraud, no transaction or contract of the Corporation
shall be void or voidable by reason of the fact that any director or any
firm or corporation of which any director is a member is in any way
interested in such transaction or contract, provided that the fact that
such director, or firm, is interested in the transaction or the contract
is disclosed to the Corporation, and that such transaction or contract is
authorized, ratified or approved by (i) vote of the majority of a quorum
of the Board of Directors or of an Executive Committee, if any, without
counting in such majority any director so interested or who is a member
of a firm or corporation so interested; or (ii) vote at a Stockholders'
<PAGE>
Meeting of the holders of record of the majority of all the outstanding
shares of stock of the Corporation then entitled to vote, or by writing or
writings signed by a majority of such holders, which shall have the same
force and effect as though such authorization, ratification or approval
were made by the Stockholders, and no director, firm or corporation of
which a director is a member shall be liable to account to the Corporation
for any profits realized from or through any such transaction or contract.
Nothing in this paragraph contained shall create any liability in the
events above mentioned, or prevent the authorization, ratification or
approval of such contracts or transactions in any other manner permitted
by law, or invalidate or make voidable any contract or transaction which
would be valid without reference to the provisions of this paragraph.
This Restated Certificate of Incorporation was authorized by a resolu-
tion of the Board of Directors of the Corporation adopted at a meeting held
on the 8th day of July, 1974 and was adopted by a majority of the stock-
holders of the Corporation at a special stockholders' meeting held on
the 26th day of August, 1974.
IN WITNESS WHEREOF, we have hereunto set our hands and seals this
11th day of September, 1974.
AUTOMATED MEDICAL LABORATORIES, INC.
/s/ Lloyd Rothenberg
By-----------------------------------
Lloyd Rothenberg, President
/s/Raphael B. Shouger
CORPORATE Attest:------------------------------
SEAL Raphael B. Shouger, Secretary
<PAGE>
STATE OF FLORIDA :
: SS.
COUNTY OF DADE :
PERSONALLY APPEARED before me, the undersigned authority, LLOYD
ROTHENBERG and RAPHAEL B. SHOUGER, the President and Secretary, respec-
tively, of AUTOMATED MEDICAL LABORATORIES, INC., a Florida corporation,
who, after being duly sworn, depose and say that they duly executed the
above and foregoing Restated Certificate of Incorporation and in their
capacity as President and Secretary, respectively, of said corporation,
and further acknowledge said Certificate to be their act and deed and the
act and deed of said corporation; that the signatures of the said President
and Secretary are in the handwriting of said President and Secretary of
the corporation, respectively, and that the seal affixed thereto is the
common seal of the corporation thereunto affixed by authority of the stock-
holders of said corporation.
IN WITNESS WHEREOF, I set my had and seal this 11th day of September,
1974.
/s/ Rosa Y. Copla
----------------------------------------
Notary Public, State of Florida at Large
My commission expires:
NOTARY PUBLIC, STATE OF FLORIDA AT LARGE
MY COMMISSION EXPIRES APR. 13, 1975
- -------------------------
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
AUTOMATED MEDICAL LABORATORIES, INC.
----------
TO: THE DEPARTMENT OF STATE
STATE OF FLORIDA
Pursuant to the provisions of Section 607.187 of the Florida
General Corporation Act the undersigned corporation executes the fol-
lowing Certificate of Amendment to its Restated Certificate of incor-
poration:
1. The name of the corporation is AUTOMATED MEDICAL LABORATORIES,
INC.
2. The following amendment to the Restated Certificate of Incorpora-
tion was adopted by the board of directors on May 12, 1982 and thereafter
duly adopted by the shareholders on August 4, 1982, which increased the
authorized capital stock, common stock, $.01 par value per share, from
4,000,000 shares to 8,000,000 shares of common stock.
RESOLVED, that Article III of the Restated Certificate of
Incorporation of the Company, be and hereby is amended to read in
its entirety as follows:
"The aggregate number of shares which the Corporation shall
have authority to issue is 8,000,000 shares of Common Stock, $.01 par
value. The Corporation may issue and deliver unissued or treasury
shares, options, rights or securities having conversion or option
rights whether presently or hereafter authorized, in such manner
and for consideration as from time to time may be fired by the
Board of Directors, without first offering them to existing Share-
holders. The Board of Directors may accept property, labor or other
payment for shares of capital stock at a just valuation fixed by the
Board of Directors. The stock of the Corporation shall not be asses-
sable, nor shall the holders thereof or their property be liable for
the debts of the Corporation, to any extent whatever."
<PAGE>
3. The effective date of this Certificate of Amendment to the
Restated Certificate of Incorporation shall be the date the same are
filed with the Department of State in accordance with Chapter 607 of
the Florida General Corporation Act.
AUTOMATED MEDICAL LABORATORIES, INC.
/s/ Thomas K. Langbein
By----------------------------------
THOMAS K. LANGBEIN, President
/s/ Mili Lamas
------------------------------------
MILI LAMAS, Secretary
Subscribed at Miami, Florida this 4th day of August, 1982.
The foregoing Certificate of Amendment to the Restated Certificate
of Incorporation was acknowledged before me this 4th day of August, 1982.
/s/ Mili Lamas
-------------------------------------
MILI LAMAS, Secretary
STATE OF FLORIDA )
:ss.:
COUNTY OF DADE )
On this 4th day of August, 1982, before me personally appeared
MILI LAMAS to me known to be the SECRETARY of AUTOMATED MEDICAL LABORA-
TORIES, INC. and who executed the foregoing for the purpose therein
contained.
/s/ Carolyn M. Diaz
-------------------------------------
NOTARY PUBLIC
NOTARY PUBLIC. STATE OF FLORIDA AT LARGE
MY COMMISSION EXPIRES July 4 1983
BONDED THROUGH MUROSIO-ASHTON, INC.
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
AUTOMATED MEDICAL LABORATORIES, INC.
----------
TO: THE DEPARTMENT OF STATE
STATE OF FLORIDA
Pursuant to the provisions of Section 607.187 of the Florida General
Corporation Act the undersigned corporation executes the following Certifi-
cate of Amendment to its Restated Certificate of Incorporation:
1. The name of the corporation is AUTOMATED MEDICAL LABORATORIES,
INC.
2. The following amendment to the Restated Certificate of Incorpora-
tion was adopted by the board of directors on June 26, 1985 and thereafter
duly adopted by the shareholders on September 12, 1985, which increased
the authorized capital stock, common stock, $.01 par value per share, from
8,000,000 shares to 12,000,000 shares of common stock.
RESOLVED, that Article III of the Restated Certificate of
Incorporation of the Company, be and hereby is amended to read in
its entirety as follows:
"The aggregate number of shares which the Corporation shall
have authority to issue is 12,000,000 shares of Common Stock, $.01
par value. The Corporation may
<PAGE>
issue and deliver unissued or treasury shares, options, rights or
securities having conversion or option rights whether presently
or hereafter authorized, in such manner and for consideration as
from time to time may be fixed by the Board of Directors, without
first offering them to existing shareholders. The Board of
Directors may accept property, labor or other payment for sale
of capital stock at a just valuation fixed by the Board of Directors.
The stock of the Corporation shall not be assessable, nor shall the
holders thereof or their property be liable for the debts of the
Corporation, to any extent whatever."
3. The effective date of this Certificate of Amendment to the
Restated Certificate of incorporation shall be the date the same are
filed with the Department of state In accordance with Chapter 607 of the
Florida General Corporation Act.
AUTOMATED MEDICAL LABORATORIES, INC.
/s/ Thomas K. Langbein
By-----------------------------------
THOMAS K. LANGBEIN, President
/s/ Benton L. Becker
-------------------------------------
BENTON L. BECKER, Secretary
Subscribed at Miami, Florida this 12 day of September, 1985.
The foregoing Certificate of Amendment to the Restated Certificate
of Incorporation was acknowledged before me this 12 day of September, 1985.
/s/ Benton L. Becker
-------------------------------------
BENTON L. BECKER, Secretary
STATE OF FLORIDA )
:ss.:
COUNTY OF DADE )
On this 12th day of September, 1985, before me personally appeared
BENTON L. BECKER to me known to be the SECRETARY of AUTOMATED MEDICAL,
INC. and who executed the foregoing for the purpose therein contained.
/s/ Bonnie Gail Duckworth
-------------------------------------
NOTARY PUBLIC
<PAGE>
ARTICLES OF MERGER
OF
MEDICORE, INC.
------------------------
(SUBSIDIARY CORPORATION)
INTO
AUTOMATED MEDICAL LABORATORIES, INC.
------------------------------------
(PARENT CORPORATION)
----------
Pursuant to Section 607.227 of the Florida General Corporation Act
the Subsidiary and Parent corporations adopted the following Articles of
Merger for the purpose of merging the Subsidiary Corporation into the
undersigned as the Surviving Corporation:
FIRST: AUTOMATED MEDICAL LABORATORIES, INC. is a corporation
organized under the laws of the State of Florida owning 100% of the
shares of MEDICORE, INC., a corporation organized under the laws of the
State of Florida.
SECOND: The Plan of Merger as annexed hereto and made a part hereof
was approved by resolution of the Board of Directors of Automated Medical
Laboratories, Inc., as the Surviving Corporation, in the manner prescribed
by the Florida General Corporation Act, which merger amended the Articles
of Incorporation of the Surviving Corporation, in particular paragraph
First, whereby the name of the Surviving Corporation is changed to
Medicore, Inc.
THIRD: The number of outstanding shares of each class of the Subsidi-
ary Corporation and the number of shares of each class owned by the Sur-
viving Corporation is:
Number of Number of
Shares Shares Owned
Class Outstanding by Parent
----- ----------- ------------
Common Stock
$1.00 Par Value 100 100
FOURTH: The mailing of the Plan of Merger to the undersigned, the
Parent Corporation and sole shareholder of the Subsidiary Corporation,
was waived by the Parent Corporation on March 5, 1986.
FIFTH: The Effective Date of the merger is the date the Department
of State of the State of Florida files these Articles of Merger in accor-
dance with the Florida General Corporation Act.
SIGNED this 7th day of March, 1986.
SURVIVING CORPORATION:
AUTOMATED MEDICAL LABORATORIES, INC.
(to be known as MEDICORE, INC. at the
Effective Date of the Merger)
/s/ Thomas K. Langbein
By----------------------------------
THOMAS K. LANGBEIN, President
/s/ Benton L. Becker
By----------------------------------
BENTON L. BECKER, Secretary
STATE OF FLORIDA )
:ss.:
COUNTY OF DADE )
The foregoing instrument was acknowledged before me this 7th day of
March, 1986, by BENTON L. BECKER, SECRETARY of AUTOMATED MEDICAL LABORA-
TORIES, INC. (to be known as MEDICORE, INC. at the Effective Date of the
Merger).
My Commission Expires Notary Public, State of Florida
-------------------------------------
My Commission Expires Sept. 25, 1989
Bonded Thru Troy Pain Insurance Inc.
/s/ Bonnie Gail Duckworth
--------------------------
NOTARY PUBLIC
(SEAL)
<PAGE>
PLAN OF MERGER
--------------
This Plan of Merger dated March 6, 1986 by and between AUTOMATED
MEDICAL LABORATORIES, INC. ("AML") and MEDICORE, INC. ("Medicore"), such
corporations being hereinafter collectively referred to as the "Constitu-
ent Corporations."
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, AML is a corporation duly organized and existing under the
laws of the State of Florida, having been incorporated on November 29,
1961, and having an authorized capital stock of 12,000,000 shares of
common stock, $.01 par value ("AML Common Stock"), of which 4,154,047
shares are issued and outstanding, the holders of such shares not being
entitled to vote on this Plan of Merger pursuant to Section 607.227 of
the Florida General Corporation Act; and
WHEREAS, Medicore is a corporation duly organized and existing under
the laws of the State of Florida, having been incorporated on October 25,
1982, and having an authorized capital stock of 1,000 shares of common
stock, $1.00 par value ("Medicore Common Stock"), of which 100 shares are
issued and outstanding all of which are owned by AML, and although no such
shares are entitled to vote on this Plan of Merger pursuant to Section
607.227 of the Florida General Corporation Act, AML, as sole shareholder
through its Board of Directors has approved the same; and
<PAGE> 1
WHEREAS, the respective Boards of Directors of AML and Medicore deem
it advisable and for the best interests of said Corporations that Medicore,
a wholly-owned subsidiary of AML be merged with and into AML as the
Surviving Corporation as authorized by the statutes of the State of
Florida under and pursuant to the terms and conditions hereinafter set
forth, and for Medicore common stock issued and outstanding at the
Effective Date (as hereinafter defined) to be cancelled and the said
corporate existence of Medicore to be terminated and cease and each such
Board has duly approved this Plan of Merger (the "Plan");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and for the purpose of setting
forth the terms and conditions of said merger, the mode of carrying the
same into effect, the cancellation of the shares of Medicore and the
termination of its corporate existence on the Effective Date and such
other details and provisions as are deemed necessary or desirable, the
parties hereto have agreed and do hereby agree, subject to the conditions
hereinafter set forth, as follows:
Article I
MERGER AND NAME OF SURVIVING CORPORATION
At the Effective Date, as hereinafter defined, Medicore, the wholly-
owned subsidiary of AML, shall be merged with and
<PAGE> 2
into AML, which is hereby designated as the "Surviving Corporation", which
shall not be a new corporation, which shall continue its corporate
existence under the name Medicore, Inc. to continue to be governed by
the laws of the State of Florida, and which shall continue to maintain a
registered office in the State of Florida.
Article II
TERMS AND CONDITIONS OF MERGER
The terms and conditions of the merger are (in addition to those set
forth elsewhere in this Plan) as follows:
(a) At the Effective Date:
1. The Constituent Corporations shall be a single corporation,
which shall be AML, the Surviving Corporation, with its name changed as a
result of the merger, to Medicore, Inc.
2. The separate existence of Medicore, the Subsidiary Corpora-
tion, shall cease.
3. The Surviving Corporation shall thereupon and thereafter
possess all the rights, privileges, powers and franchises as well of a
public as of a private nature, and be subject to all the restrictions,
disabilities and duties of each Constituent Corporation; and all and
singular, the rights, privileges, powers and franchises of each Constitu-
ent Corporation, and all property, real, personal and mixed, and all
debts due to either Constituent Corporation on whatever
<PAGE> 3
account, as well for stock subscriptions as all other things in action or
belonging to each Constituent Corporation shall be vested in the Surviving
Corporation; and all property, rights, privileges, powers and franchises,
and all and every other interest shall be thereafter as effectually the
property of the Surviving Corporation as they were of the respective
Constituent Corporations, and the title to any real estate vested by deed
or otherwise in either Constituent Corporation shall not revert or be in
any way impaired by reason of the merger; but all rights of creditors and
all liens upon any property of either Constituent Corporation shall be
preserved unimpaired, and all debts, liabilities and duties of the
respective Constituent Corporations shall thenceforth attach to the
Surviving Corporation and may be enforced against it to the same extent
as if said debts, liabilities and duties had been incurred or contracted
by it. Any action or proceeding whether civil, criminal or administrative,
pending by or against either Constituent Corporation shall be prosecuted
as if the merger had not taken place, or the Surviving Corporation may be
substituted in such action or proceeding.
4. All corporate acts, plans, policies, contracts, approvals and
authorizations of Medicore and its Stockholders, Board of Directors,
committees elected or appointed by the Board of Directors, Officers and
agents, which were valid
<PAGE> 4
and effective immediately prior to the Effective Date shall be taken for
all purposes as the acts, plans, policies, contracts, approvals and
authorizations of the Surviving Corporation and shall be as effective
and binding thereon as the same were with respect to Medicore.
5. The assets, liabilities, reserves and accounts of each Constituent
Corporation shall be recorded on the books of the Surviving Corporation at
the amounts at which they, respectively, shall then be carried on the
books of such Constituent Corporation subject to such adjustments or
eliminations of intercompany items as may be appropriate in giving effect
to the merger.
(b) The Board of Directors and the Officers of AML, with its name
changed on the Effective Date to Medicore, Inc., as of the Effective Date
shall be the same Board of Directors and Officers as presently exist, to
wit:
Directors Officers
--------- --------
Thomas K. Langbein - President, Chief Executive Officer
Seymour Friend - Vice President
Benton L. Becker - Secretary
Daniel J. Chiodo
Anthony C. D'Amore
Peter D. Fischbein
Dennis W. Healey - Vice President,
Treasurer and Chief Accounting
Officer
and each such Director and Officer shall continue to serve until their
successors are duly elected or appointed, as the case may be.
<PAGE> 5
Article III
CANCELLATION OF SUBSIDIARY'S COMMON STOCK
AND RELATED PROVISIONS
The termination of Medicore's Common Stock and the mode of carrying
the merger into effect are as follows:
(a) Each share of Medicore's Common Stock outstanding at the
Effective Date, all of which are held by AML, shall be automatically and
immediately cancelled, and no securities, cash or property of AML shall
be issued therefor, and there shall no longer be any authorized capital
of Medicore, all authorized, issued and outstanding shares of common
stock at the Effective Date to be cancelled, not restored to authorized
or treasury shares and not reissuable; and
(b) The corporate existence of Medicore shall automatically and
immediately at the Effective Date be terminated and shall cease, however,
its operations, rights, privileges, obligations, assets and liabilities
continuing with and in the Surviving Corporation.
Article IV
CERTIFICATE OF INCORPORATION AND BY-LAWS
(a) The Certificate of Incorporation of AML as existing and consti-
tuted immediately prior to the Effective Date shall, upon the merger
becoming effective, be and constitute the Certificate of Incorporation
of the Surviving Corporation until amended in the manner provided by law,
except the change of name of AML to Medicore, Inc., effected by this
<PAGE> 6
merger, amending the Restated Certificate of Incorporation of the
Surviving Corporation, Article I-NAME to read as follows: "The name of
this Corporation shall be: MEDICORE, INC."
(b) The By-Laws of AML as existing and constituted immediately prior
to the Effective Date shall, upon the merger becoming effective, be and
constitute the By-Laws of the Surviving Corporation until amended in the
manner provided by law.
ARTICLE V
OTHER PROVISIONS WITH RESPECT TO MERGER
(a) This Plan shall be submitted to AML, the parent, the Sole
Stockholder of Medicore, the wholly-owned subsidiary, for approval. AML
is advised and is familiar with the fact that any shareholder of a sub-
sidiary corporation to be merged into a parent as provided in Section
607.227 of the Florida General Corporation Act has the right to dissent
from the merger, and if such shareholder complies with the provisions of
Section 607 of the Florida General Corporation Act regarding the rights
of dissenting shareholders, to be paid the fair value of their shares;
provided such is inapplicable to any merger of Medicore with and into
AML, its parent, since AML is the Sole Stockholder of Medicore and shall
approve the merger of Medicore with and into itself as the Surviving
Corporation.
<PAGE> 7
(b) Upon approval or adoption of the Plan by AML, the Sole Stock-
holder of Medicore in accordance with the requirements of the laws of the
State of Florida all required documents shall be executed, filed and
recorded and all required acts shall be done in order to accomplish the
merger under the provisions of the applicable statutes of the State of
Florida.
(c) This Plan may be terminated at any time prior to the Effective
Date, whether before or after the action taken by AML, the Sole Stock-
holder of Medicore, by mutual consent of the Constituent Corporations,
expressed by action of their respective Boards of Directors.
Article VI
APPROVAL AND EFFECTIVE TIME OF THE MERGER
(a) The merger shall become effective when all the following actions
shall have been taken:
1. This Plan shall be adopted and approved on behalf of each
Constituent Corporation in accordance with the Florida General Corporation
Act; and
2. A Certificate of Merger, with this Plan attached as part
thereof, setting forth the information required by and executed and ack-
nowledged in accordance with, the Florida General Corporation Act, shall
be filed in the office of the Department of State of the State of Florida,
and the particular time and date at which such filing is made by the
Department of State being herein referred to as the "Effective Date."
<PAGE> 8
(b) For the convenience of the parties and to facilitate the
filing and recording of this Plan, any number of counterparts hereof
may be executed, and each such counterpart shall be deemed to be an
original instrument.
(c) This Plan and the legal relations between the parties hereto
shall be governed by and construed in accordance with the laws of the
State of Florida.
(d) This Plan cannot be altered or amended except pursuant to any
instrument in writing signed on behalf of the parties hereto.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals the 6th day of March, 1986.
WITNESS: AUTOMATED MEDICAL LABORATORIES, INC.
/s/ Bonnie G. Duckworth /s/ Thomas K. Langbein
- ----------------------------- By-----------------------------------
THOMAS K. LANGBEIN, President
WITNESS: MEDICORE, INC.
/s/ Bonnie G. Duckworth /s/ Daniel J. Chiodo
- ----------------------------- By-----------------------------------
DANIEL J. CHIODO, President
<PAGE> 9
STATE OF FLORIDA )
:ss.:
COUNTY OF DADE )
On this 6th day of March, 1986, before me personally came THOMAS K.
LANGBEIN, to me known, who being by me duly sworn, did depose and say
that he is the President of AUTOMATED MEDICAL LABORATORIES, INC., the
Corporation described in and which executed the foregoing instrument.
/s/ Bonnie Gail Duckworth
------------------------------------
Notary Public, State of Florida
My Commission Expires Sept. 25, 1989
Bonded Thru Troy Fain-Insurance Inc.
STATE OF FLORIDA )
:ss.:
COUNTY OF DADE )
On this 6th day of March, 1986, before me personally came DANIEL J.
CHIODO, to me known, who being by me duly sworn, did depose and say that
he is the President of MEDICORE, INC., the Corporation described in and
which executed the foregoing instrument.
/s/ Bonnie Gail Duckworth
-------------------------------------
Notary Public, State of Florida
My Commission Expires Sept. 25, 1989
Bonded Thru Troy Fain -Insurance, Inc.
<PAGE>
BY-LAWS
OF
MEDICORE, INC.
a Florida corporation
-------------------------
ARTICLE I
OFFICES
1.1 Principal Office. The principal office shall be located in the
----------------
City of Hialeah, County of Dade and State of Florida.
1.2 Other Offices. The corporation may have other offices, either
-------------
within or outside the State of Florida, at such place or places as the
Board of Directors may from time to time determine.
ARTICLE II
CORPORATE SEAL
2.1 Seal. The corporate seal shall be circular in form and shall
----
have inscribed thereon the name of the corporation, the year of its incor-
poration and the words "Corporate Seal, Florida".
ARTICLE III
MEETINGS OF STOCKHOLDERS
3.1 Place of Meeting. All meetings of the stockholders shall be
----------------
held at the office of the corporation in the City of Hialeah, State of
Florida, or at such other place as may be designated by the Board of
Directors.
3.2 Annual Meetings. The annual meeting of stockholders shall be
---------------
held on any day other than a Sunday or a legal holiday during the month of
June, or at such other date as may be determined by the Board of Directors.
At such meeting the appropriate Class of directors for the ensuing year
shall be elected in accordance with the corporation's Restated Articles of
Incorporation, as amended ("Articles of Incorporation") and these By-Laws.
Any general business pertaining to the affairs of the corporation may be
transacted at an annual meeting without special notice. The particular
Class(es) of the Classified Board of Directors shall be elected at the
annual meeting of the stockholders by plurality vote of the stockholders
present in person or by proxy at such meeting and entitled to vote.
<PAGE> 1
3.3 Special Meetings. Special meetings of the stockholders may be
----------------
called for any purpose, unless otherwise permitted by statute, by the
President or by the Board of Directors, pursuant to a resolution adopted
by a majority of the entire Board, either upon motion of a director,
or upon the written request of the holders of at least 50% of all the
outstanding stock entitled to vote thereat, voting together as a single
class. Any request for a special meeting of stockholders shall state the
purpose or purposes of the special meeting and no business other than that
specified in the Notice of Meeting shall be transacted at any special
meeting.
3.4 Fixing Date For Determination Of Stockholders Of Record. For
-------------------------------------------------------
the purpose of determining stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, or entitled to
express consent to corporate action in writing without a meeting, or en-
titled to receive payment of any dividend or other distribution or allot-
ment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for any other lawful action,
the Board of Directors may fix, in advance, a date as the record date for
any such determination of stockholders, which date shall not be more than
60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other action. If no record date is fixed then the record
date shall be as follows: (a) for determining stockholders entitled to
notice of or to vote at the meeting of stockholders, the close of business
on the day next preceding the day on which the meeting is held; (b) for
determining stockholders entitled to express consent to corporate action
in writing without a meeting, when no prior action by the Board of Direc-
tors is necessary, the day on which the first written consent is expressed,
and (c) for determining stockholders for any other purpose, the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
3.5 Notice. Notice of the annual meeting of stockholders shall be
------
mailed or otherwise given to each holder of record of the stock entitled
to vote thereat, at his address, as the same appears on the books of the
corporation, at least 10 days but not more than 60 days prior to such
meeting. Such notice need not specify the business to be transacted.
Written or printed notice of each special meeting of stockholders,
stating the place, day and hour of such meeting and business proposed to
be transacted thereat, shall be mailed, postage prepaid, or otherwise given
to each holder of record of the stock entitled to vote thereat, at his
address as the same appears on the books of the corporation, at least 10
days but not more than 60 days prior to such meeting.
Whenever any notice is required to be given under the provisions of
any law of this State or under the provisions of the Articles of Incorpora-
tion of this corporation or by these By-Laws, waiver thereof in writing,
signed by the person or persons entitled to such notice, or by his or their
proxy or proxies, whether before or after the time fixed for the giving of
such notice, shall be deemed equivalent to such notice. If a person or
persons entitled to notice of a meeting shall attend such meeting, either
in person or by proxy, such attendance shall constitute a waiver of notice
of the meeting, except in case the attention of any business because the
meeting shall not have been lawfully called or convened.
<PAGE> 2
If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, addressed to the stockholder at his address as
it appears on the stock books of the corporation, with postage thereon
prepaid. When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the corporation may transact any business which might
have been transacted at the original meeting.
3.6 Quorum. Except as otherwise required by law, by the Articles of
------
Incorporation of this corporation, or by these By-Laws, the presence, in
person or by proxy, of stockholders entitled to cast a majority in number
of the aggregate number of votes to which Common Stock shall be entitled,
shall constitute a quorum of all meetings of the stockholders. In any
case, where the presence of the aforesaid number of the holders of Common
Stock shall be necessary to constitute a quorum, and if such number shall
not be represented at any meeting, the stockholders entitled to vote
thereat, present in person or by proxy, shall have the power to adjourn
the meeting from time to time, without notice other than announcement at
the meeting, until the requisite amount of voting stock shall be present.
At any such adjourned meeting at which the requisite amount of voting
stock shall be present, any business may be transacted which might have
been transacted at the meeting as originally scheduled.
3.7 Manner of Acting. When a quorum is present at any meeting, the
----------------
affirmative vote of a majority of the shares represented at the meeting
and entitled to vote on the subject matter shall be the act of the stock-
holders, unless a different vote is required by law or the Articles of
Incorporation, in which case such express provision shall govern.
3.8 Organization. The President or any Vice President shall call
------------
meetings of stockholders to order and act as Chairman of such meetings.
In the absence of said officers, any stockholder entitled to vote at that
meeting, or any proxy of any such stockholder, may call the meeting to
order and a chairman shall be elected by a majority of the stockholders
entitled to vote at that meeting. In the absence of the Secretary or any
Assistant Secretary of the corporation, any person appointed by the
Chairman shall act as Secretary of such meetings.
3.9 Agenda and Procedure. The Board of Directors shall have the
--------------------
responsibility of establishing an agenda for each meeting of stockholders,
subject to the rights of stockholders to raise matters for consideration
which may otherwise properly be brought before the meeting although not
included within the agenda. The Chairman shall be charged with the orderly
conduct of all meetings; provided however, that in the event of any dif-
ference in opinion with respect to the proper cause of action which cannot
be resolved by reference to statute, or to the Articles of Incorporation
or these By-Laws, Robert's Rules of Order (as last revised) shall govern
the disposition of the matter.
3.10 Proxies. Any stockholder entitled to vote at any meeting of
-------
stockholders may be represented and vote thereat by proxy appointed by an
instrument in writing subscribed by such stockholder and bearing a date
to more than three months prior to such meeting, unless such proxy shall,
on its face, provide a longer period in which it is to remain in force.
3.11 Vote by Ballot. The Secretary shall prepare at least 10 days
--------------
prior to each election of directors, a complete list of the stockholders
entitled to vote, arranged in alphabetical order, with the residence of
and the number of voting shares held by each stockholder, which shall be
open for the examination of any stockholder, at the place where said
election is to be
<PAGE> 3
held, for 10 days prior to such election, and shall be kept available for
the inspection by any stockholder during the whole time of the election.
Subject to Section 3.4 of this Article III, each stockholder shall
have one vote for each share of stock having voting power and registered
in his name on the books of the corporation. Cumulative voting shall not
be allowed.
3.12 Voting of Shares by Certain Holders. Persons holding stock in
-----------------------------------
a fiduciary capacity shall be entitled to vote the shares so held. Persons
whose stock is pledged shall be entitled to vote, unless in the transfer by
the pledgor on the books of the corporation the pledgor has expressly
empowered the pledgee to vote thereon, in which case only the pledgee or
his proxy may represent such shares and vote thereon. If shares stand of
record in the names of two or more persons, whether fiduciaries, members
of a partnership, joint tenants, tenants in common, tenants by the entirety
or otherwise, or if two or more persons have the same fiduciary relation-
ship respecting the same shares, unless the Secretary of the corporation
is given written notice to the contrary and is furnished with a copy of
the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall be
as set forth in the Florida Business Corporation Act.
3.13 Inspectors. The Chairman of the meeting may at any time appoint
----------
one or more inspectors to serve at a meeting of the stockholders. Such
inspector(s) shall decide upon the qualifications of voters, including
the validity of proxies, accept and count the votes for and against the
questions presented, report the results of such votes, and subscribe and
deliver to the Secretary of the meeting a certificate stating the number
of shares of stock issued and outstanding and entitled to vote thereon
and the number of shares voted for and against the questions presented.
The inspector(s) does not need to be a stockholder of the corporation,
and any director or officer of the corporation may be an inspector on any
questions other than a vote for or against his election to any position
with the corporation or on any other question in which he may be directly
interested.
ARTICLE IV
DIRECTORS
4.1 Powers. The business and affairs of the corporation shall be
------
managed by or under the direction of its Board of Directors, except as
otherwise provided in the Florida Business Corporation Act or the Articles
of Incorporation.
4.2 Number, Tenure and Qualification. The number of directors of
--------------------------------
the corporation shall be as determined by the Board of Directors and shall
be not fewer than four nor more than six. Directors shall be elected in
Classes at each Classes respective annual meeting of stockholders as other-
wise provided in the Articles of Incorporation. Each director shall hold
office until his successor shall have been elected and qualified or until
the earliest of his death, resignation or removal. Directors need not be
residents of Florida or stockholders of the corporation.
The number of directors may be changed at any time and from time to
time by vote at a meeting or by written consent of the shareholders
entitled to vote on the election of directors as otherwise provided in
these By-Laws, and as otherwise permitted in the Articles of Incorpora-
tion
<PAGE> 4
of the corporation, or by resolution of the Board of Directors passed by a
majority of the entire Board of Directors, except that no decrease shall
shorten the term of any incumbent director unless such director is specifi-
cally removed for cause at the time of such decrease. Whenever the au-
thorized number of directors is increased between annual meetings of the
shareholders, a majority of the directors then in office shall have the
power to elect such new directors for the balance of a term and until
their successors are elected and qualified. Any decrease in the authorized
number of directors shall not become effective until the expiration of the
term of the directors then in office unless, at the time of such decrease,
there shall be vacancies on the Board which are being eliminated by the
decrease.
4.3 Term of Offices. Except as otherwise provided in the Articles
---------------
of Incorporation of this corporation, each director shall be elected to
serve until the next annual meeting of stockholders voting for directors
of his particular Class of directors, and until his successor is chosen
and qualified.
4.4 Removal. At any annual or special meeting of the stockholders
-------
duly called, as provided in the Articles of Incorporation of the Company
and in these By-laws, any director or the entire Board of Directors may
be removed from office only for cause and only by a vote of the holders
of at least 75% of the voting power all the shares of stock outstanding
and entitled to vote generally in the election of the directors, voting
together as a single class, and his successor or their successors may be
elected at such meeting, or the remaining directors may, in the absence
of such election, fill any vacancies created by such removal.
4.5 Meetings. A regular meeting of the Board shall be held without
--------
notice immediately following and at the same place as the annual share-
holders meeting for the purposes of electing officers and conducting such
other business as may come before the meeting. If an election of
directors occurs by written consent in lieu of the annual meeting of
shareholders, the annual meeting of the Board of Directors shall take
place as soon after such written consent is duly filed with the corpora-
tion as is practicable, either at the next regular meeting of the Board
of Directors or at a special meeting. The Board, by resolution, may
provide for additional regular meetings which may be held without notice,
except to members not present at the time of the adoption of the resolution.
A special meeting of the Board may be called at any time by the Chief
Executive Officer or if he is unavailable, by the President, or by the
Secretary upon the written request of not less than three directors, for
any purpose. Such meeting shall be held upon not less than three days
notice whether given orally (either by telephone or in person) or by tele-
gram or by depositing the same in the United States mails, postage prepaid.
Such notice shall specify the time, place and purposes of the special
meeting.
4.6 Place of Meeting. The Board of Directors may hold its meetings
----------------
and have one or more offices and keep the books of the corporation (except
such as are required by law to be kept within the State of Florida) either
within or outside of the State of Florida at such place or places as it may
from time to time determine.
4.7 Quorum and Powers of a Majority. At all meetings of the Board
-------------------------------
of Directors, a majority of the directors shall be necessary and sufficient
to constitute a quorum for the transaction of business, and the act of a
majority of the directors present at any such meeting at which a quorum is
present shall be the act of the Board of Directors, except as specifically
<PAGE> 5
required by statute or by the Articles of Incorporation of this corporation
or by these By-laws. If less than a majority of directors is available and
present at such meeting, a majority of such directors present may adjourn
the meeting from time to time, without notice other than the announcement
at the meeting, until a quorum shall be present.
4.8 Compensation. Unless otherwise restricted by the Articles of
------------
Incorporation of these By-Laws, the Board of Directors shall have the
authority to fix the compensation of directors. The directors may be
paid their expenses, if any, for attendance at such meetings of the Board
of Directors and may be paid a fixed sum for attendance at each meeting of
the Board of Directors or a stated salary as director. No such payment
shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of any committee
of the Board may be allowed like compensation for attending committee
meetings.
4.9 Notice of Nominations. Nominations for the election of directors
---------------------
may be made by the Board of Directors or a committee of the Board of Direc-
tors or by any stockholder entitled to vote for the election of directors.
Nominations by the Board of Directors or a committee of the Board of Direc-
tors may be made by oral or written notice delivered to the Secretary of
the corporation by any officer or director on behalf of the Board of
Directors or committee at any time prior to or at any meeting of the
stockholders at which directors are to be elected. Each notice of nomina-
tion of directors by the Board of Directors or a committee of the Board
of Directors shall set forth the names of the nominees. Nominations by
stockholders shall be made by notice in writing, delivered or mailed by
first class United States mail, postage prepaid, to the Secretary of the
corporation not less than 60 days nor more than 90 days prior to any
meeting of the stockholders at which directors are to be elected; provided,
however, that if less than 60 days' notice of the meeting is given to
stockholders, written notice of nominations of directors by stockholders
shall be delivered or mailed, as prescribed, to the Secretary of the cor-
poration not later than the close of the seventh day following the day on
which notice of the meeting was mailed to stockholders. Nominations by
stockholders for directors to be elected by written consent of stock-
holders shall be made by notice in writing, delivered or mailed by first
class United States mail, postage prepaid, to the Secretary of the corpora-
tion not less than 60 days nor more than 90 days prior to the first solici-
tation of any written consents of stockholders for the election of those
nominees. Each notice of nomination of directors by a stockholder of the
corporation shall set forth (a) the name, age, business address and, if
known, residence address of each nominee proposed in that notice, (b) the
principal occupation or employment of each such nominee for the five years
preceding the date of the notice, (c) the number of shares of stock of the
corporation that are beneficially owned by each nominee, and (d), any
arrangement, affiliation, association, agreement or other relationship of
the nominee with any stockholder of the corporation. The Chairman of any
meeting of stockholders of the corporation may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if the Chairman should so
determine, the Chairman shall so declare to the meeting and the defective
nomination shall be disregarded.
4.10 Vacancies. Any director may resign at any time by giving
---------
written notice to the corporation. Such resignation shall take effect at
the time specified therein; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make if effective.
Any vacancy or newly created directorship resulting from an increase in
the authorized number of directors may be filled by the affirmative vote
of the majority of directors then in office, although less than a quorum,
or by a sole remaining director, and a director so chosen shall hold
<PAGE> 6
office until the next annual election relating to the Class of directors
to which he is filling, and until his successor is duly elected and
qualified, unless sooner displaced. If at any time, by reason of death,
resignation or other cause, the corporation should have no directors in
office, then an election of directors may be held in the manner provided
by law. When one or more directors shall resign from the Board, effective
at a future date, a majority of the directors then in office, including
those who have so resigned, shall have the power to fill any vacancy or
vacancies, with the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall
hold office until the next annual relating to the Class of directors to
which he is filling, and until his successor is duly elected and has
qualified.
4.11 Informal Action by Directors. Unless otherwise restricted by
----------------------------
the Articles of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or any
committee thereof may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing and
the writing or writings are filed with the minutes of the proceedings of
the Board or committee.
4.12 Meetings by Telephone. Unless otherwise restricted by the
---------------------
Articles of Incorporation or these By-Laws, members of the Board or
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee
thereof, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting
can hear each other, and such participation in a meeting in such manner
shall constitute presence in person at the meeting.
ARTICLE V
EXECUTIVE COMMITTEE
5.1 Powers. The Board of Directors may designate two or more of
------
their number, including the Chief Executive Officer, to constitute an
Executive Committee to serve at the pleasure of the Board of Directors.
The Board of Directors is authorized to remove at any time, without
notice, any member of the Executive Committee, and elect another member
in his or her place and stead.
The Board of Directors may delegate to such Committee any or all of
the powers of the Board of Directors in the management of the business
and affairs of the Corporation and may from time to time extend, modify,
curtail or restrict the powers so delegated; and the Board may authorize
the seal of the corporation to be affixed to all papers which may require
it; but no such Committee shall have the power or authority to amend the
Articles of Incorporation to adopt an agreement of merger or consolidation,
to recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, to recommend
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or to amend the By-Laws of the corporation; and, unless the
resolution expressly so provides, no such Committee shall have the power
or authority to declare a dividend or to authorize the issuance of stock.
5.2 Meetings. The Executive Committee may meet at stated times, on
--------
not less than 24 hours' notice given personally or mailed or telegraphed
to all by any one of their own number. During the intervals between
meetings of the Board of Directors, the Executive
<PAGE> 7
Committee shall advise with and aid the officers of the corporation in
all matters concerning the interest and management of its business.
5.3 Minutes. The Executive Committee shall keep regular minutes of
-------
its proceedings and report the same to the Board of Directors when
requested.
5.4 Alternate Members. The Board of Directors may designate one
-----------------
(1) or more directors as alternate members of any Executive Committee, who
may replace at any meeting of such Committee any absent member or member
disqualified from voting. In the absence or disqualification from voting
of a member of the Committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they consti-
tute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of such absent or disqualified
member; but vacancies in the membership of the Executive Committee shall be
filled by the Board of Directors at a regular meeting or at a special
meeting called for such purpose.
5.5 Action Without Meeting. Any action of the Board of Directors or
----------------------
of any Committee thereof, which is required or permitted to be taken at a
meeting, may be taken without a meeting if written consent to the action
signed by all of the members of the Board or of the Committee, as the case
may be, is filed in the minutes of the proceedings of the Board of
Committee prior to the taking of such action.
ARTICLE VI
OFFICERS
6.1 Generally. The officers of the Corporation shall include a Chief
---------
Executive Officer, a President, a Secretary and a Treasurer, and may
include a Chairman of the Board, one or more Vice-Presidents, and such
other subordinate officers as may from time to time be appointed by the
Board of Directors. Officers shall be elected by the Board of Directors,
which shall consider that subject at its first meeting after every annual
meeting of stockholders, or by a duly authorized committee thereof with
the approval of shareholders. The Chief Executive Officer shall be a
member of the Board of Directors and may be the Chairman of the Board.
None of the other officers, except the Chief Executive Officer, need be
a director. Any number of offices may be held by the same person, but no
officer shall attest, acknowledge or verify any instrument in more than
one capacity.
6.2 Term of Office. The officers hereinbefore mentioned shall hold
--------------
office for one year or until their successors are chosen and qualified or
until his earlier resignation or removal. Any vacancy occurring among the
officers shall be filled by the Board of Directors, but the person so
elected to fill the vacancy shall hold office only until the first meeting
of the Board of Directors after the next annual meeting of stockholders and
until his successor is chosen and qualified.
6.3 Agents. The Board of Directors may appoint such agents as it
------
may deem necessary, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors.
<PAGE> 8
6.4 Salaries. The salaries, emoluments, compensation or reimburse-
--------
ment or all officers and agents of the corporation shall be fixed by the
Board of Directors.
6.5 Removal. Any officer or agent elected, appointed or chosen by
-------
the Board of Directors may be removed at any time by the affirmative vote
of a majority of the Board of Directors, with or without cause, whenever
in its judgment the best interests of the corporation will be served
thereby.
6.6 Voting Shares in Other Corporations. Unless otherwise directed
-----------------------------------
by the Board of Directors, the Chief Executive Officer shall have power to
vote and otherwise act on behalf of the corporation, in person or by proxy,
at any meeting of stockholders of or with respect to any action of stock-
holders of any other corporation in which this corporation may hold secur-
ities and otherwise to exercise and all rights and powers which this
corporation may possess by reason of its ownership of securities in such
other corporation.
6.7 Vacancies. Any officer may resign at any time upon written
---------
notice to the corporation. Such resignation shall take effect at the
time stated therein; and unless otherwise specified therein, the accep-
tance of such resignation shall not be necessary to make it effective.
Any vacancy occurring in any office by death, resignation, removal or
otherwise shall be filed by the Board of Directors for the unexpired
portion of the term. If any officer shall be absent or unable for any
reason to perform his duties, the Board of Directors, to the extent not
otherwise consistent with these By-Laws or law, may direct that the duties
of such officer during such absence or inability shall be performed by such
other officer or assistant officer as seems advisable to the Board.
6.8 Authority and Duties of Officers. The officers of the corpora-
--------------------------------
tion shall have the authority and shall exercise the powers and perform
the duties specified below, and as may be otherwise specified by the Board
of Directors or by these By-Laws, except that in any event each officer
shall exercise such powers and perform such duties as may be required by
law, and in cases where the duties of any officer or agent are not pre-
scribed by these By-Laws or by the Board of Directors such officer or
agent shall follow the orders and instructions of (a) the President, and
if a Chairman of the Board is elected, then (b) the Chairman of the Board.
ARTICLE VII
CHIEF EXECUTIVE OFFICER
7.1 Chairman of the Board - Chief Executive Officer. The Chief
---------------------
Executive Officer shall be Chairman of the Board of the corporation and
shall have the general and active management of the business of the cor-
poration and general and active supervision and direction over the other
officers, agents and employees and shall see that their duties are properly
performed. He shall, if present, preside at each meeting of the stock-
holders and of the Board of Directors and shall be an ex officio member
of all committees of the Board of Directors. He shall perform all duties
incident to the office of Chairman of the Board of Directors and Chief
Executive Officer and such other duties as may from time to time be
assigned to him by the Board of Directors. The Chief Executive Officer
may enter into and execute in the name of the corporation, contracts or
other instruments in the regular course of business or contracts or other
instruments not in the regular course of business, which are authorized
either generally or specifically, by the Board of Directors. He shall
further be authorized to execute bonds,
<PAGE> 9
mortgages, and similar documents on behalf or the corporation and shall
affix the seal to any instruments requiring it, and when so affixed, the
seal shall be attested by the signature of the Secretary or the Treasurer,
or any other officer authorized to do so by the Board of Directors. In
the event of his inability to act as Chief Executive Officer or Chairman
of the Board, or in his absence, the Board of Directors shall appoint, at
a special meeting not to be held more than four (4) days from the Chairman
of the Board-Chief Executive Officer's inability to act or his absence,
such officer or other person to perform the duties of Chief Executive
Officer-Chairman of the Board of Directors until such time that the Chief
Executive Officer-Chairman of the Board is no longer absent or is able to
perform his duties. In so acting the newly appointed Chief Executive
Officer-Chairman of the Board shall have and perform all the powers of,
and be subject to all the restrictions upon the Chief Executive Officer-
Chairman of the Board.
ARTICLE VIII
PRESIDENT
8.1 President. The President shall be a chief operating officer of
---------
the corporation and shall have general and active supervision and direction
over the business and affairs of the corporation and over its several
officers, subject, however, to the direction and approval of the Chairman
of the Board of Directors who shall also be the Chief Executive Officer
of the corporation and the control of the Board of Directors. At the
request of the Chairman of the Board of Directors, but only for a
specified and limited time and subject to approval by the Board of
Directors, the President shall perform the duties of the Chairman of the
Board and in so acting shall have all the powers of, and be subject to
all the restrictions upon, the Chairman of the Board of Directors. He
shall perform all duties incident to the office of President and such
other duties as from time to time may be assigned to him by the Board,
the Chairman of the Board of Directors, the Chief Executive Officer or
these By-Laws. In the event of the absence, death, inability or refusal
to act by the President, the Chairman of the Board of Directors shall act
as the President until a new President is appointed by the Board of Direc-
tors. The Chairman of the Board of Directors in so acting as President
shall perform the duties and be vested with the authority of the President.
ARTICLE IX
VICE PRESIDENT
9.1 Vice President. The Executive Vice President, if any, and each
--------------
Vice President, shall have such powers and perform all such duties as from
time to time may be assigned to him by the Board of Directors, the Chairman
of the Board of Directors or the Chief Executive Officer unless otherwise
provided by the Board of Directors.
ARTICLE X
TREASURER
10.1 Custody of Funds. The Treasurer shall have the custody of the
----------------
corporate funds and securities, and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositories as may be designated by the Board of
Directors.
<PAGE> 11
10.2 Disbursements. The Treasurer shall disburse the funds of the
-------------
corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements. He shall render to the Chief Executive
Officer and directors at the regular meetings an account of all his trans-
actions as Treasurer and of the financial condition of the corporation.
10.3 Bond. He shall give the corporation a bond if required by the
----
Board of Directors, in a sum and with one or more securities satisfactory
to the Board of Directors, for the faithful performance of the duties of
his office and for the restoration to the corporation in case of his death,
resignation, retirement or removal from office of all books, papers,
vouchers, moneys and other property of whatever kind in his possession
or under his control belonging to the corporation.
10.4 Assistant Treasurer. The Assistant Treasurer shall perform all
-------------------
the duties and responsibilities of the Treasurer on such occasion on which
the Treasurer shall be unable to perform all the duties of the office and
shall perform all other duties and exercise all other powers as shall be
assigned to him by the Board of Directors or by the Chief Executive
Officer or the Treasurer.
ARTICLE XI
SECRETARY
11.1 Secretary. The Secretary shall attend all meetings of the
---------
Board of Directors and all meetings of the stockholders and shall record
all votes and the minutes of all proceedings in a book to be kept for that
purpose and shall perform like duties for the standing committees when
required. The Secretary shall give or cause to be given notice of all
meetings of the stockholders and of the Board of Directors, and shall
keep the seal of the corporation in safe custody. The Secretary shall
perform such other duties as may be prescribed by the Board of Directors
or by the Chief Executive Officer under whose supervision he or she shall
be.
11.2 Assistant Secretary. The Assistant Secretary shall perform all
-------------------
the duties and responsibilities of the Secretary on such occasions on
which the Secretary shall be unavailable to perform the duties of the
office and shall perform all other duties and exercise all other powers
as shall be assigned him or her by the Board of Directors or by the Chief
Executive Officer or the Secretary.
ARTICLE XII
DUTIES OF OFFICERS MAY BE DELEGATED
12.1 Delegation. In case of the absence or disability of any
----------
officer of the corporation, or for any other reason that the Board of
Directors may deem sufficient, the Board of Directors, by majority vote,
may delegate for that time being the powers or duties or any of them of
such officer to any other officer or to any director or to any other
person.
<PAGE> 11
ARTICLE XIII
CERTIFICATE OF STOCK
13.1 Certificates. Certificates of stock shall be issued in such
------------
form as may be approved by the Board of Directors. Each holder of stock
in the corporation shall be entitled to have a certificate signed in the
name of the corporation by the President or a Vice-President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the corporation. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue. Certificates of stock shall
be consecutively numbered and shall be in such form consistent with law
as shall be prescribed by the Board of Directors.
13.2 Consideration for Shares. Shares shall be issued for such
------------------------
consideration (but not less than the par value thereof) as shall be deter-
mined from time to time by the Board of Directors. Treasury shares shall
be disposed of for such consideration as may be determined from time to
time by the Board. Such consideration may consist, in whole or in part,
of cash, personal property, real property, leases of real property,
services rendered or to be rendered, or promissory notes, and shall be
paid in such form, in such manner and at such times as the directors may
require, all as consistent with the Florida Business Corporation Act.
13.3 Issuance of Stock. The capital stock issued by the corporation
-----------------
shall be deemed to be fully paid and nonassessable stock, if: (a) the
entire amount of the consideration has been received by the corporation
in the form or forms set forth in Section 13.2 of this Article XIII and if
any part of the consideration is in the form of a promissory note or other
obligation, such note or obligation has been satisfied in full; or (b) not
less than the amount of the consideration determined to be capital pursuant
to statute has been received by the corporation in the form or forms set
forth in Section 13.2 of this Article XIII and the corporation has received
a binding obligation of the subscriber or purchaser to pay the balance of
the subscription or purchase price; provided, however, nothing contained
herein shall prevent the Board of Directors from issuing partly paid
shares as described herein.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to
be paid therefor. Upon the face or back of each stock certificate issued
to represent any such partly paid shares the total amount of the considera-
tion to be paid therefor and the amount paid thereon may be stated.
The directors may from time to time demand payment, in respect of
each share of stock not fully paid, of such sum of money as the necessities
of the business may, in the judgment of the Board of Directors, require,
not exceeding the whole, the balance remaining unpaid on said stock, and
such sum so demanded shall be paid to the corporation at such times and by
such installments as the Directors shall direct. The Directors shall give
written notice of the time and place of such payments, which notice shall
be mailed to each holder or subscriber to his last know post office address
at least 30 days before the time for such payment for stock which is not
fully paid.
ARTICLE XIV
TRANSFER OF STOCK
14.1 Transfer. The Board of Directors shall have power and authority
--------
to make such rules and regulations as they may deem expedient concerning
the issue, registration and transfer of certificates of stock, and may
appoint transfer agents or clerks and registrars thereof.
<PAGE> 12
ARTICLE XV
INDEBTEDNESS OF STOCKHOLDERS
15.1 Lien. The corporation shall have a first lien on all the
----
shares of its capital stock and upon all dividends declared upon the
same for any sum due to the corporation, either on account of the sub-
scription to its stock or for any other indebtedness due from the stock-
holder.
ARTICLE XVI
CLOSING OF TRANSFER BOOKS, FIXING OF RECORD DATE
16.1 Record Date. The Board of Directors may at any time by resolu-
-----------
tions direct that the stock transfer books be closed for a period not to
exceed fifty (50) days preceding the date of any annual or special meeting
of stockholders, or the date for payment of any dividend, or the date for
the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or in connection with
obtaining the consent of stockholders for any purpose. In lieu of
providing for the closing of the stock transfer books as aforesaid, the
Board of Directors may fix in advance a date, not exceeding fifty (50)
days preceding the date of any meeting of stockholders, or the date for
the payment of any dividend, or the date for the allotment of rights, or
the date when any change or conversion or exchange of capital stock shall
go into effect, or a date in connection with obtaining the consent of
stockholders for any purpose, as a record date for the determination of
the stockholders entitled to notice of and to vote at any such meeting,
or entitled to receive payment of any such dividend, or to any such
allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock or to give such consent,
as the case may be.
ARTICLE XVII
REGISTERED STOCKHOLDERS
17.1 Record Holder. The corporation shall be entitled to treat the
holder of record of any share or shares of stock as the holder in fact
thereof and shall not be bound to recognize any equitable or other claims
to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, save
expressly provided by the laws of the State of Florida.
ARTICLE XVIII
LOST CERTIFICATES
18.1 Lost Certificates. Any person claiming a certificate of stock
-----------------
to be lost or destroyed shall make an affidavit or affirmation of that
fact and verify the same in such manner as the Board of Directors may
require, and shall, if the Board of Directors require, give the corpora-
tion a bond of indemnity in form and with one or more sureties satis-
factory to the Board of Directors in at least double the value of the
stock represented by said certificate before a new certificate may be
issued of the same tenor and for the same number of shares as the one
alleged to have been lost or destroyed.
<PAGE> 13
ARTICLE XIX
INSPECTION OF BOOKS
19.1 Inspection of Books. The Board of Directors shall determine
-------------------
from time to time whether, and if allowed, when and under what conditions
and regulations the accounts and books of the corporation (except such as
may by statute be specifically open to inspection or any of then, shall be
open to the inspection of the stockholders and the stockholders' rights in
this respect are and shall be restricted and limited accordingly.
ARTICLE XX
CHECKS
20.1 Commercial Investments. All checks, drafts, acceptances,
----------------------
notes and other orders, demands, or instruments in respect to the payment
of money, shall be signed or endorsed on behalf of the corporation by the
Chief Executive Officer and the President or the Secretary or by any other
officers whom the Board of Directors may from time to time designate.
ARTICLE XXI
FISCAL YEAR
21.1 Fiscal Year. The fiscal year of the corporation shall begin
-----------
January 1 and end on December 31 next following.
ARTICLE XXII
DIVIDENDS
22.1 Dividends. Dividends upon the capital stock of the corporation
---------
may be declared at the discretion of the Board of Directors, subject to the
provisions of the Articles of Incorporation, at any regular or special
meeting.
ARTICLE XXIII
NOTICES
23.1 Notices. Whenever notice is required to be given by the Articles
-------
of Incorporation or by these By-Laws, it shall not be construed to mean
personal notice, but such notice, except as otherwise provided by law or
by these By-Laws, may be given by depositing the same in the post office,
letter box or mail chute, in a postage sealed wrapper addressed to the
stockholder, officer or director, as the case may be, at such address as
appears on the books of the corporation.
23.2 Waivers of Notice. Whenever notice is required to be given by
-----------------
law, by the certificate of incorporation or by these By-Laws, a written
waiver thereof, signed by the person entitled to said notice, whether
before or after the time state therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting or (in the case of a
stockholder) by proxy shall
<PAGE> 14
constitute a waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting at the beginning
of the meeting, to the transaction of any business because the meeting
was not lawfully called or convened. Neither the business to be trans-
acted at, nor the purpose of , any regular or special meeting of the
stockholders, directors, or members of a committee of directors need to
be specified in any written waiver or notice unless so required by the
certificate of incorporation or these By-Laws.
ARTICLE XXIV
AMENDMENTS
24.1 Amendments. These By-Laws may be altered, amended or repealed
----------
or new By-Laws may be adopted by the Board of Directors or by the stock-
holders in the manner provided in this Article XXIV at any meeting, but
not by written consent, of the stockholders. In order for the Board of
Directors to effect an alteration, amendment or repeal of these By-Laws
or to adopt new By-Laws, written notice containing the proposed alteration,
amendment or repeal, or new By-Laws must be provided to all the directors
of the corporation not less than 30 days prior to the meeting of directors
at which the proposal is to be considered unless the proposal is approved
by at least 75 percent of all directors. In order for the stockholders
to effect an alteration, amendment, or repeal of these By-Laws or to
adopt new By-Laws, written notice containing the proposed alteration,
amendment, repeal or new By-Laws has been provided to the Secretary and
all the directors of the corporation not more than seven days after the
corporation gives notice of the meeting of stockholders at which the
proposal is to be considered.
Any amendment or repeal of any provision or all provisions of this
Article XXIV or the adoption of any provision inconsistent with any
provision or all provisions of this Article XXIV shall, in addition to
any other vote or approval required by law or by these By-Laws or by the
Articles of Incorporation, require the affirmative vote of (a) at least
75 percent of all the directors or (b) (i) at least 75 percent of the
outstanding shares of each class of voting stock and (ii) at least a
majority, not including shares owned by interested shareholders as
defined in Section 607.0901 of the Florida Business Corporation Act, of
the outstanding shares of each class of voting stock.
24.2 Emergency By-Laws. Subject to repeal or change by action of
-----------------
the stockholders, the Board of Directors may adopt emergency By-Laws in
accordance with and pursuant to the provisions of the Florida Business
Corporation Act.
ARTICLE XXV
LIMITED EXCLUSION FROM CONTROL SHARE ACQUISITION
OF FLORIDA BUSINESS CORPORATION ACT 607.0902
25.1 Notwithstanding anything in these By-Laws to the contrary, the
Corporation hereby provides that Section 607.0902 of the Florida Business
Corporation Act relating to control share acquisitions does not apply to
any control share acquisitions of securities of the Corporation relating
to any issuances or acquisitions of any securities of the Corporation
pursuant to any savings, employee stock ownership, other employee benefit
plan, any non-qualified stock option plan, any option, bonus, appreciation,
profit sharing, retirement, incentive, thrift, savings, defined compensa-
tion, discount or similar options, rights or plans, or the issuance
<PAGE> 15
of any securities, shares or stock, directly or indirectly, through options
or rights or other similar plans to existing management, officers, directors
and similar parties duly elected by shareholders at a regular or special
meeting and/or duly appointed and approved by such duly elected directors,
not management, officers, directors and control parties who are engaged or
have obtained such status either in a hostile tender offer or bid or proxy
contest, and other than securities, options, warrants or rights issued to
all security holders on a pro rata basis. The term "plan" as used in this
Article XXV includes, but is not limited to, any plan, any formal docu-
ments, pursuant to which the following may be received: cash, stock,
restricted stock, phantom stock, stock options, stock appreciation rights,
stock options in tandem with stock option or any other stock appreciation
rights, warrants, convertible securities, performance units and performance
shares. A plan may be applicable to one person. Group, as considered in
Section 607.0902 of the Florida Business Corporation Act shall not include
directors and/or officers merely because such are participants in any plans
as defined in this Article XXV, but would require some further "acting in
concert" other than administrating, participating in or otherwise voting
for such plan.
<PAGE>
1989 STOCK OPTION PLAN
OF
MEDICORE, INC.
----------
1. Purpose. MEDICORE, INC. (the "Company"), hereby establishes the
1989 Stock Option Plan (the "Plan"). The purpose of the Plan is to advance
the interests of the Company and its stockholders by providing a means by
which the Company and its subsidiaries shall be able to attract, retain
and reward competent officers, directors, consultants, key employees
(including officers and directors who are employees), attorneys, advisors
and others, and provide such persons with an opportunity to participate in
the increased value of the Company which their effort, initiative, and
skill have helped and will help to produce. The Plan and granting of
options shall encourage those persons to have a proprietary interest in
the Company and to provide their continued efforts.
2. Definitions.
-----------
2.1 The following terms, whenever used in this Plan, shall have the
meanings set forth below.
(a) "Affiliate" means any corporation, a majority of the voting
stock of which is directly or indirectly owned by the Company.
(b) "Affiliation" or "Affiliated" means any person who has a
relationship with or is otherwise then affiliated with the
Company as a Participant; the absence or cessation of the
designation as Participant shall mean that such person no
longer has an Affiliation or is Affiliated with the Company
or an Affiliate.
(c) "Award" means a grant made under this Plan in the form of
Non-Qualified Stock Options.
(d) "Board" means the Board of Directors of the Company.
(e) "Committee" means a committee appointed by the Board.
(f) "Company" means Medicore, Inc.
(g) "Exercise Price" shall mean the price per Share of Stock
at which an Option may be exercised.
(h) "Fair Market Value" of a Share as of a specified date shall
mean the closing price of a Share on the principal
securities exchange on which such Shares are traded on the
day immediately preceding the date as of which Fair Market
Value is being determined, or on the next preceding date on
which such Shares are traded if no Shares were traded on
<PAGE> 2
such immediately preceding day; or if the Shares are not
traded on a securities exchange, Fair Market Value shall
be deemed to be the average of the high bid and low asked
prices of the Shares in the over-the-counter market on the
day immediately preceding the date as of which Fair Market
Value is being determined or on the next preceding date on
which such high bid and low asked prices were recorded. If
the Shares are not publicly traded, Fair Market Value shall
be determined by the Committee or the Board. In no case
shall Fair Market Value be less than the par value of the
Stock.
(i) "Option" means a right (Non-Qualified Stock Option) to
purchase Stock.
(j) "Participant" means a person designated by the Board or
the Committee to receive an Award under the Plan who has a
relationship with or is otherwise then Affiliated with the
Company or an Affiliate as either an officer, director
(including directors who are not employees of the Company)
consultant, key employees, attorney or advisor or sim-
ilarly situated persons, at the time of such designation.
(k) "Plan" means this 1989 Medicore, Inc. Stock Option Plan,
as amended from time to time.
(l) "Share" means a share of Stock adjusted in accordance with
Section 14 of the Plan (if applicable).
(m) "Stock" means the common stock, $.01 par value per share,
of the Company.
(n) "Successor" means the legal representative of the estate of
a deceased Participant or the person or persons who may
acquire the right to exercise an Option or to receive
Shares issuable in satisfaction of an Award, by bequest or
inheritance.
(o) "Term" means the period during which an Option may be
exercised.
2.2 Gender and Number. Except when otherwise indicated by context,
-----------------
reference to the masculine gender shall include, when used, the feminine
gender and any term used in the singular shall also include the plural.
3. Administration. The Board may appoint a Committee consisting
--------------
of not less than three (3) members comprised of at least two disinterested
administrators to administer the Plan. The Board may from time to time
remove members from, or add members to, the Committee. Vacancies on the
Committee, however caused, shall be filled by the Board. Subject to the
provisions of the Plan, the Committee shall determine the individuals to
whom and the time or times at which Options shall be granted, the number
of Shares to be subject to each Option, and the Term of any such Option,
and shall determine other terms and provisions of the respective Options,
which may or may not be identical. The Committee shall also interpret the
Plan, prescribe, amend and rescind rules and regulations relating to the
Plan, and make all other determinations necessary or advisable for the
administration of the Plan. The determinations of
<PAGE> 3
the Committee shall be made in accordance with its judgment as to
the best interests of the Company and its stockholders and in accordance
with the purposes of the Plan. A majority of members of the Committee
shall constitute a quorum, and all determinations of the Committee shall
be made by a majority of its members. Any determination of the Committee
under the Plan may be made, after the consultation of the entire Committee,
without notice or meeting of the Committee, by a writing signed by a
majority of the Committee members.
The Committee may authorize the modification, extension or renewal of
any Option outstanding under the Plan, or accept the exchange of out-
standing Options (to the extent not theretofore exercised) for the
granting of new Options in substitution therefor, when, and subject to
such conditions, as are deemed to be in the best interests of the Company
and in accordance with the purposes of the Plan, provided notwithstanding
the foregoing, no such modifications of an Option shall, without the
consent of the Optionee, alter or impair any rights or obligations under
an Option theretofore granted under the Plan.
4. Shares Available Under the Plan. The number of Shares available
-------------------------------
for distribution under this Plan shall not exceed 1,000,000 Shares (subject
to adjustment in accordance with Section 14 hereof). These Shares may
consist, in whole or in part, of authorized but unissued Stock or treasury
Stock not reserved for any other purpose. Any Shares subject to the terms
and conditions of an Award under this Plan which are not used because the
terms and conditions of the Award are not met and any Shares which are
used for full or partial payment of the Exercise Price of an Option may
again be used for an Award under the Plan.
5. Participation. Participation in the Plan shall be limited to
-------------
Participants of the Company or an Affiliate selected by the Committee.
Participation is entirely at the discretion of the Committee, and is not
automatically continued after an initial period of Participation or Affil-
iation.
6. Stock Options.
-------------
6.1 Agreements. An Award of an Option shall be evidenced by a Stock
----------
Option Certificate in such form and not inconsistent with the
Plan as the Board shall approve from time to time, which shall
include the following terms and conditions:
(a) Type of Option; Number of Shares. A statement identifying
--------------------------------
the Option represented thereby as Non-Qualified Stock Option
and the number of Shares to which the Option applies and
shall provide for adjustment in accordance with the pro-
visions of Section 14 hereof.
(b) Option Price. A statement of the Exercise Price for the
------------
Stock subject to the Option which shall not be less than
the Fair Market Value, and in any event not less than the
par value, of the Stock on the date the Option is granted.
(c) Exercise Term. A statement of the Term of each Option
-------------
granted as established by the Committee provided that no
Option shall be exercisable after the earlier of (i) two
years from death, disability or retirement, or (ii) ten
years from the date of grant.
<PAGE> 4
(d) Payment for Shares. A statement that the Exercise Price
------------------
shall be payable in cash in full at the time of exercise.
The Exercise Price may be payable in (i) cash, (ii) in
Stock having a Fair Market Value on the date the Option
is exercised equal to the Option price of the Stock being
purchased pursuant to the Option, (iii) a combination
thereof, as the Committee shall determine, or (iv) a ten
(10%) percent down payment and the issuance of no greater
than a five-year recourse promissory note, fully collater-
alized equal to the principal of the note, with interest
at the prime rate as then charged by the Company's primary
bank, as the Committee shall determine.
(e) Nontransferability. Each Stock Option Certificate shall
------------------
state that the Option is not transferable other than by
will or the laws of descent and distribution or a Change
in Control of the Company as provided in Section 8 hereof,
and during the lifetime of the Participant is exercisable
only by him or by his guardian or legal representative.
(f) Rights as a Shareholder. An Optionee shall have not rights
-----------------------
as a shareholder with respect to any Shares covered by his
Option until the date of the issuance of a stock certificate
for such Shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which
the record date is prior to the date such stock certificate
is issued, except as provided in Section 14.
6.2 Termination of Affiliation Due to Death, Disability, or Retire-
---------------------------------------------------------------
ment. If a Participant ceases Affiliation with the Company or an
----
Affiliate by reason of his death, permanent disability or retire-
ment at or after age 65 all Options outstanding shall remain
exercisable for a period not to exceed two years from such death,
disability or retirement, but not beyond the expiration date of
said Options. For this purpose, Affiliation will be treated as
continuing intact while the Participant is on sick leave or
other bona fide leave of absence, to be determined in the sole
discretion of the Committee.
6.3 Termination of Affiliation for Reasons Other Than Death, Disabil-
-----------------------------------------------------------------
ity or Retirement. Except as otherwise determined by the Com-
-----------------
mittee, in the event a Participant ceases Affiliation with the
Company or an Affiliate for any reason other than his death,
permanent disability, retirement at or after age 65, or pursuant
to a Change in Control as per Section 8, all rights of the Par-
ticipant under this Plan shall immediately terminate without
notice of any kind.
7. Termination of Affiliation. Transfers of employment or director-
--------------------------
ships, or as consultant, advisor or attorney between the Company and an
Affiliate, or between Affiliates, will not constitute termination of
Affiliation for purposes of any Award.
8. Change in Control. Upon the occurrence of any Change in Control
-----------------
through an Acquiring Person, Reorganization or Board Change as set forth
herein, the Company or surviving entity shall immediately redeem all
outstanding Options for cash in an amount equal to the excess of the
greater of (i) the price per Share paid in such acquisition by Acquiring
Person
<PAGE> 5
or in such Reorganization, or (ii) the highest Fair Market Value of the
Stock during ten (10) days following a public announcement that an
Acquiring Person has acquired the requisite beneficial ownership of the
outstanding Stock or ten (10) days following the commencement of or
announcement of an intention to make a tender offer or exchange offer
the consummation of which would result in the requisite beneficial owner-
ship by an Acquiring Person, or (iii) the Fair Market Value upon a Change
in the Board, over the Option Exercise Price.
8.1 Acquiring Person. Any person or group of affiliated or associ-
----------------
ated persons who have acquired beneficial ownership of twenty-
five (25%) percent or more of the outstanding Shares, or who
commence, or announce an intention to make a tender offer or
exchange offer the consummation of which would result in the
beneficial ownership by a person or group of twenty-five (25%)
percent or more of such outstanding Shares.
8.2 Reorganization. A reorganization shall mean that substantially
--------------
all of the assets of the Company or its affiliate Techdyne, Inc.
are acquired by another person or entity other than the existing
Board (see Section 8.3) or a reorganization involving the acqui-
sition of the Company by another or its merger or consolidation
with another. The Reorganization shall be deemed to have
occurred upon consummation or the reorganization transaction.
8.3 Board Change. Board Change shall be the date that a majority
------------
of the Board shall be persons other than persons (a) for whose
election proxies shall have been solicited by the Board, or
(b) who are then serving as directors appointed by the Board to
fill vacancies on the Board caused by death or resignation (but
not by removal) or to fill newly created directorships.
Within ten (10) days of written notification to the Participant of
such redemption of the Options, the Participant shall have the right to
elect to keep the Options by written notification to the Company or its
successor within five (5) days of the redemption notification by virtue of
any Change in Control.
9. Effective Date of the Plan.
--------------------------
9.1 Effective Date. The Plan shall become effective as of May 19,
--------------
1989. If necessary at a future date, the Company may seek
approval and ratification of the Plan by the affirmative vote
of the holders of a majority of the outstanding Shares present
or represented and entitled to vote in person or by proxy at a
meeting of the stockholders of the Company.
9.2 Duration of the Plan. The Plan shall remain in effect until
--------------------
all Stock subject to it shall be distributed, until the Term
of all Options granted under this Plan shall expire, but no
Award shall be made after May 18, 2009.
10. Right to Terminate Affiliation. Nothing in the Plan shall confer
------------------------------
upon any Participant the right to continue Affiliation with the Company or
any Affiliate or affect any right which the Company may have to terminate
such Affiliation of the Participant.
<PAGE> 6
11. Withholding Taxes. The Company and its Affiliates shall have the
-----------------
right to deduct from all payments under this Plan, whether in cash or in
Stock, an amount necessary to satisfy any federal, state or local with-
holding tax requirements.
12. Deferral of Payments. The Company may, from time to time,
--------------------
establish rules and conditions under which a Participant may defer the
payment of Awards. Such terms and conditions shall be included in a
deferral agreement signed by a Participant electing such deferral.
13. Amendment, Modification and Termination of the Plan. The Board
---------------------------------------------------
may at any time terminate, suspend, amend or modify the Plan, except that
the Board will not, without authorization of the stockholders of the
Company if such Shareholder approval had then been obtained, effect any
change (other than through adjustment for changes in capitalization as
provided in Section 14) which will:
(a) Increase the total amount of Stock which may be awarded
under the plan.
(b) Change the class of Participants eligible to participate
in the Plan.
(c) Withdraw the administration of the Plan from the Committee.
(d) Extend the duration of the Plan.
No termination, suspension, amendment or modification of the Plan will
adversely affect any right acquired by any Participant or any Successor
under an Award granted before the date of termination, suspension, amend-
ment or modification, unless otherwise agreed to by the Participant; but
it will be conclusively presumed that any adjustment for changes in
capitalization provided for in Section 14 does not adversely affect any
right.
14. Adjustment for Changes in Capitalization. Any change in the
----------------------------------------
number of outstanding Shares occurring through Stock splits, reverse Stock
splits, or Stock dividends after the grant of an Award will be reflected
proportionately in the aggregate number of Shares then available for
Awards and in the number of Shares subject to Awards then outstanding;
and a proportionate change will be made in the per share Option price as
to any outstanding Options. Any fractional Shares resulting from adjust-
ments will be rounded to the nearest whole Share.
If the Company shall be the surviving corporation in any merger of
consolidation, each outstanding Option shall pertain and apply to the
securities to which a holder of the number of Shares subject to the Option
would have been entitled.
In the event of a change in the Shares as presently constituted,
which is limited to a change of all of its authorized shares with par
value into the same number of shares with a different par value or without
par value, the shares resulting from any such change shall be deemed to be
the Shares within the meaning of the Plan.
To the extent that the foregoing adjustments relate to Stock or other
securities of the Company such adjustments shall be made by the Committee,
whose determination in the respect shall be final, binding and conclusive.
<PAGE> 7
The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifica-
tions, reorganizations or changes of its capital or business structure or
to merge or consolidate or to dissolve, liquidate, sell or transfer all or
any part of its business or assets.
15. Securities Law Requirements.
---------------------------
15.1 No Shares shall be issued upon the exercise of any Option unless
and until the Company has determined that (i) it and the Par-
ticipant have taken all actions required to register the Shares
under the Securities Act of 1933 or perfect an exemption from
the registration requirements thereof; (ii) any applicable
listing requirement of any stock exchange on which the Common
Stock is listed has been satisfied; and (iii) any other
applicable provision of state or federal law has been satisfied.
Nothing herein is deemed nor shall be construed to confer any
registration rights upon the Participant for an Option or the
Shares, and no such registration right with respect to any
Option or Share is provided to any Participant by the Company.
15.2 Pursuant to the Company Guide of the American Stock Exchange
until the Company obtains shareholder approval for the Plan and
the issuance of the Options and Shares, no Participant may
exercise Options under the Plan or any other options granted
by the Company to the extent that such exercise would, when
aggregated with all exercises of other outstanding options by
Participants exceeds five (5%) percent of the outstanding Stock
in any one year or exceed more than ten (10%) percent of the
outstanding Stock in any five-year period; and further, a
Participant may only exercise Options pro rata with other
Optionees and Participants for the aggregate five (5%) percent
limitation of outstanding Stock.
16. Miscellaneous.
-------------
16.1 The proceeds received by the Company from the sale of the Shares
pursuant to the exercise of the Option will be used for general
corporate purposes.
16.2 The granting of an Option shall impose no obligation upon the
Participant to exercise the Option.
<PAGE>
MEDICORE, INC.
1989 STOCK OPTION PLAN
----------
NON-QUALIFIED STOCK OPTION AGREEMENT
----------
THIS AGREEMENT, dated -------------, is between MEDICORE, INC. (the
"Company") and --------------------, a Participant of the Company ("Par-
ticipant") as defined in the Company's 1989 Stock Option Plan ("Plan").
The purpose of the Agreement is to implement the Plan.
GRANT OF OPTION
The Company has granted the Participant a Non-Qualified Stock Option
("Option") to purchase ---------- shares of the Company's common stock
("Stock").
DEFINITIONS
The terms defined in the Plan shall have the same meaning in this
Agreement.
PURCHASE PRICE
The Option purchase price is $----- per Share.
EXERCISE OF THE OPTION
This paragraph contains rules which govern exercise of the Option.
SHARES PURCHASABLE. Subject to LIMITATION OF EXERCISE the Participant
may exercise the Option any number of times for any number of Shares
each time. However, the total number of Shares purchased may not
exceed the number granted under the Option.
EXERCISE BY PARTICIPANT. While the Participant is alive, only the Par-
ticipant or the Participant's guardian or legal representative may
exercise the Option. The Participant must be continuously Affiliated
with the Company from the date of this Agreement to the date the
Participant exercises the Option except that the sections on
RETIREMENT, DISABILITY OR DEATH, CHANGES IN CONTROL and EXPIRATION
OF OPTION contain special rules which may permit exercise of the
Option after termination of Affiliation.
RETIREMENT, DISABILITY OR DEATH. If the Participant retires, becomes
permanently disabled or dies while Affiliated, the Participant or the
Participant's
<PAGE> 2
Successor, as the case may be, may exercise the Option within six
months after such termination. Notwithstanding anything in this
Agreement to the contrary, upon permanent disability or death of
the Participant or upon any Change in Control other than initiated
and caused by the Participant, all the Participant's outstanding
Options shall become immediately exercisable in full.
CHANGES IN CONTROL. If the Participant has an Affiliation with the
Company immediately prior to the Change in Control as described in
Section 8 of the Plan, the Options, upon any Change in Control, held
by the Participant shall become fully exercisable and shall immedi-
ately be redeemed by the Company or its successor, as the case may
be, in cash in an amount equal to the excess of the greater of the
price per Share paid in such Change in Control or the Fair Market
Value on the date or during the periods as provided for in Section
8 of the Plan, over the Option Exercise Price; provided that the
Participant has the right to keep the Option if Participant files such
election with the Company or surviving corporation, as the case may
be, within five (5) days of Participant's receipt of written notifi-
cation of redemption due to such Change in Control.
EXPIRATION OF OPTION. The Option will expire the earlier of (i) six (6)
months from retirement, permanent disability or death, or (ii) five (5)
years from the date of this Agreement. The Option will be redeemed
upon occurrence of a Change in Control as provided in Section 8 of
the Plan; provided that if notice is given by the Participant of his
election to keep the Options as opposed to redemption, the Options
shall continue as provided in the first sentence of this paragraph,
notwithstanding the Participant may no longer have any Affiliation
with the Company. If termination is for cause, the Option will
expire upon receipt by the Participant of written notice of termina-
tion, except that Participant establishes that the cause termination
was improper.
TERMINATION OF AFFILIATION. Termination of Affiliation does not
include (a) a leave of absence approved by the Committee, or (b)
any transfer between the Company and an Affiliate or between
Affiliates.
LIMITATION OF EXERCISE. The Participant may not exercise the Options
granted for a period of one year from the date of grant. Subsequent
to the first anniversary date of the grant of an Option, the Partici-
pant may exercise the Option to the extent of fifty (50%) percent
thereof and the full amount on and after the second anniversary of
the grant of the Option; provided, however, that any termination by
permanent disability, death or Change in Control will entitle the
Participant or his Successor to exercise the Option in full to the
extent the Participant did not initiate and cause any such Change in
Control.
No one may exercise an Option after the later of the periods set forth
in the Section EXPIRATION OF OPTION.
<PAGE> 3
MANNER OF EXERCISE
NOTICE OF EXERCISE. The Option may be exercised by sending written
notice of exercise to the Company's Secretary at 777 Terrace Avenue,
Hasbrouck Heights, New Jersey 07604, or to such other person or
address as the Participant may be notified in writing. To comply
with any deadline, the notice of exercise must be received before the
close of business on the last day of the deadline.
The notice must be signed by the person exercising the Option. If
that person is not the Participant, proof of that person's right to
exercise the Option must be furnished with the notice.
The notice must state the number of Shares to be purchased and must
be accompanied by payment of the Exercise Price in accordance with
procedures established by the Company.
PAYMENT OF PURCHASE PRICE. The purchase price may be paid either (a)
in cash or by certified or bank cashier's check payable to the order
of the Company, or (b) in Shares or (c) partly in cash and partly in
Shares, or (d) with a ten (10%) percent down payment in cash or Stock
(not less than the product of the par value of Stock multiplied by
the number of Shares being purchased upon exercise of the Option) and
a recourse promissory note in the principal amount equal to the
difference between the aggregate Exercise Price and the down payment,
payable in three (3) years, bearing interest at the prime rate then
being charged by the Company's primary bank and secured by collateral
having a value equal to the principal amount of the note. If Stock
is used for the Exercise Price (a "stock-for-stock swap transaction"),
the Stock used must have been owned by the Participant for at least
six months prior to the date of exercise and must not have been used
in a stock-for-stock swap transaction within the preceding six months
(i.e., the Stock must be "mature").
The amount of the Exercise Price paid in Stock will be equal to the
Fair Market Value of the Stock as of the date of exercise. The Stock
so delivered to exercise an Option shall be free and clear of all
liens, pledges, claims, encumbrances or restrictions of any kind or
nature whatsoever, other than restrictions imposed upon such Shares
pursuant to the provisions of the federal and state securities laws.
ISSUANCE OF CERTIFICATES. When the Option is exercised and payment is
made in cash, the Company will deliver certificate(s) for the Shares
purchased to the person exercising the Option. When the Option is
exercised and payment is made in Stock, the Company, in its
discretion, may permit the person exercising the Option to retain
the Shares tendered as payment for the purchase price and may deliver
to the person exercising the Option certificate(s) for the net Shares
purchased. If the Participant makes the election described in the
section on WITHHOLDING OF TAXES, the Company may deliver certifi-
cate(s) for the purchased Shares as described in this section less any
Shares withheld to satisfy withholding taxes. The Company will pay
all issue and transfer taxes and all expenses of the Company
<PAGE> 4
incurred in connection with exercise of the Option. All Shares will
be fully paid and non-assessable.
Subject to GENERAL RESTRICTIONS as soon as practicable after receipt
of such notice and payment, the Company shall deliver to the Partici-
pant at such place as may be mutually acceptable, or, at the election
of the Company by mail addressed to the Participant at the address
of the Participant as indicated in the records of the Company, a
certificate or certificates for such Shares registered in the name of
the Participant (or in the name of his estate or heirs upon an
exercise by Participant's Successor). The Option may be exercised
only with respect to full Shares, and no fractional Shares will be
issued upon exercise of the Option.
AWARD OF ADDITIONAL STOCK OPTION
Effective as of the date of exercise by the Participant of all or part of
this Option to the extent mature Stock is used as payment for the Exercise
Price, the Participant is hereby granted Additional Non-Qualified Stock
Options ("ANSO") to purchase, at the Fair Market Value as of the date of
said exercise and grant, the number of Shares equal to the sum of the
number of whole Shares used by the Participant in payment of the Exercise
Price and the number of whole Shares, if any, withheld by the Company as
payment for withholding taxes. The ANSO may be exercised between the date
of grant and the date of expiration, which shall be the same as the date
of expiration of this Option to which the ANSO is related. The ANSO shall
be evidenced by an agreement containing such other terms and conditions
and not inconsistent with the Plan as the Committee shall approve.
LIMITATIONS ON TRANSFER OF OPTION
This Option may be transferred by will or inheritance only, except as
provided under EXERCISE OF OPTION relating to CHANGE IN CONTROL.
STOCKHOLDER RIGHTS BEFORE EXERCISE
The Participant will not have any stockholder rights for Shares under this
Option until the Option is properly exercised.
DISCONTINUANCE OF AFFILIATION
Nothing in this Agreement gives the Participant any right to continued
Affiliation. The Company may terminate the Participant's Affiliation or
take any other action regardless of the effect it might have on the
Participant under this Agreement.
ADJUSTMENT PROVISIONS
Supplementing Section 14 of the Plan, if prior to the expiration of the
Option there shall be any change in the capital of the Company, the Shares
covered by this Option and the Exercise Price payable therefor shall in
each instance be adjusted as follows:
<PAGE> 5
(a) If a Share dividend is declared on the Stock of the Company,
there shall be added to the Shares under this Option the number of Shares
which would have been issuable to the Participant had the Participant been
the holder of record of the number of Shares then under the Option but not
theretofore purchased and issued hereunder. Such additional Shares
resulting from such Share dividend shall be delivered proportionately,
from time to time, without additional cost, upon the exercise of this
Option. Any distribution to the holders of the Stock of the Company,
other than a distribution of cash as a dividend out of surplus or net
profits or a distribution by way of the granting of rights to subscribe,
shall be treated as a Share dividend.
(b) If an increase has been effected in the number of outstanding
Shares by reason of a subdivision of such Shares, the number of Shares
which may thereafter be purchased under this Option shall be the number
of Shares which would have been received by Participant on such sub-
division had the Participant been the holder of record of the number of
Shares then under Option but not theretofore purchased and issued
hereunder. In such event, the Exercise Price per Share under this Option
shall be proportionately reduced.
(c) If the Company grants to the holders of Stock rights to subscribe
for additional Shares or securities, there shall be added to the number of
Shares which may thereafter be purchased under this Option the Shares or
securities to which Participant would have been entitled to subscribe had
the Participant been the holder or record of the number of Shares then
under Option but not theretofore purchased and issued hereunder. In such
event, the Exercise Price at which Participant shall have the right to
purchase such additional Shares or securities shall be the subscription
price payable by shareholders of record upon the issuance to them of such
Shares or securities. Participant shall have the right to purchase such
additional Shares or securities only proportionately with the exercise of
this Option, but until so purchased or until the expiration of this Option
as to such additional Shares or securities, such additional Shares or
securities shall be subject to adjustment as provided in this paragraph
in the same manner and to the same extent as the Shares covered by this
Option.
(d) If there is any capital reorganization or reclassification of the
capital of the Company, adequate provision shall be made by the Company so
that there shall remain and be substituted under this Option the Shares
and securities which would have been issuable or payable in respect of or
in exchange for the Stock then remaining under this Option and not there-
tofore purchased and issued hereunder, as if Participant had been the
owner of such Shares on the applicable record date. Any Shares so sub-
stituted under this Option shall be subject to adjustment as provided in
this paragraph in the same manner and to the same effect as the Shares
covered by this Option.
GENERAL RESTRICTIONS
The Company may delay the exercise of any Option if it determines that
the Shares subject to the Option are required to be listed, registered or
qualified on any securities exchange or under any law. The exercise of
the Option may be delayed until the Company is satisfied that appropriate
action has been taken. No delay under this paragraph will affect the date
of expiration of this Option.
<PAGE> 6
WITHHOLDING OF TAXES
If the Participant recognizes ordinary income on the exercise of the
Option, it may be necessary to withhold income taxes and social security
taxes. The Participant agrees to pay the Company to satisfy any with-
holding obligations. Payment may be made by the Participant in cash or,
at the election of the Participant, the Company may withhold from the
Shares to be issued the number of Shares (based on the Fair Market Value
of the Stock as of the date of exercise) that would satisfy the with-
holding taxes due (except that any fractional Share amount shall be paid
by the Participant in cash). The Company will not be obligated to deliver
Shares under this Agreement until withholding obligations are met.
ADDITIONAL PROVISIONS AND INTERPRETATION OF THIS AGREEMENT
This Agreement is subject to the provisions of the Plan which are incor-
porated by reference herein. If the Plan and this Agreement are
inconsistent, provisions of the Plan will govern. Interpretations of
the Plan and this Agreement by the Committee are binding on the Company
and the Participant.
----------------------------
Participant
MEDICORE, INC.
By:-------------------------
DENNIS W. HEALEY, Senior
Vice President
<PAGE>
MEDICORE, INC.
1989 STOCK OPTION PLAN
----------
ADDITIONAL NON-QUALIFIED STOCK OPTION AGREEMENT
----------
THIS AGREEMENT, dated ----------, 19--, is between MEDICORE, INC. (the
"Company") and ------------------------------, a Participant of the Company
("Participant") as defined in the Company's 1989 Stock Option Plan ("Plan").
The purpose of the Agreement is to implement the Company's Plan and to
reward the Participant for using Shares of the Company's common stock
("Stock") to pay the Exercise Price for the Non-Qualified Stock Option
("Option") under the terms of the Plan and (if applicable) the withholding
taxes due thereon.
GRANT OF ANSO
The Company has granted the Participant an Additional Non-Qualified Stock
Option ("ANSO") to purchase ---------- Shares of Stock.
DEFINITIONS
The terns defined in the Plan shall have the same meaning in this Agreement.
PURCHASE PRICE
The ANSO purchase price is $----- per Share.
EXERCISE OF THE ANSO
This paragraph contains rules which govern exercise of the ANSO.
TIME OF EXERCISE. The Participant may exercise the ANSO at any time
between the date hereof and the date the ANSO expires. The sections
of EXPIRATION OF ANSO and LIMITATION ON EXERCISE contain special rules
which may prohibit the exercise under the ANSO.
SHARES PURCHASABLE. Subject to EXPIRATION OF ANSO and LIMITATION ON
EXERCISE as set forth herein, the Participant may exercise the ANSO
any number of times for any number of Shares each time. However, the
total number of Shares purchased may not exceed the number granted
under the ANSO.
EXERCISE BY PARTICIPANT. While the Participant is alive, only the
Participant or the Participant's guardian or legal representative may
exercise the ANSO. The Participant must be continuously Affiliated
with the Company or an Affiliate from the
<PAGE> 2
date of this Agreement to the date the Participant exercises the ANSO
except that the sections on RETIREMENT, DISABILITY OR DEATH and
CHANGE IN CONTROL and EXPIRATION OF ANSO herein contain special rules
which may permit exercise of the ANSO after termination of Affiliation.
The provisions of CHANGE IN CONTROL and RETIREMENT, DISABILITY OR DEATH
under the Plan and the Option Agreement are incorporated herein and
all rights and limitations applicable to the exercise of the Option
are hereby referenced and applicable to the ANSO.
EXPIRATION OF ANSO. The ANSO will expire the earlier of ----------,
19__, or six (6) months from retirement, permanent disability or death.
The remaining provisions of EXPIRATION OF OPTION under the Plan and
the Option Agreement are incorporated herein as to Expiration and are
applicable to the ANSO.
TERMINATION OF AFFILIATION. Termination of Affiliation does not
include (a) a leave of absence approved by the Committee, or (b) any
transfer between the Company and an Affiliate or between Affiliates.
LIMITATION OF EXERCISE. No one may exercise an ANSO after the later
of the periods set forth in the Section EXPIRATION OF ANSO. The
remaining provisions of LIMITATION OF EXERCISE under the Option
Agreement are incorporated herein as to limits on exercise and are
applicable to the ANSO.
MANNER OF EXERCISE
NOTICE OF EXERCISE. The ANSO may be exercised by sending written
notice of exercise to the Company's Secretary at 777 Terrace Avenue,
Hasbrouck Heights, New Jersey 07604, or to such other person or
address as the Participant may be notified in writing. To comply
with any deadline, the notice of exercise must be received before
the close of business on the last day of the deadline.
The notice must be signed by the person exercising the ANSO. If that
person is not the Participant, proof of that person's right to
exercise the ANSO must be furnished with the notice.
The notice must state the number of Shares to be purchased and must
be accompanied by payment of the Exercise Price in accordance with
procedures established by the Company.
PAYMENT OF PURCHASE PRICE. The purchase price may be paid either (a)
in cash or by certified or bank cashier's check payable to the order
of the Company, or (b) in Shares of Stock, or (c) partly in cash and
partly in Stock, or (d) with a ten (10%) percent down payment in cash
or Stock (not less than the product of the par value of Stock multi-
plied by the number of Shares being purchased upon exercise of the
ANSO) and a recourse promissory note in the principal amount equal to
the difference between the aggregate exercise price and the down
payment, repayable in three (3) years, bearing interest at the prime
rate then being charged by the Company's primary bank and secured by
collateral having a value equal to the principal amount of the note.
If Stock is
<PAGE> 3
used to pay the Exercise Price (a "stock-for-stock swap transaction"),
the Stock used must have been owned by the Participant for at least
six months prior to the date of exercise and must not have been used
in a stock-for-stock swap transaction within the preceding six months
(i.e., the Stock must be "mature"). The amount of the Exercise Price
paid in Stock will be equal to the Fair Market Value of the Stock as
of the date of exercise. The Stock so delivered to exercise an ANSO
shall be free and clear of all liens, pledges, claims, encumbrances
or restrictions of any kind or nature whatsoever, other than restric-
tions imposed upon such Shares pursuant to the provisions of the
federal and state securities laws.
ISSUANCE OF CERTIFICATES. When the ANSO is exercised and payment is
made in cash, the Company will deliver certificates(s) for the Shares
purchased to the person exercising the ANSO. When the ANSO is exer-
cised and payment is made in Stock, the Company, in its discretion,
may permit the person exercising the ANSO to retain the Shares tendered
as payment for the Exercise Price and may deliver to the person exer-
cising the ANSO certificate(s) for the net Shares purchased. If the
Participant makes the election described in the section on WITHHOLDING
OF TAXES, the Company may deliver certificate(s) for the purchased
Shares as described in this section less any Shares withheld to satisfy
withholding taxes. The Company will pay all use and transfer taxes
and all expenses of the Company incurred in connection with exercise
of the ANSO. All Shares will be fully paid and non-assessable.
Subject to GENERAL RESTRICTIONS, as soon as practicable after receipt
of such notice and payment, the Company shall deliver to the Partici-
pant at such place as may be mutually acceptable, or, at the election
of the Company by mail addressed to the Participant at the address of
the Participant as indicated in the records of the Company a certifi-
cate or certificates for such Shares registered in the name of the
Participant (or in the name of his estate or heirs upon an exercise
by Participant's legal representative). The Option may be exercised
only with respect to full Shares, and no fractional Shares will be
issued upon exercise or the Option.
AWARD OF ADDITIONAL STOCK OPTION
Effective as of the date of exercise by the Participant of all or part of
this ANSO to the extent mature Stock is used as payment for the Exercise
Price, the Participant is hereby granted Additional ANSOs to purchase, at
the Fair Market Value as of the date of said exercise and grant, the number
of Shares equal to the sum of the number of whole Shares used by the Par-
ticipant in payment of the Exercise Price of the ANSO and the number of
whole Shares, if any, withheld by the Company as payment for withholding
taxes. The ANSO may be exercised between the date of grant and the date
of expiration, which shall be the same as the date of expiration of this
ANSO. The new ANSO shall be evidenced by an agreement containing such
other terms and conditions and not inconsistent with the Plan as the
Committee shall approve.
LIMITATIONS ON TRANSFER OF ANSO
This ANSO may be transferred by will or inheritance only, except as
provided under EXERCISE OF ANSO relating to CHANGE IN CONTROL.
<PAGE> 4
STOCKHOLDER RIGHTS BEFORE EXERCISE
The Participant will not have any stockholder rights for Shares under
this ANSO until the ANSO is properly exercised.
DISCONTINUANCE OF AFFILIATION
Nothing in this Agreement gives the Participant any right to continued
Affiliation. The Company may terminate the Participant's Affiliation or
take any other action regardless of the effect it might have on the Par-
ticipant under this Agreement.
GENERAL RESTRICTIONS
The Company may delay the exercise of any ANSO if it determines that the
Shares subject to the ANSO are required to be listed, registered or
qualified on any securities exchange or under any law. The exercise of
the ANSO may be delayed until the Company is satisfied that appropriate
action has been taken. No delay under this paragraph will affect the
date of expiration of this ANSO.
WITHHOLDING OF TAXES
If the Participant recognizes ordinary income on the exercise of the ANSO,
it may be necessary to withhold income taxes and social security taxes.
The Participant agrees to pay the Company to satisfy any withholding obli-
gations. Payment may be made by the Participant in cash or, at the
election of the Participant, the Company may withhold from the Shares to
be issued the number of Shares (based on the Fair Market Value or the
Stock as of the date of exercise) that would satisfy the withholding taxes
due (except that any fractional Share amount shall be paid by the Partici-
pant in cash). The Company will not be obligated to deliver Shares under
this Agreement until withholding obligations are met.
ADDITIONAL PROVISIONS AND INTERPRETATION OF THIS AGREEMENT
This ANSO Agreement is subject to the provisions of the Plan which are
incorporated by reference herein. If the Plan and this Agreement are
inconsistent, provisions of the Plan will govern. Interpretations of the
Plan and this Agreement by the Committee are binding on the Company and
the Participant.
------------------------------------------
Participant
MEDICORE, INC.
By----------------------------------------
DENNIS W. HEALEY, Senior Vice President
<PAGE>
RRK
4/27/81
LEASE
Between
HEIGHTS PLAZA ASSOCIATES,
Landlord
and
AUTOMATED MEDICAL LABORATORIES, INC.,
Tenant
Dated: April 30, 1981
SHAVICK, SCHOTZ, NADLER & KONNER
COUNSELORS AT LAW
411 Hackensack Avenue
Continental Plaza
Hackensack, New Jersey 07601
<PAGE>
TABLE OF CONTENTS
Page
----
Preamble 1
Basic Lease Provisions and Definitions 1
Article
1 Demise of Premises 2
2 Term 2
3 Rent 2
4 Fixed Rent Adjustments 2
5 Security 4
6 Completion and Possession 5
7 Use of Premises 6
8 Repairs, Replacement, Alterations 6
9 Tenant Covenants 7
10 Landlord's Services 9
11 Assignment, Subletting, Etc. 13
12 Landlord's Rights 14
13 Damage by Fire, Etc. 15
14 Condemnation 16
15 Compliance with Laws 16
16 Damage to Property 17
17 Subordination 17
18 Notice 18
19 Conditions of Limitation 19
20 Re-Entry by Landlord 20
21 Damages 20
22 Waiver of Trial by Jury 21
23 Lease Contains all Agreements 21
24 No Waivers 21
25 Parties Bound 22
26 Curing Tenant's Defaults 22
27 Miscellaneous 23
28 Inability to Perform 24
29 Abandoned Personal Property 24
30 Exculpation 24
31 Article Headings 24
32 Quiet Enjoyment 24
33 Arbitration 24
34 Holding Over 25
35 Cancellation 25
36 Option to Renew 25
<PAGE>
AGREEMENT OF LEASE
Between HEIGHTS PLAZA ASSOCIATES, a partnership
(hereinafter called "Landlord"), and
Automated Medical Laboratories, Inc., a Florida corporation
(hereinafter called "Tenant").
PREAMBLE
--------
BASIC LEASE PROVISIONS AND DEFINITIONS.
In addition to other terms elsewhere defined in this Lease, the
following terms whenever used in this Lease should have only the meanings
set forth in this section I unless such meanings are expressly modified,
limited or expanded elsewhere herein.
(1) Date of Lease: April 30, 1981
(2) Exhibits:
The following Exhibits attached to this lease are incorporated
herein and made apart hereof:
Exhibit A: Lease Plan(s)
Exhibit B: Landlord's Work
Exhibit C: Rules and Regulations
Exhibit D: Janitorial Services
(3) Building: Heights Plaza, 777 Terrace Avenue, Hasbrouck Heights,
New Jersey 07604
(4) Premises or demised premises: outlined in red on Exhibit A
(5) Land: Lot 1-D in Block 162 and Lot 4-A in Block 134-A on
Tax Assessment Map of Hasbrouck Heights and Lot 16A in Block
109-A on Tax Assessment Map of Hackensack, Bergen County,
New Jersey.
(6) Term. Four (4) years and nine (9) months
(7) Fixed rent: per annum the sum of $33,033.70
(8) Tenant's Rentable Area: 2,302 Square Feet.
(9) Tenant's Percentage: 1.24%
(10) Base year: 1981
(11) Electric Energy Charge: $1,611.40
(12) Parking spaces: Eight (8), two of which shall be reserved
(13) Security: $8,661.27
(14) Commencement date: July 1, 1981
(15) Termination date: March 31, 1986
(16) Permitted use: Executive and administrative offices
(17) Tenant's address: 8405 Executive Center Drive, Miami, Florida
33166
(18) Landlord's address: P.O. Box 2187
South Hackensack, New Jersey 07601
(19) Broker: Cushman & Wakefield of New Jersey, Inc.
<PAGE> 1
WITNESSETH:
1. DEMISE OF PREMISES. Landlord does hereby lease and demise to
------------------
Tenant, and Tenant does hereby hire and take from Landlord, upon and subject
to the covenants, agreements terms, provisions and conditions of this Lease,
the premises for the term. Parking areas on the Land shall not be con-
sidered part of the premises; however, Tenant shall have the privilege to
use the number of parking spaces designated in the Preamble to this Lease
as long as Tenant is not in violation of any Rules and Regulations per-
taining thereto, which privilege may not be assigned, sublet or transferred
in any way by Tenant except in conjunction with a permitted assignment or
subletting hereunder. Landlord reserves the right, from time to time, to
assign and re-assign to Tenant and other tenants of the Building specific
parking spaces, and Tenant agrees to be bound thereby.
2. TERM. The term shall commence on the commencement date (subject
----
to Article 9 hereof) and shall end on the termination date or on such other
date as the term may expire to be terminated pursuant to the provisions of
this Lease or pursuant to law.
3. RENT. (a) The fixed rent shall be payable in equal monthly
----
installments in advance on the first day of each and every calendar month
during the term (except that Tenant shall pay the first monthly installment
on the execution hereof), plus such additional rent and other charges as
shall become due and payable hereunder, which additional rent and other
charges shall be payable as hereinafter provided; all of which shall be
paid to Landlord at Landlord's address, or at such other place or to such
other person as Landlord may designate, in lawful money of the United States
of America. Fixed rent, additional rent and other charges hereunder are
sometimes collectively referred to herein as "rent."
(b) Tenant does hereby covenant and agree to pay the rent
herein reserved as and when the same shall become due and payable, without
demand therefor and without any set-off or deduction whatsoever, and to
keep and perform, and to permit no violation of, each and every one of the
covenants, agreements, terms, provisions and conditions herein contained
on the part and on behalf of Tenant to be kept and performed.
(c) Landlord reserves the right to require Tenant to pay as
additional rent hereunder interest at the rate of one and one-half
(1-1/2%) per cent per month based upon the rate of eighteen (18%) per
cent per annum on all payments of rent hereunder which are made more than
ten (10) days after the due date thereof; provided, however that in no
event shall the interest rate exceed the maximum permitted by law. In the
event Tenant fails or refuses to pay rent hereunder and Landlord institutes
suit for the collection of same, Tenant agrees to reimburse Landlord as
additional rent hereunder, for all reasonable expenses incurred by Landlord
in connection therewith, including, but not limited to, reasonable
attorney's fees.
(d) Whenever in this Lease Tenant is required to pay additional
rent or other charges to Landlord, Landlord shall have all remedies for
the collection thereof that it may have for the non-payment of fixed rent
hereunder.
(e) If, by reason of any of the provisions of this Lease, the
obligation of Tenant to commence the payment of rent under this Lease
shall be on any day other than the first day of a calendar month, the rent
for such calendar month shall be prorated based upon one-thirtieth (1/30th)
thereof per diem.
4. FIXED RENT ADJUSTTMENT. (a) As used in, and for the purposes of
----------------------
this Article:
(i) "taxes" shall mean real estate taxes and assessments,
special or otherwise levied upon or with respect to the Building and the
Land, imposed by Federal, State or local governments (but shall not include
income, franchise, capital stock, estate or inheritance taxes or taxes based
on receipts of rentals, unless the
<PAGE> 2
same shall be in substitution for or in lieu of a real estate tax or
assessment) and any personal property taxes imposed upon the fixtures,
machinery, equipment, apparatus, systems and appurtenances in, upon or
used in connection with the Building and Land for the operation thereof,
provided that if, because of any change in the method of taxation of real
estate, any other or additional tax or assessment is imposed upon Landlord
or upon or with respect to the Land and/or Building or the rents or income
therefrom, as or in substitution for or in lieu of any tax or assessment
which would otherwise be a real estate tax, or personal property tax of
the type referred to above, such other tax or assessment shall also be
deemed a real estate tax.
(ii) "tax base" shall mean taxes in the amount of $158,165.45.
(iii) "operating expenses" shall mean and include those expenses
incurred in respect to the operation, maintenance and safekeeping of the
Land and Building in accordance with accepted principles of sound manage-
ment and accounting practices as applied to the operation, maintenance and
safekeeping of non-institutional first class office buildings, including a
management fee equal to 3 1/2% of the gross rents of the Building. Such
expenses shall not include (1) expenses for any capital improvements made
to the Land or Building, except that capital expenses for improvements
which result in savings of labor costs shall be included at the lesser of
the cost of such improvement amortized over the useful life of the improve-
ment and the annual savings in labor costs resulting from the improvement;
(2) expenses for painting, redecorating or other work which Landlord, at
its expense, performs for Tenant or for any other tenant in leased areas
of the Building other than painting, redecorating or other work which is
standard for or periodically performed in the Building; (3) expenses for
repairs or other work occasioned by fire, windstorm or other insured
casualty; (4) lease commissions, advertising expenses and expenses for
leasing and renovating space for tenants; (5) legal expenses in enforcing
the terms of any lease; (6) interest and amortization payments on any
mortgage or mortgages, and rental under any -round or underlying lease or
leases; (7) wages, salaries or other compensation paid to any person not
directly involved in the operation, maintenance or safekeeping of the
Building; (8) expenses for restoration of the Building required as a
result of a condemnation; (9) taxes; and (10) electricity paid for by any
tenant of the Building.
(iv) "base expenses" shall mean operating expenses in the amount
of One Hundred Ninety-One Thousand Six Hundred Fifty-Nine Dollars and
Thirty-One Cents ($191,659.31).
(v) "lease year" shall mean each calendar year in which occurs
any part of the term subsequent to the base year.
(vi) "tax year" shall mean each calendar year in which occurs
any part of the term.
(b) As soon as practicable after each lease year, Landlord will
furnish Tenant a statement which shall show a comparison of the operating
expenses for the preceding lease year to the base expenses. On the first
day for the payment of fixed rent hereunder following the furnishing of
such comparative statement, (i) Tenant shall pay to Landlord a sum (the
"expense increase") equal to Tenant's Percentage of the increase, if any,
of the operating expenses for the preceding lease year over the base
expenses; (ii) Tenant shall pay to Landlord a sum equal to one-twelfth
(1/12th) of the expense increase multiplied by the number of months then
elapsed commencing with the first day of the current lease year and, in
advance, one-twelfth (1/12th) of the expense increase in respect of the
then current month; and (iii) thereafter, until a different comparative
statement shall be submitted to Tenant as above provided, the monthly
installments of fixed rent payable under this Lease shall be increased
by an amount equal to one-twelfth (1/12th) of the expense increase.
(c) As soon as practicable after the base year, Landlord will
furnish Tenant a statement which shall show a comparison of the taxes for
the then current
<PAGE> 3
tax year to the tax base. The increase, if any, of taxes for the then
current tax year over the tax base, when multiplied by Tenant's Percentage,
is herein referred to as the "tax increase." On the first day for the
payment of fixed rent hereunder following the furnishing of such compara-
tive statement, (i) Tenant shall pay to Landlord a sum equal to one-twelfth
(1/12th) of the tax increase multiplied by the number of months elapsed
commencing with the first day of the then current tax year and, in advance,
one-twelfth (1/12th) of the tax increase in respect of the then current
month; and (ii) thereafter, until a different comparative statement shall
be submitted to Tenant as above provided, the monthly installments of
fixed rent payable under this Lease be increased by an amount equal to
one-twelfth (1/12th) of the tax increase.
(d) If prior to the receipt by Tenant of a comparative
statement from Landlord pursuant to sub-paragraphs (b) or (c) above,
Tenant has paid any expense increase or tax increase with respect to
the lease year for which that comparative statement was submitted, then
appropriate credits and/or adjustments shall be made to reflect the
expenses which Tenant may have previously paid in whole or in part or
may then be paying.
(e) In the event Landlord shall obtain a refund for any taxes
or operating expenses after payment by Tenant of any tax increase or
expense increase relative thereto, Landlord shall give Tenant an appro-
priate credit or reimbursement which shall reflect any reasonable costs
and expenses incurred by Landlord in obtaining the refund.
(f) If Tenant shall dispute in writing any specific item or
items included by Landlord in any statement furnished by Landlord to
Tenant in accordance with sub-paragraphs (b) or (c) above, and such
dispute is not amicably settled between Landlord and Tenant within
ninety (90) days after statement therefor has been rendered, either
party may, during the ninety (90) days next following the expiration of
the first mentioned ninety (90) days (upon written notice to the other
party accompanied by a copy of its letter of submission setting forth the
items of dispute) refer such disputed item or items to arbitration in
accordance with the provisions of this Lease and the decision rendered in
such arbitration shall be conclusive and binding upon Landlord and Tenant.
The expenses involved in such determination shall be borne by the party
against whom a decision is rendered unless otherwise determined in such
arbitration. Landlord shall have the right, for a period of twelve (12)
months after the rendering of any statements (or for a longer period, if
reasonably required in order to ascertain the facts) to send corrected
statements to Tenant, and any rent required thereby shall be paid by
Tenant within thirty (30) days thereafter. If Tenant shall not so dispute
any item or items of any statement or corrected statement within ninety
(90) days after such statement or corrected statement has been rendered,
Tenant shall be deemed to have approved such statement or corrected
statement.
(g) Landlord shall keep, for a period of ninety (90) days
after statements are rendered as provided in this Article 4, records in
reasonable detail of the items covered by such statements and shall
permit Tenant, upon the giving of reasonable prior notice, to examine
and audit such records to verify such statements, at reasonable times
during business hours.
5. SECURITY. Tenant has deposited the Security with Landlord as
--------
security for the faithful performance and observance by Tenant of the
terms, provisions and conditions of this Lease. It is agreed that in the
event Tenant defaults in respect of any of the terms, provisions and
conditions of this Lease, including, but not limited to, the payment of
rent, Landlord may use, apply or retain the whole or any part of the
Security to the extent required for the payment of any rent as to which
Tenant is in default or for any sum which Landlord may expend or may be
required to expend by reason of Tenant's default in respect of any of the
terms, covenants and conditions of this Lease including, but not limited
to, any damages or deficiency in the re-letting of the premises, whether
such damages or deficiency accrued before or after summary proceedings or
other re-entry by Landlord. To the extent that Landlord, during the term
hereof, so uses, applies or retains all or any part of the Security, Tenant
shall, on demand, promptly restore the Security to its original
<PAGE> 4
amount. The Security (less any portions thereof used, applied as retained
by Landlord in accordance with the provisions of this Article 5) shall be
returned to Tenant after the termination date (or after such other date
when the term may expire or be terminated pursuant to the provisions of
this Lease or pursuant to law) and after delivery of entire possession of
the premises to Landlord in accordance with the provisions of this Lease.
In the event of a sale or leasing of the Land and Building, Landlord shall
have the right to transfer the Security to the vendee or lessee and
Landlord shall thereupon be released by Tenant from all liability for
the return of such Security, and Tenant agrees to look to the new Landlord
solely for the return of said Security. It is agreed that the provisions
hereof shall apply to every such transfer or assignment made of the
Security. Tenant further covenants that it will not assign or encumber
or attempt to assign or encumber the Security and that neither Landlord
nor its successors and assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance.
6. COMPLETION AND POSSESSION. (a) Landlord shall exercise reason-
-------------------------
able diligence and shall endeavor to have the premises ready for Tenant's
possession on or before the commencement date designated in the Preamble
to this Lease, subject to delay by causes beyond the reasonable control of
Landlord or by the action or inaction of Tenant. of the premises are not
ready for Tenant's possession within the meaning of this Article 6 on such
commencement date, then this Lease shall not be affected thereby but, in
such case, the commencement date shall be deemed to be postponed until the
date when the premises are ready for Tenant's possession and Tenant shall
not have any claim against Landlord, and Landlord shall have no liability
to Tenant, by reason of any such postponement except that if the premises
are not ready for Tenant's possession by August 31, 1981, then Tenant shall
have the right by notice to Landlord at any time thereafter but prior to
the date the premises are ready for Tenant's possession to terminate this
Lease with no further liability of one party to the other. The parties
hereto agree that this Article 6 constitutes an express provision as to
the time at which Landlord shall deliver possession of the premises to
Tenant, and Tenant hereby waives any rights to rescind this Lease which
Tenant might otherwise have pursuant to any law now or hereafter in force.
(b) The premises shall be conclusively deemed ready for
Tenant's possession as soon as (1) a certificate (temporary or final)
permitting occupancy of the premises for the permitted use has been issued
by the required governmental body, and (2) the substantial completion of
Landlord's Work, (as defined in Exhibit B) at which time the rent reserved
and covenanted to be paid by Tenant under this lease shall commence. The
premises shall not be deemed to be unready for Tenant's possession or
incomplete if (i) only minor or insubstantial details of construction,
decoration or mechanical adjustments remain to be done in the premises,
(ii) the delay in the availability of the premises for possession shall
be due to special work, changes, alterations or additions required or made
by Tenant in the premises, (iii) caused in whole or in part by Tenant
through the delay of Tenant in submitting any plans and/or specifications,
supplying information, approving plans, specifications or estimates, giving
authorizations or otherwise, (iv) caused in whole or in part by delay and/or
default on the part of Tenant and/or its subtenant or subtenants, or (v)
the telephone installation in the premises has not been completed.
(c) If Tenant fails or omits to make timely submission to Land-
lord of any plan(s) referred to in Exhibit B, or delays in submitting any
other plans or any specifications, or in supplying information, or in
approving plans, specifications or estimates, or in giving authorizations
or otherwise, or makes any changes, alterations or additions in any plan
or specification theretofore submitted by Tenant, any additional cost to
Landlord in connection with the completion of the premises in accordance
with the terms of this Lease and said Exhibit B, resulting therefrom, shall
be paid by Tenant to Landlord, as additional rent, within ten (10) days
after Landlord submits a bill to Tenant for the same. For the purposes of
this subparagraph (c), the expression "additional cost to Landlord" shall
mean the cost over and above such cost as would have been the aggregate
cost to Landlord of completing the premises in accordance with the terms
of this Lease and Exhibit B had there been no such failure, omission,
delay, change, alteration or addition by Tenant.
<PAGE> 5
(d) Tenant, by entering into possession of the premises, shall
be conclusively deemed to have agreed that Landlord up to the time of such
possession has performed all of its obligations hereunder and that the
premises are in satisfactory condition as of the date of such possession
except only for latent defects.
(e) In the event possession of the premises (herein referred to
as the "possession date") is delivered to Tenant pursuant to this Article
6 on a day other than the commencement date set forth in the Preamble to
this Lease, then the commencement date shall be deemed to be the same day
as the possession date but the termination date set forth in the Preamble
to this Lease shall remain the same and the term of the Lease, as also set
forth in said Preamble, shall be adjusted accordingly; provided, however,
that Landlord may elect otherwise by giving tenant notice thereof within
thirty (30) days after the possession date, in which event (i) if the
possession date is on a day other than the first day of a calendar month,
the term of this Lease shall be deemed amended (herein referred to as the
"revised term") by adding thereto the number of all inclusive days between
the possession date and the last day of the calendar month in which such
possession is delivered, (ii) the commencement date set forth in the
Preamble to this Lease shall be deemed amended to conform to in the
possession date, and (iii) the termination date set forth in the Preamble
to this Lease shall be deemed amended to conform to the revised term. The
parties agree that within thirty (30) days after any such notice from Land-
lord, they shall, at the request of either, execute, acknowledge and
deliver an instrument in recordable form setting forth the revised term,
the commencement date and the termination date.
7. USE OF PREMISES. (a) The premises shall be used and
---------------
occupied only for the permitted use described in the Preamble to this
Lease and for no other use or purpose. Tenant shall not use or permit
the use of the premises or any part thereof in any way which would violate
any certificate of occupancy for the Building or premises, or any of the
covenants, agreements, terms, provisions and conditions of this Lease or
for any unlawful purposes or in any unlawful manner and Tenant shall not
suffer or permit the premises or any part thereof to be used in any manner
or anything to be done therein or suffer or permit anything to be brought
into or kept in the premises which, in the reasonable judgment of Landlord,
shall in any way impair the character, reputation or appearance of the
Building as a first class office building, impair or interfere with any
of the Building services or the proper and economic heating, cleaning,
air conditioning or other servicing of the Building or the premises, or
impair or interfere with the use of any of the other areas of the Building
by, or occasion discomfort, inconvenience or annoyance to, any of the
other tenants or occupants of the Building.
(b) If any governmental license or permit (other than the
certification of occupancy required to be obtained by Landlord pursuant
to Article 6 hereof) shall be required for the proper and lawful conduct
of Tenant's business or other activity carried on in the premises, and if
the failure to secure such license or permit would, in any way, affect
Landlord, Tenant, at Tenant's expense, shall duly procure and thereafter
maintain such license or permit and submit the same to inspection by Land-
lord. Tenant, at Tenant's expense, shall, at all times, comply with the
terms and conditions of each such license or permit.
(c) If by reason of failure of Tenant to comply with the
provisions of this Lease, including but not limited to the manner in
which Tenant uses or occupies the premises, the insurance rates shall
at the commencement of the term or at any time thereafter be higher
than it otherwise would be, then Tenant shall reimburse Landlord, as
additional rent hereunder, for that part of all insurance premiums
thereafter paid or incurred by Landlord, which shall have been charged
because of such failure or use by Tenant, and Tenant shall make such
reimbursement upon the first day of the month following the billing to
Tenant of such additional cost by Landlord.
8. REPAIRS, REPLACEMENTS, ALTERATIONS. (a) Tenant shall take good
----------------------------------
care of the demised premises and the fixtures and appurtenances therein.
Tenant
<PAGE> 6
shall make, at its own expense, all repairs and replacements required to
keep the demised premises and fixtures in good working order and condition
except (1) structural repairs and those repairs arising directly from
Landlord's negligence, (2) repairs required to be made by Landlord pursuant
to Article 13 hereof, and (3) such repairs as may be required of Landlord
in furnishing the services specified in Article 10 hereof. Tenant shall
maintain, at its own expense, all light bulbs, fluorescent tubes, and
lighting fixtures in the demised premises, including all component parts
such as starters, ballasts, and lenses or grills. All repairs made by
Tenant shall be at least equal in quality to the original work. Tenant
shall not make any installations, alterations, additions or improvements
in or to the demised premises without first obtaining Landlord's written
consent thereto, and shall make the same and all repairs only between such
hours and by such contractors or mechanics as may be supplied or approved
by Landlord. All alterations, decorations, installations, additions or
improvements upon the demised premises made by either party (including but
not limited to paneling, partitions, railings, and the like), except
Tenant's movable fixtures, carpeting and furniture, shall, unless
Landlord elects otherwise (by notice in writing to Tenant given not less
than twenty (20) days prior to the expiration or other termination of this
Lease or of any renewal or extension thereof) become the property of Land-
lord and shall remain upon, and be surrendered with, said premises, as a
part thereof, at the end of said term or renewal term, as the case may be.
If Landlord shall elect otherwise, then Tenant shall remove, at its expense,
such alterations, installations, additions or improvements made by Tenant
upon the premises as Landlord shall specify, and Tenant shall repair and
restore the premises to its original condition at Tenant's sole expense
prior to the termination date.
(b) If, because of any acts or omission of Tenant or anyone
claiming through or under Tenant, any mechanic's or other lien or order
for the payment of money shall be filed against the demised premises, the
Land or the Building, or against Landlord (whether or not such lien or
order is valid or enforceable as such), Tenant shall, at Tenant's own cost
and expense, cause the same to be canceled and discharged of record within
twenty (20) days after the date of filing thereof, and shall also indemnify
and save harmless Landlord from and against any and all costs, expenses,
claims, losses or damages, including reasonable counsel fees, resulting
therefrom or by reason thereof.
(c) In the event Tenant makes any repairs, replacements, or
alterations in or to the demised premises, any contractors or subcon-
tractors employed by Tenant shall employ only such labor as will not
result in jurisdictional disputes with any labor unions or strikes
against or involving the Landlord or the Building. Tenant will inform
Landlord, in writing, of the names of contractors and/or subcontractors
Tenant proposes using to do work in its behalf within the Building at
least seven (7) days prior to the beginning of any permitted work.
Landlord reserves the right to reject any and all of the proposed con-
tractors and/or subcontractors. In the event of any strike or dispute,
Tenant will cause any persons involved in such work to leave the demised
premises immediately after receipt of notice from Landlord demanding the
same.
9. TENANT COVENANTS. Tenant covenants and agrees that Tenant will:
-----------------
(a) Faithfully observe and comply with the Rules and Regulations
and such additional reasonable Rules and Regulations promulgated to all
tenants in the Building and enforced on a non-discriminatory basis as Land-
lord hereafter at any time or from time to time may make and may communi-
cate in writing to Tenant, which, in the reasonable judgment of Landlord,
shall be necessary or desirable for the reputation, safety, care or
appearance of the Land and Building, or the preservation of good order
therein, or the operation, maintenance or safekeeping of the Land and
Building, or the equipment thereof, or the comfort of tenants or others
in the Building; provided, however, that (i) in the case of any conflict
between the provisions of this Lease and any such Rules and Regulations,
the provisions of this Lease shall control (ii) nothing contained in this
Lease shall be construed to impose upon Landlord any duty or obligation to
enforce the Rules and Regulations or the terms, covenants or conditions in
any other lease as against any other tenant, and (iii) Landlord shall
not be liable to Tenant for any violation of the Rules and Regulations
by any other tenant, its servants, employees, agents, visitors, invitees,
subtenants or licensees.
<PAGE> 7
(b) Permit Landlord and any mortgagee of the Building or of the
Building and the Land or of the interest of Landlord therein and any lessor
under any ground or underlying lease, and their representatives, to enter
the premises at all reasonable hours, for the purposes of inspection,
or of making repairs, replacements or improvements in or to the premises
or the Building or equipment, or of complying with any laws, orders, and
requirements of governmental or other authority or of exercising any right
reserved to Landlord by this Lease (including the right during the progress
of any such repairs, replacements or improvements or while performing work
and furnishing materials in connection with the compliance with any such
laws, orders or requirements to keep and store within the premises all
necessary materials, tools and equipment). Nothing herein contained, how-
ever, shall be deemed or construed to impose upon Landlord or any mortgagee
of Landlord's interest in the Land and/or Building, any obligation, respon-
sibility or liability whatsoever for the care, supervision or repair of the
premises or Building or any parts thereof other than as herein provided.
Landlord shall use its best efforts not to interfere with Tenant's business
operation during any such entry.
(c) Make no claim against Landlord for any injury or damage to
Tenant or to any other person for any damage to, or loss (by theft or
otherwise) of, or loss of use of, any property of Tenant or of any other
person, unless caused by the willful acts or negligence of Landlord, its
employees, agents or servants.
(d) Not bring or keep in the premises any property other than
such as might normally be brought upon or kept in the premises as an
incident to the reasonable use of the premises for the purposes herein
specified.
(e) Not violate, or permit the violation of, any reasonable
conditions imposed by Landlord's insurance carriers, and not do anything
or permit anything to be done, or keep anything or permit anything to be
kept, in the premises, which would increase the insurance rates on the
Building or the property therein, or which would result in insurance
companies of good standing refusing to insure the Building or any such
property in amounts and against risks as reasonably determined by Land-
lord.
(f) Permit Landlord, during business hours, within the six (6)
month period next preceding the termination date with respect to all or
any part of the premises, to show the same to prospective new tenants.
(g) Quit and surrender the premises at the expiration or
earlier termination of the term broom clean and in as good condition as
ordinary wear and reasonable use will permit, except for repairs caused
by fire or other casualty, and, subject to Landlord's exercise of the
election provided in Article 8, with all installations, alterations,
additions and improvements, including partitions which may have been
installed by either of the parties upon the premises (except that Tenant's
removable fixtures, carpeting and furniture shall remain Tenant's property,
and Tenant shall remove the same). Tenant's obligations to observe and
perform this covenant shall survive the said expiration or earlier ter-
mination of this Lease.
(h) At any time and from time to time upon not less than ten
(10) days' prior notice by Landlord to Tenant, execute, acknowledge and
deliver to Landlord, or to anyone Landlord shall designate, a statement
of Tenant (or if Tenant is a corporation, an appropriate officer of Tenant)
in writing certifying that this Lease is unmodified and in full force and
effect (or if there have been modifications, that the same is in full
force and effect as modified and stating the modifications), and the dates
to which rent has been paid in advance, if any, and stating whether or not,
to the best knowledge of the signer of such certificate Landlord is in
default in performance of any covenant, agreement, term, provision or
condition contained in this Lease and, if so, specifying each such default
of which the signer may have knowledge; it being intended that any such
statement delivered pursuant hereto may be relied upon by any lessor under
any ground of underlying lease, or any lessee or mortgagee, or any prospec-
tive purchaser, lessee, mortgagee, or assignee of any mortgage, of the
Building and/or the Land or of Landlord's interest therein.
<PAGE> 8
(i) Indemnify and save harmless Landlord against and from any
and all claims by or on behalf of any person or persons, firm or firms,
corporations, arising from the conduct or management of or from any work
or thing whatsoever done by or on behalf of Tenant in or about the demised
premises as well as from the use and occupancy of the premises by Tenant,
and further indemnify and save Landlord harmless against and from any and
all claims arising from any breach or default on the part of Tenant in the
performance of any covenant or agreement on the part of Tenant to be per-
formed pursuant to the terms of this Lease, or arising from any act or
negligence of Tenant, or any of its agents, contractors, servants,
employees or licensees in the premises and from and against all costs,
counsel fees, expenses and liabilities incurred in or about any such
claim or action or proceeding brought thereon; and in case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant,
upon notice from Landlord, covenants to resist or defend at Tenant's
expense such action or proceeding by counsel reasonably satisfactory to
Landlord.
(j) Not place this Lease on record without the prior written
consent of Landlord. At the request of Landlord, Tenant will execute a
memorandum of lease for recording purposes containing references to such
provisions of this Lease as Landlord, in its sole discretion, shall deem
necessary.
(k) Indemnify, defend and hold Landlord harmless from and
against any and all liability, claims, suits, demands, judgments, costs,
interest and expenses (including, but not limited to, counsel fees incurred
in the defense of any action or proceeding) to which Landlord may be
subject or suffer by reason of Tenant's having had dealings with respect
to the premises or this Lease with any real estate agent or 0 broker,
other than Broker named herein.
(l) During the term hereof, maintain and deliver to Landlord
public liability and property damage insurance policies (or certificates
thereof) with respect to the premises, in which Landlord, Tenant and
Landlord's mortgagee and/or ground lessor, if required, shall be named as
additional insureds, for a minimum of One Million Five Hundred Thousand
($1,500,000) Dollars combined single limit for coverage purposes only,
with no obligation on the part of Landlord, Landlord's mortgagee and/or
ground lessor to pay premiums. Such policy or policies shall be in such
form and with such insurance companies as shall be reasonably satisfactory
to Landlord with provision for at least ten (10) days' notice to Landlord
of cancellation and shall include a cross liability endorsement. At least
ten (10) days before the expiration of any such policy, Tenant shall supply
Landlord with a substitute therefor with evidence of payment of the
premiums thereof. If such premiums shall not be so paid and/or the
policies therefor shall not be so delivered, then Landlord may procure
and/or pay for the same and the amounts so paid by Landlord shall be added
to the installment of rent becoming due on the first of the next succeeding
month and shall be collected as additional rent hereunder.
10. LANDLORD'S SERVICES. Provided Tenant is not in default under
-------------------
any of the covenants, terms, conditions or provisions of this Lease beyond
the applicable grace period provided herein, Landlord shall furnish the
following services:
(a) Air cooling during "Business Hours" on "Business Days" (as
those terms are hereinafter defined) when, in the reasonable judgment of
Landlord, it may be required for the comfortable occupancy of the demised
premises. At other times during Business Days and similar hours, Landlord
shall provide ventilation for the demised premises. Tenant at all times
agrees to cooperate fully with Landlord and to abide by all regulations
and requirements which Landlord may reasonably prescribe for the proper
functioning and protection of its heating, air conditioning and ventilation
systems. Landlord shall have free access to any and all mechanical
installations of Landlord, including but not limited to air conditioning,
fans, ventilating and machine rooms and electrical closets; and Tenant
agrees that there shall be no construction of partitions or other obstruc-
tions which might interfere with Landlord's full access thereto, or inter-
fere with the moving of Landlord's equipment to and from the enclosures
containing said installations. Tenant agrees that Tenants, its agents,
employees or contractors shall not at any time enter the said enclosures
or tamper with, adjust, touch or otherwise in any manner affect Lessor's
said mechanical installations.
<PAGE> 9
(b) Automatic operatorless elevator facilities during Business
Hours on Business Days and at least one elevator available at all other
times.
(c) Heat, when and as required by law, on Business Days during
Business Hours.
(d) Janitorial Services for the demised premises as described
on Exhibit "D", provided the same are kept in reasonable order by Tenant.
Tenant shall pay to Landlord the cost of removal from the Building of any
of Tenant's refuse and rubbish which exceeds the refuse and rubbish usually
attendant upon the use of such premises as offices. Bills for the same
shall be rendered by Landlord to Tenant and shall be due and payable when
rendered, and the amount of such bills shall be deemed to be, and be paid,
as additional rent. Alternatively, Tenant shall use Landlord's contractors
or employees, at the option of the Landlord, for the removal of such excess
rubbish and refuse and Tenant agrees to pay reasonable charges therefor.
(e) Cold and hot water at standard building temperatures to
all lavatories, public or private, for ordinary drinking, cleaning, sani-
tary and lavatory purposes.
(f) (1) Electric current, with the understanding, however, that
the fixed rent described in the Preamble to this Lease does not include the
cost of electricity consumed by Tenant in the demised premises and Tenant
shall, in addition to such fixed rent, be required to pay the Electric
Energy Charge as a condition for the furnishing by Landlord of electric
current to the demised premises. Such Electric Energy Charge shall be
paid, as additional rent, in equal monthly installments together with
fixed rent commencing on the commencement date and throughout the term of
this Lease.
(2) The Electric Energy Charge set forth in the Preamble to
this Lease represents Landlord's estimate of the annual cost of providing
electric current for the operation of the lighting fixtures and electrical
outlets initially installed in the demised premises. Such Electric Energy
Charge is subject to adjustment, from time to time, based upon the deter-
mination by an electrical consultant selected by Landlord to make a survey
of the electrical current and powerload requirements (existing as of the
time of such survey) in the demised premises. The findings and determina-
tions of the consultant as to the proper cost of electricity being consumed
by Tenant in the demised premises shall be based upon the costs and charges
for electrical current which Tenant would pay to the utility company
supplying such current to Tenant as a direct consumer, and such findings
and determinations shall be binding upon the parties, provided, however,
that in the event of any dispute between the parties with respect to such
findings and determinations, the same shall be submitted to arbitration
pursuant to the provisions of Article 33 hereof. The Electric Energy
Charge shall be adjusted retroactively to the date of the survey to conform
to the determination of the electrical consultant (or, to the determination
under any arbitration). After such survey and determination shall have
been made, Landlord shall deliver to Tenant a copy thereof (as the same
may apply to the Tenant herein). Together with such survey and determina-
tion, Landlord shall send a statement to Tenant setting forth an adjustment,
to be credited to or paid by Tenant, of an amount equal to the difference
between the amount paid by Tenant from the date of such survey and the
amount which Tenant would have paid on the basis of such determination for
such period. Any amount to which Tenant is entitled shall be deducted from
the fixed rent installment payable for the month following delivery of such
statement or, in the event that any such amount shall be due to Tenant
after the termination date of this Lease, such amount shall be promptly
paid to Tenant. Any amount owed by Tenant shall be paid with the next
installment of fixed rent due to Landlord hereunder.
(3) Tenant shall make no substantial alterations or addi-
tions to the electric equipment and/or appliances utilized as at the time of
the most recent survey by Landlord's electrical consultant without first
obtaining the written consent of Landlord. If any additional or substi-
tuted equipment and/or appliances are installed, or Tenant increases the
use of electrical current in the demised
<PAGE> 10
premises, then Landlord may require an updated survey to be made in
accordance with subsection (2) above and Tenant shall reimburse Landlord,
as additional rent, for the reasonable fees and expenses of the electrical
consultant.
(4) If Landlord's electric rates shall be increased or de-
creased, the Electric Energy Charge shall be increased or decreased in the
same proportion. For the purposes hereof, energy adjustment charges, fuel
adjustment charges, and any other charge of, or factor upon which, the
public utility company supplying electricity fixes or determines charges
or rates, shall be deemed included in determining and computing the "rate"
or charges for such electric current. If any tax or other charge is
imposed upon Landlord's receipt from the sale or resale of electric energy
to Tenant by any Federal, State or municipal authority, Tenant covenants
and agrees that, where permitted by law, Tenant's pro-rata share of such
taxes or other charges shall be passed on to and paid by Tenant to Landlord.
At the option of Tenant, Landlord agrees to sell to Tenant, all light bulbs,
fluorescent lighting, fixtures, starters, ballasts, lenses and grills used
in the premises, and Tenant shall pay the cost of installation thereof.
(5) It is understood and agreed by Tenant that the Electric
Energy Charge set forth in the Preamble to this Lease and any adjustments
thereto as described in this subparagraph (f) are based on the use of elec-
tric current in the demised premises during Business Hours on Business Days,
as defined in this Lease.
(6) Landlord shall not in any way be responsible or liable
to Tenant at any time for any loss, damage or expense resulting from any
change in the quantity or character of the electric service or for its
being no longer suitable for Tenant's requirements or from any cessation
or interruption of the supply or current unless same arises from Landlord's
failure to pay its utility bills or from Landlord's acts of gross negli-
gence, nor shall any such loss, damage or expense, or non-supply of
electric service or current in any way affect the tenancy or in any way
relieve Tenant of any obligation under the terms of this Lease.
(7) Tenant covenants and agrees that at all times its use of
electric current shall never exceed the capacity provided by Landlord
pursuant to Exhibit B hereof. Tenant shall make no changes, alterations,
additions, substitutions ("changes") to any risers, conduits, meters,
panel boxes, switch gear, wiring, any other part of the electric service
without the express prior written consent of Landlord. Any changes
requested by Tenant shall be sent in writing to Landlord, and if, in the
sole judgment of Landlord, such changes will not cause or create a
dangerous or hazardous condition or damage or injury to the Building,
or entail excessive or unreasonable alterations or repairs, or interfere
with or disturb other tenants or occupants and/or the service then or
thereafter to be supplied to tenants or occupants, Landlord will, at the
sole cost and expense of Tenant, make such changes. Tenant covenants and
agrees to pay Landlord for such costs and expenses, as additional rent
hereunder, upon the rendition of a bill indicating the amount due therefor.
(8) If required by law (including a directive from The
Public Service Commission) or by a directive of the utility company ser-
vicing the premises, Landlord reserves the right to terminate the furnishing
of electricity to the demised premises at any time, upon not less than
ninety (90) days' written notice to the Tenant, in which event, Tenant
may make application directly to the utility company servicing the
Building for the Tenant's entire separate supply of electric current,
and Landlord shall permit its wires and conduits, to the extent available
and safely capable, to be used for such purpose. Any meters, risers or
other equipment or connections necessary to enable Tenant to obtain
electric current directly from such utility company shall be installed
at Tenant's sole cost and expense in compliance with all applicable laws,
ordinances and regulations and requirements of insurance companies and
fire underwriters. No alterations, modifications or changes shall be made
by the Tenant to any meters, risers or other equipment or connections in
the Building electric current in a manner which would cause damage to the
Building or interfere with the use, enjoyment, occupancy, or possession of
the Building by Landlord and it other tenants. Rigid conduit only, or
such other type as may be specified by Landlord, will be allowed. The
Landlord, upon the expiration of
<PAGE> 11
the time set forth in the aforesaid notice to the Tenant, may discontinue
furnishing the electric current, in which latter event, the Tenant's
liability for the Electric Energy Charge provided for in this Lease shall
terminate as of the date of discontinuance of the supplying of electric
current, but this Lease shall otherwise remain in full force and effect.
Unless required by law, however, Landlord shall not discontinue furnishing
electricity to the demised premises until after Tenant shall have made
arrangements to obtain its electricity directly from the utility company
supplying the Building unless Tenant shall have failed to act with due
diligence in making such arrangements.
(g) Electrical lighting, cleaning and maintenance of the common
areas of the Building and Land.
(h) (1) Tenant acknowledges that Landlord is required to furnish
electricity, elevators, water, air conditioning, heat, ventilation,
building maintenance and other facilities and services (herein collec-
tively referred to as "building services") only during Business Hours
(as hereinafter defined). If Tenant uses the premises outside Business
Hours (herein referred to as "extra hours"), Landlord shall provide
building services to Tenant provided that (i) Tenant pays to Landlord,
as additional rent, a special charge (herein referred to as "extra hours
charge"), (ii) Tenant's request for the same shall be received by Landlord
prior to 2:00 P.M. on the day on which extra hours service is required
after Business Hours on weekdays, prior to 2:00 P.M. on the day preceding
any required extra hours service before Business Hours on weekdays, and
prior to 2:00 P.M. of the prior Business Day if extra hours service is
required before or after Business Hours on a Saturday, Sunday or holiday.
(2) The extra hours charge shall be a standard hourly rate
which Landlord shall determine and may adjust from time to time, based
upon the actual cost of providing and maintaining building services and
electric current for a minimum four (4) hour period, inclusive of over-
head, depreciation and such other expenses as are customarily incurred
in the operation, maintenance and safekeeping of a first-class office
building.
(i) The term "Business Days," as used in this Lease, shall
mean Monday to Friday, inclusive, and Saturday from 8:00 A.M. to 1:00
P.M., excluding all days observed by the State or Federal governments
(herein called "holidays"). Tenant shall, however, have access to the
premises 24 hours a day, 7 days a week, but Landlord shall not be
required to furnish building services during other than Business Hours
on Business Days unless Tenant has neglected the same in accordance with
sub-section (h)(1) above.
(j) The term "Business Hours," as used in this Lease, shall
mean all times between 8:00 A.M. and 6:00 P.M. on Monday to Friday,
inclusive, excluding holidays, and Saturday from 8:00 A.M. to 1:00 P.M.,
excluding holidays.
(k) Landlord reserves the right, without being liable to Tenant
and without abatement or diminution in rent, to suspend, delay or stop any
of the building services to be furnished and provided by Landlord under
this Lease whenever necessary by reason of fire, storm, explosion, strike,
lockout, labor dispute, casualty or accident, lack or failure of sources
of supply of labor or fuel (or inability in the exercise of reasonable
diligence to obtain any required fuel), acts of God or the public enemy,
riots, interferences by civil or military authorities in compliance with
the laws of the United States of America or with the laws, orders or
regulations of any governmental authority, or by reason of any other
cause beyond Landlord's control, or for emergency, or for inspection,
cleaning, repairs, replacements, alterations, improvements or renewals
which in Landlord's reasonable judgment are desirable or necessary to be
made. Landlord agrees, however, to use its best efforts and to act with
all due diligence to restore or have restored any services which may be
suspended, delayed or stopped pursuant to this sub-paragraph (k).
(l) Landlord shall except as otherwise provided for herein,
comply with all governmental regulations affecting the premises.
<PAGE> 12
11. ASSIGNMENT, SUBLETTING, ETC. (a) Tenant, for itself, its heirs,
---------------------------
executors, administrators, successors and assigns, expressly covenants
that it shall not assign, mortgage or encumber this Lease, nor underlet,
or suffer or permit the demised premises or any part thereof to be used by
others, without the prior written consent of Landlord in each instance.
If this Lease be assigned, or if the demised premises or any part thereof
be underlet or occupied by anyone other than Tenant, Landlord may, after
default by Tenant, collect rent from the assignee, undertenant or occupant
and apply the net amount collected to the rent herein reserved, but no such
assignment, underletting, occupancy or collection shall be deemed a waiver
of this covenant, or the acceptance of the assignee, undertenant or
occupant as Tenant, or a release of Tenant from the further performance
by Tenant of all covenants on the part of Tenant herein contained. The
consent by Landlord to an assignment or underletting shall not in any wise
be construed to relieve Tenant from obtaining the express consent in
writing, of Landlord to any further assignment or underletting, nor shall
the same release or discharge Tenant from any liability, past, present or
future, under this Lease, and Tenant shall continue fully liable in all
respects hereunder.
(b) If Tenant enters into a proposed sublease of the premises
or assignment of this Lease, such sublease or assignment shall be subject
to the provisions of this subparagraph (b) and Tenant shall send Landlord
a written notice ("Tenant's Notice of Intention") advising Landlord of
Tenant's intention to finalize the sublease or assignment in accordance
with the terms of that instrument and an executed copy of the proposed
sublease or assignment. Landlord shall have a period of thirty (30) days
after receipt from Tenant of such Notice to elect to terminate this Lease
and the unexpired term hereof ("recapture") or to advise Tenant that Land-
lord consents or refuses to consent to such proposed sublease or assignment.
In the event Landlord elects to recapture the demised premises, Tenant
shall vacate and surrender possession of the demised premises by not later
than the date set forth in Tenant's Notice of Intention for the date upon
which the proposed sublease or assignment (as the case may be) was
intended to become effective, which date shall not be prior to forty
(40) nor later than one hundred twenty (120) days after sending of
Tenant's Notice of Intention ("termination date"). Upon Tenant's vacating
and surrendering possession of the demised premises as of the aforesaid
termination date in accordance with the terms of this Lease, the unexpired
term hereof shall terminate as if said date were the termination date set
forth in the Preamble to this Lease, except as provided in Article 11(b)
hereof.
(c) Landlord agrees that if it does not elect to recapture the
demised premises in accordance with subparagraph (b), Landlord shall not
unreasonably withhold its consent to the proposed sublease or assignment,
provided, however, that Landlord shall not be deemed unreasonable if it
refuses to consent to any proposed sublease or an assignment of the Lease
to a tenant, subtenant or other occupant of the Building (or to a sub-
sidiary or affiliate), or if, in the reasonable judgment of Landlord, the
business of such proposed subtenant or assignee is not compatible with the
type of occupancy of the Building, or such business will create increased
use of the facilities of the Building. Landlord may arbitrarily refuse to
consent to any proposed sublease of a portion of the premises.
(d) It is expressly agreed that Landlord shall have the right
to negotiate directly with any proposed subtenant or assignee, whether the
identification thereof shall have been disclosed to Landlord by Tenant or
others, and Landlord shall have the right to enter into a direct lease with
any proposed subtenant, its parent, affiliate or subsidiary, either with
respect to the sublet area or any other premises or space in the Building
for such term and upon such rentals and other provisions or agreements as
Landlord elects, including the same terms and conditions set forth in the
proposed sublease or assignment submitted to Landlord with Tenant's Notice
of Intention.
(e) Tenant, without Landlord's prior written consent thereto and
without being subject to the provisions of paragraph (b) of this Article II
shall have the right to assign this Lease or sublet the premises to, or
allow the premises to be otherwise occupied by, any parent, subsidiary,
affiliate, group or division of Tenant, or successor by merger, provided,
however, that no such assignment or subletting
<PAGE> 13
shall be deemed to relieve it of liability for the full and faithful
performance of all the terms and conditions on its part to be performed
under this Lease.
(f) In the event Tenant assigns this Lease, as permitted by
this Article 11, such assignment shall not be deemed effective or binding
on Landlord unless there is delivered to Landlord within five (5) days of
the execution of such assignment, a duplicate, executed copy of such assign-
ment and a duplicate, executed copy of an agreement on the part of the
assignee, satisfactory to Landlord, to the effect that the assignee agrees
to and shall assume all of the obligations on the part of Tenant to be
kept, observed and performed pursuant to this Lease. Consent by Landlord
to any assignment or sublease shall not, nor shall it be deemed to, relieve
or release the subletting Tenant from liability for the full and faithful
performance of all the terms, covenants, provisions and conditions required
to be performed under this Lease by "Tenant" for the remainder of the term.
No oral or verbal assignment, or sublease or receipt by Landlord of any
payment of rental or other amounts, or acceptance by Landlord of per-
formance of Tenant's obligations hereunder by any purported assignee or
sublessee, shall be deemed a waiver of any obligation of Tenant hereunder.
12. LANDLORD'S RIGHTS. Without abatement or diminution in rent,
-----------------
Landlord reserves and shall have the following additional rights:
(a) To change the street address and/or the name of the Building
and/or the arrangement and/or location of entrances, passageways, doors,
doorways, corridors, elevators, stairs, toilets, or other public parts of
the Building without liability to Tenant, provided that Tenant's use and
enjoyment of the premises are not adversely affected thereby.
(b) To approve in writing all signs and all sources furnishing
sign painting and lettering, drinking water, towels and toilet supplies or
other like services used in the demised premises and to approve all sources
furnishing cleaning services, painting, repairing and maintenance, which
approvals shall not be unreasonably withheld or delayed.
(c) To enter the demised premises at all reasonable times (1)
for the making of such inspections, alterations, improvements and repairs,
as Landlord may deem reasonably necessary or desirable, (2) for any purpose
whatsoever relating to the safety, protection or preservation of the
demised premises or of the Building, and (3) to take material into and
upon said premises; * provided Landlord shall use its best efforts not to
interfere with Tenant's business operation during any such entry. If a
representative of Tenant shall not be personally present to open and
permit an entry into the premises at any time when an entry shall be
reasonably necessary or permissible hereunder, Landlord or its agents may
enter by a master key or may, in cases of emergency, forcibly enter the
same without rendering Landlord or its agents liable therefor (provided
that, during such entry, reasonable care shall be accorded to avoid damage
or injury to Tenant's property), and without in any manner affecting the
obligations and covenants of this Lease. Without incurring any liability
to Tenant, Landlord may permit access to the premises and open the same,
whether or not Tenant shall be present, upon demand of any receiver,
trustee, assignee for the benefit of creditors, sheriff, marshal or court
officer entitled to, or reasonably purporting to be entitled to, such
access for the purpose of taking possession of, or removing, Tenant's
property or for any other lawful purpose (but this provision and any
action by Landlord hereunder shall not be deemed a recognition by Land-
lord that the person or official making such demand has any right or
interest in or to this Lease, or in or to the premises), or upon demand
of any representative of the fire, police, building, sanitation or other
department of the city, state or federal governments.
(d) At any time or times Landlord, either voluntarily or
pursuant to governmental requirement, may, at Landlord's own expense,
make repairs, alterations or improvements in or to the Building or any
part thereof and during alterations, may close entrances, doors, windows,
corridors, elevators or other facilities, provided that such acts shall
not unreasonably interfere with Tenant's use and occupancy of the premises.
<PAGE> 14
(e) To erect, use and maintain pipes, ducts, shafts and
conduits in and through the demised premises, provided same do not un-
reasonably interfere with Tenant's use and occupancy of the demised
premises.
(f) To charge to Tenant any expense, as additional rent,
including overtime cost, incurred by Landlord in the event that repairs,
alterations, decorating or other work in the premises are made or done
after ordinary business hours at Tenant's request.
(g) If during the last six months of the term or of a renewal
term, Tenant shall have removed all or substantially all of Tenant's
property therefrom, Landlord may enter and alter, renovate, and re-
decorate the premises without reduction or abatement of rent or
incurring any liability to Tenant for compensation.
(h) To grant to anyone the exclusive right to conduct any par-
ticular business or undertaking in the Building, provided that Tenant's
permitted use of the premises shall not be adversely affected thereby.
Landlord may exercise any or all of the foregoing rights thereby
reserved to Landlord without being deemed guilty of an eviction, actual or
constructive, or disturbance or interruption of Tenant's use or possession
and without limitation or abatement of rent or other compensation and such
acts shall have no effect on this Lease.
13. DAMAGE BY FIRE, ETC. (a) If the entire premises or any part
-------------------
thereof shall be damaged by fire or other casualty and Tenant shall give
prompt written notice thereof to Landlord, Landlord shall proceed with
reasonable diligence to repair or cause to be repaired such damage, and
if the premises, or any part thereof, shall be rendered untenantable by
reason of such damage, the fixed and additional rent hereunder, or an
amount thereof apportioned according to the area of the premises so
rendered untenantable if less than the entire premises shall be so
rendered untenantable, shall be abated for the period from the date of
such damage to the date when the damage shall have been repaired as
aforesaid; * however, if such condition of untenantability shall continue
for a period of ninety (90) days following any such casualty, Tenant shall
have the right by notice to Landlord at any time thereafter, but prior to
the date the premises are restored to terminate this Lease with no further
liability of one party to the other; provided, however, that if Landlord
or any mortgagee of the Building and the Land shall be unable to collect
the insurance proceeds (including rent insurance proceeds) applicable to
such damage because of some action or inaction on the part of Tenant, or
the employees, licensees or invitees of Tenant, the cost of repairing such
damage shall be paid by Tenant and there shall be no abatement of rent.
Landlord shall not be liable for any inconvenience or annoyance to Tenant
or injury to the business of Tenant resulting in any way from such damage
or the repair thereof. Tenant understands that Landlord will not carry
insurance of any kind on Tenant's furniture or furnishings or on any
fixtures, equipment, improvements, installations or appurtenances made
or removable by Tenant as provided in this Lease, and that Landlord shall
not be obligated to repair any damage thereto or replace the same.
(b) In case the Building shall be so damaged by such fire or
other casualty that substantial alteration or reconstruction of the
Building or the premises shall, in Landlord's reasonable opinion, be
required (whether or not the premises shall have been damaged by such
fire or other casualty), then Landlord may, at its option, terminate this
Lease and the term and estate hereby granted by notifying Tenant in
writing of such termination within sixty (60) days after the date of
such damage. In the event that such a notice of termination shall be
given, this Lease and the term and estate hereby granted shall expire as
of the date of such termination with the same effect as if that were the
date hereinbefore set for the expiration of the term of this Lease, and
the rent payable hereunder shall be apportioned as of such date. In the
event the premises are rendered uninhabitable for a period of ninety (90)
days following any such casualty, Tenant shall have the right by notice
to Landlord at any time thereafter, but prior to the date the premises
are restored to terminate this Lease with no further liability of one
party to the other.
(c) Each of the Landlord and Tenant hereby releases the other
from any and all liability or responsibility (to the other or any one
claiming through or under it
<PAGE> 15
by way of subrogation or otherwise) under fire and extended coverage or
supplementary contract casualties, if such fire or other casualty shall
have been caused by the fault or negligence of the other party or anyone
for whom such party may be responsible; provided, however, that this
release shall be applicable and in force and effect only with respect
to loss or damage occurring during such time as the releasor's policies
shall contain a clause or endorsement to the effect that any such release
shall not adversely affect or impair, such policies or prejudice the
right of the releasor to recover thereunder. Each of Landlord and Tenant
agrees that its policies will include such a clause or endorsement so long
as the same shall be obtainable without extra cost, or if such cost shall
be charged therfor, so long as the other party pays such extra cost if
extra cost shall be chargeable therefor, each party shall notify the other
party thereof and of the amount of the extra cost, and the other party
shall be obligated to pay the extra cost unless, within ten (10) days
after such notice, it elects not to be obligated so to do by written
notice to the original party. If such clause or endorsement is not
available, or if either party should not desire the coverage at extra
cost to it, then the provisions of this paragraph shall not apply to the
policy or policies in question.
14. CONDEMNATION. (a) In the event that any part of the premises or
------------
the whole of the Land and Building shall be lawfully condemned or taken in
any manner for any public or quasi-public use, this Lease and the term and
estate hereby granted shall forthwith cease and terminate as of the date of
vesting of title. In the event that a part of the Land or Building shall
be so condemned or taken, then Landlord (whether or not the premises be
affected) may, at Landlord's option, terminate this Lease and the term and
estate hereby granted as of the date of such vesting of title by notifying
Tenant in writing of such termination within sixty (60) days following the
date on which Landlord shall have received notice of vesting of title. If
Landlord does not so elect to terminate this Lease, as aforesaid, this
Lease shall be and remain unaffected by such condemnation or taking, and
the rent payable hereunder shall not be abated. In the event that only a
part of the Building shall be so condemned or taken and this Lease and
the term and estate hereby granted are not terminated as hereinbefore
provided, Landlord will, with reasonable diligence, and at it expense,
restore the remaining portion of the Building as nearly as practicable to
the same condition as it was in prior to such condemnation or taking.
(b) In the event of their termination in any of the cases
hereinbefore provided, this Lease and the term and estate hereby granted
shall expire as of the date of such termination with the same effect as
if that were the termination date of this Lease, and the fixed and addi-
tional rent payable hereunder shall be apportioned as of such date.
(c) In the event of any condemnation or taking hereinbefore
mentioned of all or a part of the Land and Building (including the prem-
ises), Landlord (or the mortgagee of any interest in the Land and/or the
Building, if pursuant to the terms of the mortgage, or if pursuant to law,
mortgagee is entitled to receive all or a portion of the condemnation
award), shall be entitled to receive the entire award in the condemnation
proceeding, including any award made for the value of the estate vested by
this Lease in Tenant, and Tenant hereby expressly assigns to Landlord or
to the mortgagee, as provided above any and all right, title and interest
of Tenant now or hereafter arising in or to any such award or any part
thereof. Tenant shall not be entitled to receive any part of such award
from Landlord, the mortgagee, or the condemning authority, except that
Tenant shall have the right to assert a claim against the condemning
authority for the value of moveable fixtures and equipment installed
and paid for by Tenant and for relocation expenses., provided that the
payment of any award to Tenant does not diminish the amount which would
otherwise be paid to Landlord or the mortgagee by that condemning
authority.
(d) It is expressly understood and agreed that the provisions
of this Article 14 shall not be applicable to any condemnation or taking
for governmental occupancy for a limited period of time not to exceed
three (3) months.
15. COMPLIANCE WITH LAWS. Tenant, at Tenant's expense, shall
--------------------
comply with all laws and ordinances, and all rules, orders and regulations
of all governmental authorities and of all insurance bodies. At any time
duly issued or in force,
<PAGE> 16
applicable to the premises or any part thereof or to Tenant's use thereof,
except that Tenant shall not hereby be under any obligation to comply with
any law, ordinance, order or regulation requiring any structural alteration
of or in connection with the premises, unless such alteration is required
by reason of a condition which has been created by, or at the instance of
Tenant, or is attributable to the use or manner of use to which Tenant
puts the premises, or is required by reason of a breach of any of Tenant's
covenants and agreements hereunder. Where any structural alteration of or
in connection with the premises is required by any such law, ordinance,
rule, order or regulation, and, by reason of the express exception herein-
above contained, Tenant is not under any obligation to make such altera-
tion, then Landlord shall have the option of making such alteration and
paying the cost thereof, or of terminating this Lease and the term and
estate hereby granted by giving to Tenant not less than thirty (30) days'
prior written notice of such termination.
16. DAMAGE TO PROPERTY. (a) Tenant shall give to Landlord prompt
------------------
written notice of any damage to, or defective condition in, any part or
appurtenance of the Building's sanitary, electrical, heating, air con-
ditioning or other similar of dissimilar systems serving, located in,
or passing through, the premises, and the damage or defective condition
shall be remedied by Landlord with reasonable diligence, but if such
damage or defective condition was caused by, or resulted from the wrongful
use by, Tenant or by the employees, licensees or invitees of Tenant, the
cost of the remedy thereof shall be paid by Tenant, as additional rent,
upon the rendition of a bill indicating the amount due therefor.
(b) All personal property belonging to Tenant, its servants,
employees, suppliers, consignors, customers, licensees, located in or about
the Building or demised premises shall be there at sole risk of Tenant and
neither Landlord nor Landlord's agents shall be liable for the theft, loss
or misappropriation thereof nor for any damage or injury thereto unless
caused by or resulting from Landlord's gross negligence or acts of willful
misconduct, nor shall Landlord be considered the voluntary or involuntary
bailee of such personal property, nor for damage or injury to Tenant or
any of its officers, agents or employees or to any other persons or to
any other property caused by fire, explosion, water, rain, snow, frost,
steam, gas, electricity, heat or cold, dampness, failing plaster, sewers
or sewage odors, noise, leaks from any part of said Building or the roof,
the bursting or leaking of pipes, plumbing, electrical wiring and equipment
and fixtures of all kinds, * unless caused by or resulting from Landlord's
gross negligence or acts of willful misconduct or by any act or neglect of
other tenants or occupants of the Building of any other person.
(c) All damage or injury to the premises or to its fixtures,
appurtenances and equipment or to the Building, its fixtures, appurtenances
or equipment caused by Tenant's moving property in or out of the Building
or by installation or removal of furniture, fixtures or other property or
from any cause of any kind or nature whatsoever of which Tenant, its
servants, employees, agents, visitors or licensees shall be the cause,
shall be repaired, restored and replaced promptly by Tenant at its sole
cost and expense, in quality and class at least equal to the original
work or installations, and to the satisfaction of Landlord. If Tenant
fails to commence such repairs, restorations or replacements, within ten
(10) days after notice from Landlord, the same may be made by Landlord
for the account of Tenant and the cost thereof shall be collectible as
additional rent or otherwise after rendition of a bill or statement and
payable simultaneously with the next monthly installment of rent due and
payable hereunder.
17. SUBORDINATION. (a) This Lease is subject and subordinate in all
-------------
respects to all ground leases and/or underlying leases now or hereafter
covering the Land and to all mortgages which may now or hereafter be
placed on or affect such leases and/or the Land, Buildings, improvements,
or any part thereof and/or Landlord's interest therein, and to each
advance made and/or hereafter to be made under any such mortages and to
all renewals, modifications, consolidations, replacements and extensions
thereof and all substitutions of and for such ground leases and/or under-
lying leases and/or mortgages. This subparagraph (a) shall be self-
operative and no further instrument of subordination, Tenant shall
execute and deliver promptly any instrument that Landlord and/or any
mortgagee and/or the lessor under any ground or underlying lease and/or
their respective successors in interest may request.
<PAGE> 17
(b) Tenant agrees, at the election and upon demand of any owner
of the Land, or of any mortgagee in possession thereof, or of any holder
of a leasehold hereafter affecting the Land, to attorn, from time to time,
to any such owner, mortgagee or holder, upon the terms and conditions set
forth herein for the remainder of the term of this Lease. The foregoing
provisions shall enure to the benefit of any such owner, mortgagee or
holder, shall apply to the tenancy of Tenant notwithstanding that this
Lease may terminate upon the termination of any such leasehold estate,
and shall be self-operative upon any such demand, without requiring any
further instrument to give effect to said provisions. Tenant, however,
upon demand of any such owner, mortgagee or holder, agrees to execute,
from time to time, an instrument in confirmation of the foregoing provis-
ions, satisfactory to such owner, mortgagee or holder, in which Tenant
shall acknowledge such attornment and shall set forth the terms and
conditions of its tenancy, which shall be the same as those set forth
herein and shall apply for the remainder of the term of this Lease.
Nothing contained in this subparagraph (b) shall be construed to impair
any right, privilege or option of any such owner, mortgagee or holder.
(c) Tenant agrees that, in the event that the interest of the
Landlord becomes vested in the holder of any mortgage or in any ground
lessor, or anyone claiming by, through or under either of them, then such
holder shall not be:
(1) liable for any act or omission of any prior landlord
(including Landlord herein); or
(2) subject to any offsets or defenses which Tenant may
have against any prior landlord (including Landlord herein); or
(3) bound by any rent which Tenant may have paid for more
than the current month to any landlord (including Landlord herein).
(d) No alteration or modification of any provision hereof, nor
any cancellation or surrender of this Lease shall be valid or binding as
against any holder of any mortgage unless the same shall have been approved
in writing by such holder, or unless specific provision therefor is set
forth in this Lease.
(e) Tenant agrees that, upon the request of Landlord, Tenant
will execute, acknowledge and deliver such document or instrument as may
be requested by the holder of any mortgage on the Landlord's interest in
the Land and/or the Building confirming or agreeing that this Lease is
assigned to such mortgagee as collateral security for such mortgage and
agreeing to abide by such assignment, provided that a copy of such assign-
ment has in fact been delivered to Tenant.
18. NOTICES. Any notice, consent, approval, request or demand here-
-------
under by either party to the other party shall be in writing and shall be
deemed to have been duly given if sent by registered or certified mail
with return receipt requested, postage prepaid, addressed to Landlord at
Landlord's address and to Tenant at Tenant's address, or if the address
of such other party for such notices, consents, approvals, requests or
demands shall have been duly changed as hereinafter provided, if mailed,
as aforesaid, to such other party at such changed address. Either party
may at any time change the address for such notices, consents, approvals,
requests or demands by delivering or mailing, as aforesaid, to the other
party a notice stating the change and setting forth the changed address.
If the term "Tenant" as used in this Lease refers to more than one person,
any notice, consent, approval, request or demand given as aforesaid to
any one of such persons shall be deemed to have been duly given to Tenant.
All bills, statements and building communications from Landlord to Tenant
may be served by ordinary mail or otherwise delivered to Tenant or left at
the premises. For the purpose hereof, the term "building communications"
shall be deemed to be any notices not specifically referred to in this
Lease which relate to the operation or maintenance of the Building,
including amendments to the Rules and Regulations, and is given to all
or substantially all of the tenants in the Building. The time of
rendition of any bill, statement or building communication and of the
giving of any other notice, consent, approval, request or demand shall
be deemed to be the time when the same is delivered to Tenant, left at
the premises, or deposited in a U.S. Postal Service facility, postage
prepaid, as the case may be.
<PAGE> 18
19. CONDITIONS OF LIMITATION. This Lease and the term and estate
------------------------
hereby granted are subject to the limitation that if prior to or during
the term of this Lease:
(a) Tenant shall make an assignment of its property for the
benefit of creditors or shall file a voluntary petition under any bank-
ruptcy or insolvency law, or an involuntary petition under any bankruptcy
or insolvency law shall be filed against Tenant and such involuntary
petition is not dismissed or proceedings for dismissal are not instituted
within sixty (60) days after the filing thereof,
(b) a petition is filed by or against Tenant under the reorgani-
zation provisions of the United States Bankruptcy Act or under the pro-
visions of any law of like import, unless such petition under said
reorganization provisions be one filed against Tenant which is dismissed,
or which proceedings for its dismissal are instituted within sixty (60)
days after its filing,
(c) Tenant shall file a petition under the arrangement pro-
visions of the United States Bankruptcy Act or under the provisions
of any law of like import,
(d) a permanent receiver, trustee or liquidate shall be
appointed for Tenant or of or for the property of Tenant, and such
receiver, trustee or liquidator shall not have been discharged within
sixty (60) days from the date of his appointment,
(e) Tenant shall default in the payment of any rent payable
hereunder by Tenant to Landlord on any date upon which the same becomes
due, and such default shall continue for ten (10) days after Landlord
shall have given to Tenant a written notice specifying such default,
(f) Tenant shall default in the due keeping, observing or
performance of any covenant, agreement, term, provision or condition of
this Lease on the part of Tenant to be kept, observed or performed, and
if such default shall continue and shall not be remedied by Tenant within
thirty (30) days after Landlord shall have given to Tenant a written
notice specifying the same, or, in the case of such a default which for
causes beyond Tenant's control cannot with due diligence be cured within
said period of thirty (30) days, if Tenant (1) shall not, promptly upon
giving of such notice, advise Landlord in writing of Tenant's intention
to duly institute all steps necessary to remedy such default, (2) shall
not duly institute and thereafter diligently prosecute to completion all
steps necessary to remedy the same, or (3) shall not remedy the same
within a reasonable time after the date of the giving of said notice by
Landlord,
(g) any event shall occur or any contingency shall arise
whereby this Lease or the estate hereby granted or the unexpired balance
of the term hereof would, by operation of law or otherwise, devolve upon
or pass to any person, firm, association or corporation other than Tenant
except as expressly permitted under Article 11 hereof, or whenever Tenant
shall desert or abandon the premises or the same shall become vacant
(whether the keys be surrendered or not and whether the rent be paid or
not), or
(h) any other lease held by Tenant from Landlord shall expire
and terminate (whether or not the term thereof shall then have commenced)
as a result of the default by Tenant thereunder, then, in any of said
cases, Landlord may give to Tenant a notice of intention to end the term
of this Lease at the expiration of five (5) days from the date of the
giving of such notice, and, in the event such notice is given, this Lease
and the term and estate hereby granted (whether or not the term shall
theretofore have commenced) shall expire and terminate upon the expiration
of said five (5) days with the same effect as if that day were the date
hereinbefore set for the expiration of the term of this Lease, but Tenant
shall remain liable for damages as provided in Article 21 hereof. If the
term "Tenant", as used in this Lease, refers to more than one person,
then, as used in subparagraphs (a), (b), (c), (d) and (g) of this Article
19, said term shall be deemed to include all of such persons or any one of
them; if any of the obligations of Tenant under this Lease is guaranteed,
the term "Tenant," as used in said subparagraphs, shall be deemed to
include also the
<PAGE> 19
guarantor or, if there be more than one guarantor, all or any one of them;
and if this Lease shall have been assigned, the term "Tenant," as used in
said subparagraphs, shall be deemed to include the assignee and the assignor
or either of them under any such assignment unless Landlord shall, in con-
nection with such assignment, release the assignor from any further
liability under this Lease, in which event the term "Tenant," as used in
said subparagraphs, shall not include the assignor so released.
20. RE-ENTRY BY LANDLORD. (a) If Tenant shall default in the payment
--------------------
of any rent payable hereunder by Tenant to Landlord on any date upon which
the same becomes due, and if such default shall continue for ten (10) days
after Landlord shall have given to Tenant a written notice specifying such
default, or if this Lease shall expire and terminate as in Article 19
provided, Landlord or Landlord's agents and servants may immediately or at
any time thereafter re-enter into or upon the premises, or any part thereof,
either by summary dispossess proceedings or by any suitable action or pro-
ceeding at law, or by force or otherwise, without being liable to
indictment, prosecution or damages therefor, and may repossess the same,
and may remove any persons therefrom, to the end that Landlord may have,
hold and enjoy the premises again as and of its first estate and interest
therein. The words "fire entrance," "re-entry," and "re-entered" as used
in this Lease are not restricted to their technical legal meanings. In
the event of any termination of this Lease under the provisions of Article
19, or in the event that Landlord shall re-enter the premises under the
provisions of this Article 20 or in the event of the termination of this
Lease (or of re-entry) by or under any summary dispossess or other pro-
ceeding or action or any provision of law, Tenant shall thereupon pay to
Landlord the rent payable hereunder by Tenant to Landlord up to the time
of such termination of this Lease, or of such recovery of possession of
the premises by Landlord, as the case may be, and shall also pay to Land-
lord damages as provided in Article 21.
(b) In the event of a breach or threatened breach on the part
of Tenant with respect to any of the covenants, agreements, terms, provis-
ions or conditions on the part of or on behalf of Tenant to be kept,
observed or performed, Landlord shall also have the right of injunction.
The specified remedies to which Landlord may resort hereunder are cumula-
tive and are not intended to be exclusive of any other remedies or means
of redress to which Landlord may lawfully be entitled at any time, and
Landlord may invoke any remedy allowed at law or in equity as if specific
remedies were not herein provided for.
(c) In the event of (1) the termination of this, Lease under
the provisions of Article 19 hereof, (2) the re-entry of the premises by
Landlord under the provisions of this Article 20, or (3) the termination
of this Lease (or re-entry) by or under any summary dispossess or other
proceeding or action or any provision of law by reason of default hereunder
on the part of Tenant, Landlord shall be entitled to retain all moneys, if
any, paid by Tenant to Landlord, whether as advance rent, Security or
otherwise, but such moneys shall be credited by Landlord against any
rent due from Tenant at the time of such termination or re-entry or, at
Landlord's option, against any damages payable by Tenant under Article 21
or pursuant to law.
21. DAMAGES. (a) In the event of any termination of this Lease under
-------
the provisions of Article 19 or in the event that Landlord shall re-enter
the premises under the provisions of Article 20 or in the event of the
termination of this Lease (or of re-entry) by or under any summary dis-
possess or other proceeding or action or any provision of law, Tenant
will pay to Landlord as damages:
(1) sums equal to the aggregate of all rent which would have
been payable by Tenant had this Lease not so terminated, or had
Landlord not so re-entered the premises, payable upon the due
dates therefore specified herein following such termination or
such re-entry and until the date hereinbefore set for the expira-
tion of the full term hereby granted; provided however that if
Landlord shall re-let all or any part of the premises for all or
any part of said period, Landlord shall credit Tenant with the
net rents received by Landlord from such re-letting, such net
rents to be determined by first deducting from the gross rents
as and when received by Landlord from such reletting the reasona-
ble expenses incurred or paid by Landlord in terminating this
Lease or of re-entering
<PAGE> 20
the premises and of securing possession thereof as well as the
reasonable expenses of re-letting, including altering and pre-
paring the premises for new tenants, brokers, commissions and all
other similar or dissimilar expenses properly chargeable against
the premises and the rental therefrom in connection with such
re-letting, it being understood that any such re-letting may be
for a period equal to or shorter or longer than the remaining
term of this Lease; provided, further, that (i) in no event
shall Tenant be entitled to receive any excess of such net rents
over the sums payable by Tenant to Landlord hereunder, (ii) in
no event shall Tenant be entitled in any suit for the collection
of damages pursuant to this subsection (2) to a credit in respect
of any net rents from a reletting except to the extent that such
net rents are actually received by Landlord prior to the commence-
ment of such suit, and (iii) if the premises or any part thereof
should be re-let in combination with other space, then proper
apportionment on a square foot area basis shall be made of the
rent received from such re-letting and of the expenses of re-
letting.
(b) For the purposes of subparagraph (a) of this Article 21,
the amount of additional fixed rent which would have been payable by
Tenant under Article 4 hereof for each lease year and/or tax year (as
those terms are herein defined) ending after such termination of this
Lease or such re-entry shall be deemed to be an amount equal to the
amount of such additional fixed rent payable by Tenant for the lease
year and/or tax year (as the case may be) ending immediately preceding
such termination of this Lease or such re-entry. Suit or suits for the
recovery of such damages, or any installments thereof, may be brought by
Landlord from time to time at its election, and nothing contained herein
shall be deemed to require Landlord to postpone suit until the date when
the term of this Lease would have expired if it had not been terminated
under the provisions of Article 19, or under any provision of law, or had
Landlord not re-entered the premises.
(c) Nothing herein contained shall be construed as limiting or
precluding the recovery by Landlord against Tenant of any sums or damages
to which, in addition to the damages particularly provided above, Landlord
may lawfully be entitled by reason of any default hereunder on the part of
Tenant.
22. WAIVER OF TRIAL BY JURY. It is mutually agreed by and between
-----------------------
Landlord and Tenant that, except in the case of any action, proceeding or
counterclaim brought by either of the parties against the other for
personal injury or property damage, the respective parties hereto shall
and they hereby do waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties hereto against the other on
any matters whatsoever arising out of or in any way connected with this
Lease.
23. LEASE CONTAINS ALL AGREEMENTS. This Lease contains all of the
-----------------------------
covenants, agreements, terms, provisions and conditions relating to the
leasing of the premises hereunder, and Landlord has not made and is not
making, and Tenant, in executing and delivering this Lease is not relying
upon, any warranties, representations, promises, or statements, except to
the extent that the same may expressly be set forth in this Lease.
24. NO WAIVERS. (a) No receipt of money by Landlord from Tenant with
----------
knowledge of the breach of any covenant or agreement of this Lease, or
after the termination hereof, or after the service of any notice, or after
the commencement of any suit, or after final judgment for possession of
the demised premises, shall be deemed a waiver of such breach, nor shall
it reinstate, continue or extend the term of this Lease or affect any such
notice, demand or suit.
(b) No delay on the part of Landlord or Tenant in exercising any
right, power or privilege hereunder or to seek redress for violation of, or
to insist upon strict performance of any covenant or condition of this
Lease, or of any of the Rules and Regulations, shall operate as a waiver
thereof nor shall any single or partial exercise of any right, power or
privilege, preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
<PAGE> 21
(c) No act done or thing said by Landlord or Landlord's agents
shall constitute a cancellation, termination or modification of, or
eviction or surrender under, this Lease, or a waiver of any covenant,
condition or provision hereof, nor relieve Tenant of Tenant's obligation
to pay the rent hereunder. Any acceptance of surrender, waiver or release
by Landlord and any cancellation, termination or modification of this Lease
must be in writing signed by Landlord, by its duly authorized representative.
The delivery of keys to any employee or agent of Landlord shall not operate
as a surrender or as a termination of this Lease, and no such employee or
agent shall have any power to accept such keys prior to the termination of
this Lease.
(d) Tenant hereby waives any and all rights to recover or regain
possession of the demised premises or to reinstate or to redeem the Lease
as permitted or provided by or under any statute, law or decision now or
hereafter in force and effect.
(e) No failure by Landlord to enforce any of the Rules and Regu-
lations against Tenant and or any/other tenant or occupant of the Building
shall be deemed a waiver thereof. No provision of this Lease shall be
deemed waived by Landlord unless such waiver be in writing signed by Land-
lord.
(f) No payment by Tenant or receipt by Landlord of a lesser
amount than the rent herein stipulated and reserved shall be deemed to be
other than on account of the earliest stipulated rent then due and payable,
nor shall any endorsement or statement on any check, or letter accompanying
any rent check or payment be deemed an accord and satisfaction, and Land-
lord may accept the same without prejudice to Landlord's right to recover
any balance due or to pursue any other remedy in this Lease provided.
25. PARTIES BOUND. The covenants, agreements, terms, provisions
-------------
and conditions of this Lease shall bind and benefit the respective succes-
sors, assigns and legal representatives of the parties hereto with the same
effect as if mentioned in each instance where a party hereto is named or
referred to, except that no violation of the provisions of Article 11
hereof shall operate to vest any rights in any successor, assignee or legal
representative of Tenant and that the provisions of this Article 25 shall
not be construed as modifying the conditions of limitation contained in
Article 19 hereof. It is understood and agreed, however, that the covenants
and obligations on the part of Landlord under this Lease shall not be
binding upon Landlord herein named with respect to any period subsequent
to the transfer of its interest in the Building, that in the event of such
transfer said covenants and obligations shall thereafter be binding upon
each transferee of such interest of Landlord herein named, but only with
respect to the period ending with a subsequent transfer of such interest,
and that a lease of the entire interest shall be deemed a transfer within
the meaning of this Article 25.
26. CURING TENANT'S DEFAULTS. If Tenant shall default in the per-
------------------------
formance of any covenant, agreement, term, provision or condition herein
contained, Landlord, without thereby waiving such default, may perform the
same for the account and at the expense of Tenant, without notice in a case
of emergency and in any other case if such default continues after the
expiration of the applicable grace period provided for in Article 19 of
this Lease or if an emergency exists. Bills for any expense incurred by
Landlord in connection with any such performance by Landlord for the
account of Tenant, and bills for all costs, expenses and disbursements of
every kind and nature whatsoever, including, but not limited to, reasonable
counsel fees, involved in collecting or endeavoring to collect the rent or
any part thereof or enforcing or endeavoring to enforce any rights against
Tenant, under or in connection with this Lease, or pursuant to law,
including (without being limited to) any such cost, expense and disburse-
ment involved in instituting and prosecuting summary proceedings, as well
as bills for any property, material labor or services provided, furnished
or rendered, or caused to be provided, furnished or rendered, by Landlord
to Tenant including (without being limited to) electric lamps and other
equipment, construction work done for the account of Tenant, as well as
for any charges for any additional building services incurred under Article
10 hereof and any charges for other similar or dissimilar services incurred
under this Lease, may be
<PAGE> 22
sent by Landlord to Tenant monthly, or immediately, at Landlord's option,
and shall be due and payable in accordance with the terms of said bills,
and if not paid when due, the amounts thereof shall immediately become due
and payable as additional rent under this Lease.
27. MISCELLANEOUS.
-------------
(a) if in connection with obtaining financing for the Building,
a bank, insurance company or other recognized institutional lender shall
request reasonable modifications in this Lease as a condition to such
financing, Tenant will not unreasonably withhold, delay or defer its
consent thereto, provided that such modifications do not increase the
obligations of Tenant hereunder or materially decrease the obligations of
Landlord hereunder. In addition thereto, Tenant shall furnish to any
mortgagee or proposed mortgagee of the Building, copies of Tenant's latest
financial statements duly certified by an independent certified public
accountant, or if no such certified statement is available, then such
statements shall be certified by the president of Tenant. All such
statements which are not in the public domain shall be held in strict
confidence by Landlord and/or its mortgagee.
(b) Tenant shall not be entitled to exercise any right of
termination or other option granted to it by this Lease at any time when
Tenant is in default in the performance or observance of any of the
covenants, agreements, terms, provisions or conditions on its part to be
performed or observed beyond the applicable grace period provided in this
Lease.
(c) Tenant shall not sublet, take by assignment, or otherwise
occupy any space in the Building other than the premises hereby demised,
except with the prior written consent of Landlord in each instance.
(d) If this Lease is offered to Tenant by the managing agent of
the Building, such offer is made solely in the capacity as such agent and
subject to Landlord's acceptance and approval; and Tenant has executed
this Lease upon the understanding that this Lease shall not in any way bind
Landlord until such time as the same has been approved and executed by Land-
lord and a counterpart delivered to or received by Tenant.
(e) The laws of the State of New Jersey shall govern the valid-
ity, performance and enforcement of this Lease. The invalidity or unen-
forceability of any provision hereof shall not affect or impair any other
provision.
(f) Whenever a neutral singular pronoun refers to Tenant, same
shall be deemed to refer to Tenant if Tenant be an individual, a corpora-
tion, a partnership or two or more individuals or corporations.
(g) The term "Landlord" as used in this Lease shall mean the
owner for the time being of the Building, and if such Building be sold or
transferred, the seller or assignor shall be entirely relieved of all
covenants and obligations under this Lease subsequent to such sale or
transfer and it shall be deemed, without further agreement between the
parties hereto and their successors, that the purchaser on such sale has
assumed and agreed to carry out all covenants and obligations of Landlord
arising on and after such sale or transfer.
(h) The term "office" or "offices," wherever used in this Lease
shall not be construed to mean premises used as a store or stores, or permit
the use of the premises for the sale, display, or auction at any time, of
goods, wares or merchandise of any kind, or as a restaurant, banking
facility, shop, booth, bootblack, or other stand, barber shop, beauty
parlor or for manufacturing or for any similar uses.
(i) The words "herein," "hereof," "hereunder," "hereafter," and
words of similar import refer to this Lease as a whole and not to any
particular section or subdivision thereof.
<PAGE> 23
(j) In all cases where Landlord's consent or approval is
required under this Lease, Landlord covenants and agrees that such consent
or approval shall not be unreasonably withheld or delayed at such times as
Tenant is not in default in the performance of any of its obligations under
this Lease beyond the applicable grace period provided herein.
28. INABILITY TO PERFORM. This Lease and the obligations of Tenant
--------------------
to pay rent hereunder and perform all of the other covenants, agreements,
terms, provisions and conditions hereunder on the part of Tenant to be
performed shall in no wise be affected, impaired or excused because Land-
lord is unable to fulfill any of its obligations under this Lease or is
unable to supply or is delayed in supplying any service expressly or
impliedly to be supplied or is unable to make or is delayed in making
any repairs, replacements, additions, alterations or decorations or is
unable to supply or is delayed in supplying any equipment or fixtures if
Landlord is prevented or delayed from so doing by reason of strikes or
labor troubles or any other similar or dissimilar cause whatsoever beyond
Landlord's control, including, but not limited to, governmental preemption
in connection with a national emergency or by reason of any rule, order or
regulation of any department or subdivision thereof of any governmental
agency or by reason of the conditions of supply and demand which have been
or are affected by war or other emergency, or by reason of any fire or
other casualty or act of God.
29. ABANDONED PERSONAL PROPERTY. Any personal property (other than
---------------------------
any fixture, equipment, improvement, installation or appurtenance of the
character referred to in Article 8 hereof), which shall remain in the
premises or any part thereof after the expiration or termination of the
term of this Lease shall be deemed to have been abandoned, and either may
be retained by Landlord as its property or may be disposed of in such
manner as Landlord may see fit; provided, however, that notwithstanding
the foregoing, Tenant will, upon request of Landlord made not later than
ten (10) days after the expiration or termination of the term hereof,
promptly remove from the Building any such personal property at Tenant's
own cost and expense. If such personal property or any part thereof shall
be sold by Landlord, Landlord may receive and retain the proceeds of such
sale as Landlord's property.
30. EXCULPATION. Notwithstanding anything to the contrary set forth
-----------
in this Lease, in this specifically understood and agreed by Tenant that
there shall be absolutely no personal liability on the part of Landlord or
on the part of the partners of Landlord with respect to any of the terms,
covenants and conditions of this Lease, and Tenant shall look solely to the
equity, if any, of Landlord in the Land and Building for the satisfaction
of each and every remedy of Tenant in the event of any breach by Landlord
of any of the terms, covenants and conditions of this Lease to be performed
by Landlord; such exculpation of personal liability to be absolute and
without any exception whatsoever.
31. ARTICLE HEADINGS. The Article headings of this Lease are for
----------------
convenience only and are not to be considered in construing the same.
32. QUIET ENJOYMENT. Landlord covenants that if, and so long as,
---------------
Tenant is not in default beyond the applicable grace period provided herein
with respect to the performance of the terms and conditions on its part to
be performed under this Lease, Tenant shall quietly enjoy the premises with-
out hindrance or molestation by Landlord or by any other person lawfully
claiming the same, subject to the covenants, agreements, terms, provisions
and conditions of this Lease and to any ground leases and/or underlying
leases and/or mortgages, extensions, renewals, modifications, alterations
and substitutions thereof, to which this Lease is now and may hereafter be
subject and subordinate, as hereinbefore set forth.
33. ARBITRATION. In any case in which it is provided b the terms of
-----------
this Lease that any matter be determined by arbitration, the same shall be
settled by arbitration in the City of Hackensack, New Jersey in accordance
with the Rules of the American Arbitration Association (or its successor
then existing). The determination in such arbitration proceeding shall be
conclusive upon the parties, and judgment upon any award or decision may
be entered in any court having jurisdiction
<PAGE> 24
thereof. The costs, fees and expenses of the arbitrator or arbitrators
and/or the American Arbitration Association shall be shared equally by the
parties thereto unless otherwise provided in the arbitrators' decision.
34. HOLDING OVER. If the Tenant retains possession of the demised
------------
premises or any part thereof after the termination of the term by lapse of
time or otherwise, without prior written approval of Landlord, the Tenant
shall pay the Landlord fixed rent at double the rate specified in Article
3, together with additional rent and other charges as provided herein, for
the time the Tenant thus remains in possession, and, in addition thereto,
shall pay the Landlord all damages, consequential as well as direct,
sustained by reason of the Tenant's retention of possession. If the Tenant
remains in possession of the demised premises, or any part thereof, after
the termination of the term by lapse of time or otherwise, such holding
over shall, at the election of the Landlord expressed in a written notice
to the Tenant and not otherwise, constitute an extension of this Lease on a
month-to-month basis at double the monthly rental set forth in Article 3,
together with additional rent and other charges as provided herein. The
provisions of this Article 34 do not exclude the Landlord's rights of re-
entry or any other right hereunder.
35. CANCELLATION.
------------
(a) Tenant shall have the right to accelerate the termination
date of this Lease to May 30, 1984, provided Tenant sends a notice of its
election to accelerate the termination date ("Tenant's Accelerated Termina-
tion Date Notice") to Landlord on or before August 30, 1983. Tenant's
Accelerated Termination Date Notice shall only be effective if it is
accompanied by Tenant's certified check made payable to Landlord in an
amount equal to the sum of six (6) months fixed rent and six (6) months of
Tenant's Electric Energy Charge ("Termination Penalty").
(b) In the event Landlord has not received a similar tenant's
accelerated termination date notice from Fittin, Cunningham & Lauzon, Inc.
(hereinafter called "Fittin"), simultaneously with Tenant's Accelerated
Termination Date Notice, then Landlord shall have the right, at its option
within fifteen (15) days of its receipt of Tenant's Accelerated Termination
Date Notice to void same by notice to Tenant, which notice shall be accom-
panied by the return of Tenant's check in the amount of the Termination
Penalty. In the event Landlord voids Tenant's Accelerated Termination
Date Notice, then the term of the Lease shall expire on the termination
date set forth herein and the provisions of Article 36 of this Lease shall
be null and void.
36. OPTION TO RENEW.
---------------
(a) Provided Tenant is not in default under the Lease, Tenant
shall have the right at, its option by notice to Landlord not earlier than
January 1, 1985, nor later than April 30, 1985, to extend the term of this
Lease for an additional five (5) year period (hereinafter called "Option
Period") under all of the same terms and conditions contained herein except
that the-fixed rent as is set forth Preamble (7) shall be the greater of
(i) Thirty-Four Thousand Six Hundred Forty Five and 00/100 (34,645.00)
DOLLARS or (ii) a sum equal to Thirty-Four Thousand Six Hundred Forty-Five
and 00/100 ($34,645.00) DOLLARS and one hundred (100%) percent of the
increase from the date hereof until the commencement of the Option Period
in the fair market rental value of the demised premises.
(b) The fair market rental value of the demised premises shall
be determined by a Qualified Appraiser or Appraisers (as hereinafter de-
fined) estimated in terms of money, which the demised premises will bring
on the date the Option Period commences if exposed for rental in the open
market by a landlord, who is willing but not obliged to lease, allowing a
reasonable time to find a tenant, who is willing but not obliged to lease.
(c) Tenant shall furnish to Landlord on the date of its exercise
of its option to renew, an appraisal by a member of the American Institute
of Real Estate Appraisers, or its successor (any such member being herein-
after referred to as a "Qualified Appraiser") of the fair market rental
value of the demised premises. If Landlord shall disagree with the results
of such appraisal, it shall cause an appraisal of the demised premises to
be made by another
<PAGE> 25
Qualified Appraiser and shall furnish such appraisal to Tenant within
twenty (20) days after receipt of Tenant's appraisal. If Landlord and
Tenant's appraisals are within ten (10%) percent of each other, the fair
market rental value shall be the average of the two appraisals. If not
and if within ten (10) days after submission by Landlord to Tenant of
Landlord's appraisal, Landlord and Tenant are unable to agree on the
amount of the fair market rental value, the Qualified Appraisers of Land-
lord and Tenant respectively, shall select a third Qualified Appraiser
whose appraisal of the fair market rental value of the demised premises
shall be conclusive for purposes of this Article. If Landlord and Tenant's
Appraisers cannot select a third Qualified Appraiser, such Appraiser shall
be selected in accordance with the provisions of Article 33. Landlord
shall bear the entire cost of Landlord's Appraisal, and Tenant shall bear
the entire cost of Tenant's Appraisal. Landlord and Tenant shall equally
share the cost of the services rendered by the third Qualified Appraiser.
In all events, the selection of the third Qualified Appraiser and its
determination shall be made within thirty-five (35) days of the date upon
which Landlord's appraisal is submitted.
(d) If the third Qualified Appraiser's determination of the fair
market rental value of the demised premises is in excess of 110% of the
fair market rental value determined by Tenant's Qualified Appraiser, then
in that event Tenant shall have a right within fifteen (15) days of its
receipt of the third Qualified Appraiser's determination to terminate its
option to renew by notice to Landlord, which notice and Tenant's right to
terminate shall be strictly conditioned upon Landlord simultaneously
receiving a similar termination notice from Fittin, and Tenant furnishing
Landlord with its check made payable to Landlord in the amount of one-half
the cost of the services rendered by the third Qualified Appraiser.
(e) The option to renew as set forth above is expressly made
subject to the following two conditions: (i) simultaneous with Tenant's
exercise of this option, Landlord shall have received notice of an option
to renew from Fittin, and (ii) any tenant of the building who occupies in
excess of 5,882 rentable square feet has not as of June 1, 1985, entered
into a lease covering the demised premises or the premises occupied by
Fittin.
(f) In the event either of the conditions set forth in the sub-
division (e) has occurred, then in that event Tenant shall not have the
right to extend the term of the Lease and in lieu thereof Tenant shall
have the right at its election by notice to Landlord ("New Lease Notice"),
which notice shall be given within fifteen (15) days of its receipt of
Landlord's notice advising Tenant that the conditions set forth in sub-
division (d) have not been met, to enter into a new lease with Landlord
(hereinafter called the "New Lease") covering premises of approximately
2,306 rentable square feet presently occupied by Timeplex, Inc. (herein-
after called the "New Premises"). In the event Tenant elects to enter
into a New Lease, then the term of this Lease shall expire on December
31, 1985, and the term of the New Lease covering the New Premises shall
commence January 1, 1986, and expire December 31, 1990. All of the terms,
conditions and covenants of the New Lease shall be the same as this Lease
except for the following: (i) the demised premises shall be the New
Premises; (ii) the term shall be for five (5) years; (iii) the Electric
Energy Charge shall be computed on the basis of the square footage of New
Premises and the then applicable charge; (iv) the commencement and termina-
tion dates shall be as set forth in this subdivision (f); (v) Tenant's
rentable area shall be 2,306; (vi) Tenant's percentage shall be 1.23%;
(vii) parking spaces shall be 8; (viii) Tenant shall take the New Premises
in its then "as is" but broom clean condition and Exhibit "B" of the Lease
shall be deleted; (ix) Articles 35 and 36 of this Lease shall be deleted;
(x) the fixed rent shall be equal to the fair market rentable value of the
New Premises as of the commencement date to be determined in accordance
with subparagraphs (b) and (c) of this Article.
(g) Tenant's option to enter into a New Lease for the New
Premises as set forth in subdivision (f) shall be strictly conditioned
upon the Landlord receiving a similar notice from Fittin expressing its
intention to enter into a new lease for premises presently occupied by
Rosemount, Inc. In the event such notice is not received simultaneously
with Tenant's New Lease Notic, then Landlord shall have the right within
fifteen (15) days of its receipt of Tenant's New Lease Notice to void same
and thereupon this Lease shall terminate on the termination date originally
set forth herein and Tenant shall have no right to extend the term of this
Lease or to enter into a New Lease for the New Premises or for any other
area of the Building.
<PAGE> 26
IN WITNESS WHEREOF, Landlord and Tenant have executed or caused to be
executed, these presents, as of the date first hereinabove set forth.
Signed, Sealed and Delivered HEIGHTS PLAZA ASSOCIATES
in the presence of (Landlord)
/s/ Ellen J. Bisogno /s/ Alfred Sanzari
- ------------------------------ By ------------------------------
General Partner
WITNESS AUTOMATED MEDICAL LABORATORIES,
INC. (Tenant)
/s/ /s/ Thomas K. Langbein
- ------------------------------ By-------------------------------
President
<PAGE>
"HEIGHTS PLAZA"
EXHIBIT "B"
-----------
Landlord's Work
---------------
1.00 General Conditions
------------------
1.01 Landlord agrees that, at its expense, prior to commencement of
this Lease, it will provide the building standard work in the
demised premises as described herein.
1.02 Building standards shall mean the work described herein.
1.03 Landlord shall use only new and first-class materials and will
perform all work in a good and workmanlike condition.
1.04 Landlord will provide a complete space to meet all State and
local codes and requirements.
1.05 Landlord will obtain and pay for all permits and inspections
required for occupancy, exclusive of any special permits or
approvals relating to Tenant's equipment or business operations.
1.06 Landlord will furnish all labor, material and equipment required
to complete the building standard work described herein and such
additional work as Landlord may agree to provide in accordance
with the final approved drawings and specifications.
1.07 Tenant's Work shall mean any work performed by or on behalf of
Tenant in the demised premises which is not included- in Land-
lord's Work or otherwise performed by Landlord on behalf of
Tenant.
1.08 Contractors and subcontractors doing Tenant's Work shall be of
Tenant's choice but shall be subject to Landlord's prior
approval and such rules and regulations as Landlord, in its
sole discretion, may impose. Tenant's work may be done during
normal working hours prior to the commencement date of this
Lease provided Landlord's Work has progressed sufficiently that
Tenant's Work will not interfere with remaining Landlord's Work.
Tenant shall receive, without charge, water, heat, ventilation
or cooling, during normal working hours, but only to the extent
that such services are being supplied to Landlord's contractors
and workmen at the demised premises at the time. Tenant shall
pay for hoist and rubbish removal service in connection with
its work. It is understood and agreed that Tenant's access and
entry prior to the commencement of the Lease term to make its
installations is conditioned upon Tenant's contractors, subcon-
tractors and material suppliers working in harmony and not
interfering with the labor forces employed by Landlord or any
other tenant, or their contractors, subcontractors and material
suppliers. If, at any time, such entry shall cause disharmony
or interference, then Tenant's right to such access and entry
may be withdrawn by Landlord immediately.
Workmen's Compensation, Public Liability and Property Damage
insurance, all in amounts and with companies and on forms
satisfactory to Landlord, shall be provided and at all times
maintained by Tenant and its contractors engaged in the per-
formance of Tenant's Work and before preceeding with any
Tenant's Work. Certificates for such insurance shall be
furnished to Landlord.
1.09 Access and entry by Tenant before the commencement date in
accordance with 1.07 above shall be deemed to be under all of
the terms, covenants, provision and conditions of the Lease
except as to the covenant to pay rent. Landlord shall not be
liable in any way for any injury, loss or damage which may
occur to any Tenant's decorations or installations so made
prior to the commencement of the term of the Lease, the same
being solely at Tenant's risk.
<PAGE>
2.00 Plans and Specifications
------------------------
2.01 Tenant's architect will provide Landlord with twelve (12)
complete sets of working plans and specifications for the demised
premises, which plans shall be prepared in accordance with this
Exhibit. Landlord's architect will provide same service if
desired by Tenant for $.55 per rentable square foot.
2.02 The working plans and specifications shall be subject to Land-
lord's review and approval, and, to the extent that such plans
and specifications do no conform to this Exhibit, Landlord may
disapprove the same unless Tenant agrees to pay Landlord for is
additional costs in accordance with 2.03 below.
2.03 On its plans and specifications furnished in accordance with
2.02 above, Tenant may designate different materials (except
window coverings) in place of building, standard materials
which would otherwise be initially furnished and installed by
Landlord under the provisions of this Exhibit, provided such
selection is approved by Landlord. If Tenant shall make any
such selection, or if different materials are required because
of any situation created by Tenant (by reason of subleasing or
any other similar or dissimilar cause) wherein the applicable
building codes prohibit the use of building standard materials,
and if the Work Cost (as hereinafter defined) of such different
materials shall exceed the Landlord's cost of building standard
materials thereby replaced, Tenant shall pay to Landlord, as
hereinafter provided, the difference between the Work Cost of
such different new materials and the Landlord's cost of
building standard materials thereby replaced. Tenant may also
indicate on its plans and specifications additional work and
additional materials (subject to approval by Landlord) to be
furnished and installed by Landlord at Tenant's expense, and
Tenant shall pay to Landlord, as hereinafter provided, the
Work Cost of such additional work and additional materials.
No such different materials shall be furnished and installed
in replacement for any of building standard materials nor shall
any such additional work or additional materials be furnished
and installed unless Landlord and Tenant shall have agreed in
writing the Work Cost of such different new materials and the
Landlord's cost of such replaced building standard materials,
or the Work Cost of such additional work or additional materi-
als, as the case may be. All amounts payable by Tenant to
Landlord pursuant to this Exhibit shall be paid by Tenant
promptly after the rendering of bills therefor by Landlord
to Tenant, it being understood and agreed that such bills may
be rendered during the progress of the performance of the work
and/or the furnishing and installation of the materials to
which such bills relate and that final payment in full be
made on the 10th day of the month following completion of
the work, as additional rent under the Lease. Any such dif-
ferent materials and any such additional work and additional
materials shall, upon installation, become the property of
Landlord and shall be surrendered by Tenant to Landlord at
the end or other expiration of the term of the Lease unless
otherwise provided therein. No credit shall be granted for
the omission of building standard materials where no replacement
in kind is made. The term "Work Cost" as used in this Exhibit
shall mean the total of all estimated actual costs to Landlord
for furnishing and installing such different new materials or
such additional work or additional materials, plus 10% overhead
plus 10% profit of such actual costs.
2.04 Tenant shall provide Landlord with the plans and specifications
described in 2.01 above within fifteen (15) days from the date
of the Lease and in default thereof, Landlord may, at its sole
option, (a) advance the commencement date of the Lease by the
number of days equal to the number of days of such delay, (b)
proceed with the building standard work and layout as determined
solely by Landlord, or (c) accept late delivery of Tenant's
plans and specifications. If such delivery or any changes made
by Tenant as to information or drawings already submitted result
in increased costs, Tenant shall pay such costs as additional
rent as and when incurred.
3.00 Directory
---------
3.01 Provide a directory at the main level lobby with the name and
location of Tenant indicated thereon.
4.00 Partitions
----------
<PAGE>
4.01 Partitions in accordance with the approved plans not to exceed
one (1) lineal foot of partition per 20 square feet of rentable
area of the demised premises.
4.02 Between the demised premises and corridor(s) and/or between
the demised premises and adjacent space, 5/8" fire code gypsum
board, taped and spackled, on each side of 3 5/8" metal studs,
16" on center. Demising partitions to have 3-1/2" (full thick)
sound deadening insulation installed within from floor to
underside of floor above.
4.03 In the demised premises, 5/8" fire code gypsum board on each
side of 3 5/8" metal stud, 16" on center, taped and spackled,
to underside of finished ceiling.
4.04 Partitions terminating in the building exterior wall shall meet
either a mullion or a column without interfering with access
to the peripheral enclosure.
4.05 There will be no jogs, curves or angels in any partition.
5.00 Doors and Bucks
---------------
5.01 All bucks to be 16 gauge hollow metal.
5.02 Doors within tenant space to be 3'0" x 7'0" x 1 3/4" wood solid
core stain grade.
5.03 Tenants main entrance to be full height 3'0" x 9'0" x 1 3/4"
wood solid core door with a 2'6" x 9'0" tempered glass side
light.
5.04 Secondary egress doors on public cooridors to be 3'0" x 9'0" x
1 3/4" wood solid core.
6.00 Glazing
-------
6.01 Glazing in windows and doors shall be as required by local
State and Federal regulations.
7.00 Rough and Finished Hardware
---------------------------
7.01 Provide rough and finished hardware including latch sets on
individual office doors.
7.02 Landlord shall supply and install all rough and finish hardware.
7.03 Finish hardware to be Schlage, Sargent, Yale and Towne or
equal, as selected by Landlord.
7.04 All doors to be located, oriented and equipped with hardware
in accordance with local codes.
7.05 Heavy duty lock sets and closers shall be installed on all
doors opening on public corridors.
7.06 All locks shall be keyed to the building, master keying system.
7.07 Furnish and install chrome clothes rods and shelf for coat
closets in Tenants plans.
8.00 Acoustical Ceilings
-------------------
8.01 Lay in acoustic tile ceilings shall be 24" x 48" x 5/8"
exposed grid in all areas. Tile shall be U.S. Gypsum Aura-
tone or equal, as selected by Landlord. Entire ceiling system
shall be fire rated.
8.02 Ceiling heights to be 9'0" except where otherwise noted.
9.00 Flooring
--------
9.01 An allowance of $9.00 per square yard will be given to Tenant
towards the
<PAGE>
purchase and installation of carpet and base in areas where
asbestos tile is not installed by Landlord.
9.02 All carpets will be selected from Landlord's samples.
9.03 Supply rooms, telephone and equipment rooms and mailrooms will
receive 1/8" vinyl asbestos tile with 4" vinyl base to be
selected from Landlord's samples.
10.00 Painting
--------
10.01 Interior wall surfaces of gypsum board shall receive two (2)
coats of flat alkyd paint, colors to be selected by Tenant
from Landlord's samples.
10.02 All exposed interior ferrous metal surfaces including miscel-
laneous metal, piping duct work and mechanical equipment shall
receive two (2)coats-of enamel paint over one (1) coat of
primer.
10.03 Metal doors, door bucks and other metal surfaces not having
baked enamel finish shall receive two coats of enamel paint
over one coat of primer.
10.04 Paint manufacturers to be utilized are as follows:
a. Pratt & Lambert, Devoe, Conlux or approved equal, as
selected by Landlord.
11.00 Window Covering
---------------
11.01 Furnish and install building standard horizontal blinds with
color as established by Landlord for all exterior windows.
12.00 HVAC Specifications
-------------------
12.01 Heating and air-conditioning shall be capable of maintaining
78F (+ or - 2 F) at 50% relative humidity when the outdoor
temperature is 95 F.D.b. 76 F-W.B. in the cooling season.
Heating season 70 F(+ or - 2 F) and 20% + or - 5% relative
humidity when outside temperature is 5 F-D.B. Thermostatic
setting's shall be subject to all applicable laws and any
required compliance certificates or other energy management
forms.
12.02 The HVAC systems shall be a Carrier variable air volume-type
system using a model #37AG & #37AH moduline terminals. The
terminals shall be mounted on the air ceiling suspension system.
Master units shall have self-contained automatic thermostats
and volume control. Terminals can operate from 100% of nominal
volume to 10% of nominal volume.
12.03 The terminals are connected to supply duct systems which are
supplied with conditioned air from rooftop air handling units,
with cooling coils, filters., mixing, dampers and relief
dampers, Carrier 39E fan coil units.
12.04 A control panel for each system contains, time clock, refrig-
eration step controller, duct supply air control thermostat
and automatic economizer controls.
12.05 The air supply distribution of the HVAC system for the
demised premises shall be based on one (1) watt per square
foot of total power load for head. producing equipment.
Occupancy rate based on 150 square feet per person.
12.06 All heating will be provided from perimeter electric base-
board radiation with ceiling plenum electric unit heaters on
the floor and below the first floor to offset heat losses.
12.07 The control system for the heating will be by means of an
electronic "SCR" controller and solar compensation system.
12.08 The system will be under time clock control to operate during
Business Hours on Business Days (as those terms are defined
in the Lease).
<PAGE>
12.09 Zoning on tenant areas will be based on 600 to 1,200 sq. ft.
per zone, depending upon usage and orientation.
12.10 Lighting load on HVAC system will be based on 2.5 to 3 watts
per square foot.
12.11 If Tenant's equipment (i.e., computers, etc.) requires air-
conditioning, above and beyond building' standard as outlined,
said additional air-conditioning, (including cost of operation
as stipulated in the Lease) shall be paid for by Tenant as an
extra cost. Any special exhaust requirements will also be an
extra cost to be paid by Tenant.
13.00 Electrical Specifications
-------------------------
13.01 Lighting
--------
A. Office Areas - provide 1-2'-0" x 4'-0", 4 tube recessed
fluorescent fixture for each 80 square feet of rentable
space. Fixtures to be as manufactured by Roberts Manufac-
turing catalog #K85-440-A277 or approved equal, as selected
by Landlord.
B. Provide 2'-0" x 2'-0" recessed fluroescent fixture where
required as a substitute for a like number of 2'-0" x 4'-0"
fixtures.
13.02 Power - one (1) duplex receptacle will be provided for each
-----
125 square feet of rentable area and to meet all applicable
codes.
13.03 Exit and emergency lighting to be provided as per codes.
13.04 One light switch will be provided in each office.
13.05 Provide an emergency generator plant, complete with automatic
transfer switch to operate all emergency and exit lighting
fixtures in public areas, the fire alarm system, the fire
pump and one elevator in case of power disruption from P.S.E.
& G. sources.
13.06 The average electric load of the demised premises shall not
exceed four (4) watts per square foot for lighting and power.
13.07 Electrical Specs - Landlord shall initially provide and
----------------
install lamps and ballasts at its expense. Replacement of
same by Landlord at Tenant's expense.
14.00 Sprinkler System
----------------
14.01 Provide a complete sprinkler system throughout entire building
and garage area in accordance with all state and local codes.
14.02 Sprinkler heads installed in all office and lobby areas shall
be a concealed type as manufactured by the Reliable Sprinkler
Co., or equal, as selected by Landlord.
15.00 Telephone Service
-----------------
15.01 The Landlord shall arrange with New Jersey Bell Telephone
Company for telephone service within the equipment room in
the building core.
15.02 All telephone work and wiring in partitions, floors and
ceilings to be arranged for by Tenant with New Jersey Bell
Telephone Company or other qualified installer selected by
Tenant. Landlord will coordinate work with other trades as
required. Completion or non-completion of the telephone work
will not delay Tenant's acceptance of the demised premises
or the payment of rent. All electrical load centers, special
wiring and plywood supplied by Landlord for telephone equipment
shall be an extra cost to be paid by Tenant. Telephone company
wiring is to meet all prevailing codes.
<PAGE>
EXHIBIT C
---------
RULES AND REGULATIONS
1. The public and common sidewalks, entrances, passages, courts,
elevators, vestibules, stairways, corridors or halls shall not be ob-
structed, or encumbered by any tenant or used for any purpose other than
ingress and egress to and from the premises.
2. No awnings or other projections shall be attached to the outside
walls of the Building without the prior written consent of the Landlord.
No curtains, blinds, shades, or screens shall be attached to or hung in,
or used in connection with any window or door of the premises, without the
prior written consent of the Landlord. Such awnings, projections, curtains,
blinds, shades, screens or other fixtures must be of a quality, type,
design and color, and attached in the manner approved by Landlord. All
electrical fixtures hung in offices or spaces along the perimeter of the
premises must be of a quality, type, design and bulb color approved by the
Landlord.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed painted or affixed by any tenant on any part of the
outside or inside of the premises Building without prior written consent
of the Landlord. In the event of the violation of the foregoing, by any
tenant, Landlord may remove same without any liability, and may charge the
expense incurred by such removal to the tenant or tenants violating this
rule. Interior signs on doors and directory tablet shall be inscribed,
painted or affixed for each tenant by the Landlord at the expense of such
tenant, and shall be of a size, color and style acceptable to the Landlord.
4. The sashes, sash doors, skylights, windows and doors that reflect
or admit light and air into the halls, passageways or other public places
in the Building shall not be covered or obstructed by any tenant, nor shall
any bottles, parcels, or other articles be placed on the windowsills.
5. The water and wash closets and other plumbing fixtures shall not
be used for any purposes other than those for which they were constructed,
and no sweepings, rubbish, rags or other substances shall be thrown therein.
All damages resulting from any misuse of the fixtures shall be borne by the
tenant who, or whose servants employees, agents, visitors or licensees,
shall have caused the same.
6. No tenant shall, mark, paint, drill into, or in any way deface
any part of the premises or the Building of which they form a part. No
boring, cutting or stringing of wires shall be permitted, except with the
prior written consent of the Landlord, and as the Landlord may direct.
No tenant shall lay linoleum, or other similar floor covering, so that the
same shall come in direct contact with the floor of the premises, and if
linoleum, rug, or other similar floor covering is desired to be used, an
interlining of builder's deadening felt shall be first affixed to the
floor, by a paste or other material, soluble in water, the use of cement
or other similar adhesive material being expressly prohibited.
7. No space in the Building shall be used for manufacturing, for the
storage, of merchandise, or for the sale of merchandise, goods or property
of any kind at auction.
8. No tenant shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with other occupants of the
Building or those having business with them whether by the use of any
musical instrument, radio, television set, talking machine, unmusical
noise, whistling, singing, or in any other way. No tenant shall throw
anything, out of the doors, windows or skylights or down the passageways.
9. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows by any tenant, nor shall an changes be made in
existing locks or the mechanism thereof. Each tenant must, upon the
termination of his tenancy, restore to the Landlord all keys of stores,
offices and toilet rooms, either furnished to, or otherwise procured by,
such tenant, and in the event of the loss of any keys, so furnished, such
tenant shall pay to Landlord the cost thereof.
10. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the
hours which the Landlord or its agents may reasonably designate from time
to time. The Landlord reserves the right to inspect all safes, freight or
other bulky articles to be brought into the Building and to
<PAGE>
exclude from the Building all safes, freight or other bulky articles which
violate any of these Rules and Regulations or the Lease of which these
Rules and Regulations are a part.
11. No tenant shall occupy or permit any portion of the premises
demised to him to be occupied as an office for a public stenographer or
typist, or a small loan company or for the possession, storage, manufacture,
or sale of liquor, narcotics, dope, tobacco, in any form, or as a barber,
beauty parlor, or manicure shop, or as an employment bureau. No tenant
shall engage or pay any employees on the premises, except those actually
working for such tenant on said premises, nor advertise for laborers
giving an address at said premises.
12. No tenant shall purchase ice, towels, or other like service,
from any company or persons not approved by the Landlord.
13. The Landlord reserves the right to exclude from the Building,
between the hours of 6:00 P.M. and 8:00 A.M. on Monday to Friday,
inclusive, and between the hours of 1:00 P.M. on Saturday and 8:00 A.M.
on the following Monday, as well as on legal holidays, all persons who do
not present a pass to the Building signed by the Landlord. The Landlord
will furnish passes to persons for whom any tenant requests same in writing.
Each tenant shall be responsible for all persons for whom it requests such
pass and shall be liable to the Landlord for all acts of such persons.
14. Canvassing, soliciting and peddling, in the Building is pro-
hibited and each tenant shall cooperate to prevent the same.
15. There shall not be used in any space, or in the public halls of
any Building either by any tenant or by jobbers or others in the delivery
or receipt of merchandise, any hand trucks, except those equipped with
rubber tires and side guards.
16. Tenant shall not do any cooking, conduct any restaurant, lunch-
eonette or cafeteria for the sale or service of food or beverages to its
employees or to others, or cause or permit any odors of cooking or other
processes or any unusual or objectionable odors to emanate from the
premises. Tenant shall not install or permit the installation or use of
any food, beverage, cigarette, cigar or stamp dispensing machine; or
permit the delivery of any food or beverage to the premises, except by
such persons delivering the same as shall be approved by Landlord.
17. Tenant shall not use or permit the premises to be used for any
unlawful or illegal business or purpose or for lodging.
18. Tenant shall not illegally sell or store upon the premises any
spirituous, malt or vinous liquor or any narcotic drugs and shall not
exhibit, sell or offer for sale on the premises or the Building anything
whatsoever except such as are essentially connected with the stated use
of the premises.
19. Tenant shall not do or permit to be done any act or thing upon
the premises which will invalidate or be in conflict with any fire in-
surance policies or increase the rate of fire insurance covering the
Building of which the premises form a part and shall not do or permit to
be done any act or thing upon the premises which shall or might subject
Landlord to any liability or responsibility for injury to any person or
persons or to property by means of any business or operation being carried
on in the premises or for any other reason. In no event shall any ex-
plosives or flammable materials be taken into or retained in the premises.
20. If the sprinkler system or any of its appliances shall be damaged
or injured, or not in proper working order by reason of any act or omission
of any tenant, or any tenant's agents, servants, employees, licensees or
visitors, such tenant shall forthwith restore the same to good working
conditions at its own expense; and if the Board of Fire Underwriters or
any fire insurance company or any bureau, department or official of the
state or city government having jurisdiction shall require or recommend
that any changes, modifications, alterations or additional sprinkler heads
or other equipment be made or supplied by reason of such tenant's business,
or the location of partitions, trade fixtures, or other contents of the
premises, or if any such changes, modifications, alterations, additional
sprinkler heads or other equipment, become necessary to prevent the impo-
sition of a penalty or charge against the full allowance for a sprinkler
system in the fire insurance rate as fixed by said Board, or by any fire
insurance company, such tenant shall at its expense, promptly make and
supply such changes, modifications, alterations, additional sprinkler
heads or other equipment.
<PAGE>
21. Tenant shall not place or permit to be placed any vending
machines in the premises, except with the prior written contsent of
Landlord in each instance.
22. Tenant shall not use or permit the parking decks to be used for
the parking, loading or unloading of trucks exceeding the weight limit
established from time to time by Landlord.
<PAGE>
EXHIBIT D
---------
JANITORIAL SERVICES
A. Nightly Services - Monday thru Friday:
-------------------------------------
1. Empty and clean ash trays.
2. Empty waste baskets.
3. Clean cigarette urns.
4. Remove trash to areas designated.
5. Wipe drinking fountains.
6. Sweep floors.
7. Dust desks and tables.
8. Dust desk accessories not of material value and replace in proper
place.
9. Dust cabinets, files, chairs and window sills.
10. Vacuum carpets.
C. Outside Services, as required:
-----------------------------
1. Sweep driveways and curbs.
2. Sweep and clean sidewalks.
3. Snow removal from driveways, sidewalks, steps and parking areas.
D. Occasional Service, when necessary:
----------------------------------
1. Dust paneling.
2. Dust picture frames.
3. Dust diffusers.
4. High dust door tops, tops of partitions and high ledges.
5. Damp mop floors.
E. Nightly Service - Restroom Area - Monday thru Friday (on floor(s)
----------------------------------------------------
leased by Tenant)
1. Sweep, mop and sanitize floors.
2. Clean commodes and toilet seats.
3. Empty and clean towel and sanitary disposal receptacles.
4. Clean urinals.
5. Clean mirrors.
6. Clean sinks.
7. Sanitize plumbing fixtures.
F. Occasional Service-Restroom Area (on floor(s) leased by Tenant)
--------------------------------
1. High dust walls and ceilings.
2. Completely clean ceramic tile.
3. Replenish soap, toilet tissue and paper towels.
4. Spot clean ceramic wall tiles.
G. Public Areas and Supplemental Service
-------------------------------------
1. Wash and wax flooring, on stairs, Corridors, foyers and elevators,
as necessary.
2. Elevator, stairway and utility doors washed with clear water or
approved cleanser, as necessary.
3. Dust and clean electric fixtures and fittings in public corridors,
foyers, stairways, as necessary.
H. Window Cleaning Services
------------------------
1. Exterior windows and glass and interior glass doors and partition
glass will be washed inside and outside as required, but not more
than four (4) times per year.
I. The Janitorial Services described in this Exhibit shall be deemed
all-inclusive and although Landlord, at its sole discretion, reserves the
right to provide, from time to time, additional services, it shall not be
required to provide any such additional services including, without limita-
tion, waxing floors in the demised premises.
<PAGE>
FOURTH AMENDMENT TO LEASE
THIS FOURTH AMENDMENT TO LEASE, made as of the 31st day of March,
1996, by and between HEIGHTS PLAZA ASSOCIATES, a New Jersey partnership,
having an office c/o Alfred Sanzari Enterprises, Court Plaza North, 25
Main Street, Hackensack, New Jersey 07601 (hereinafter called "Landlord"),
and MEDICORE, INC., a Florida corporation, having an address at 777 Terrace
Avenue, Hasbrouck Heights, New Jersey 07604 (hereinafter called "Tenant").
W I T N E S S E T H :
WHEREAS, by Agreement of Lease dated April 30, 1981, as amended by an
Amendment to Lease dated October 28, 1985, a Second Amendment to Lease
dated April 11, 1988, and a Third Amendment to Lease dated March 21, 1991
(the Agreement of Lease, the Amendment to Lease, the Second Amendment
thereto and the Third Amendment thereto being hereinafter collectively
referred to as the "Lease"), Landlord and Tenant and/or its predecessor-
in-interest, Automated Medical Laboratories, Inc., entered into a lease
which now covers approximately three thousand eight hundred seventy
(3,870) rentable square feet of space in a portion of the fifth (5th)
floor of a certain building commonly known as 777 Terrace Avenue,
Hasbrouck Heights, New Jersey (hereinafter called the "Premises"); and
WHEREAS, the term of the Lease expires as of the date hereof and
Landlord and Tenant are mutually desirous of extending the term of the
Lease upon all of the terms, covenant and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the sum of Ten ($10.00) Dollars
and other good and valuable consideration paid by each party to the other,
the receipt and sufficiency whereof are hereby acknowledged by both parties,
Landlord and Tenant do hereby covenant and agree as follows:
<PAGE> 1
1. All of the recital clauses hereinabove set forth are hereby in-
corporated by reference as though set forth verbatim and at length herein.
2. The term of the Lease is hereby extended for an additional five
(5) year period commencing April 1, 1996, and expiring on March 31, 2001
(hereinafter referred to as the "New Extended Term"), upon all of the same
terms, covenants and conditions of the Lease, except as hereinafter ex-
pressly set forth.
3. During the New Extended Term, the base year is hereby changed
from 1991 to 1996.
4. During the New Extended Term, the fixed rent shall be decreased
to the sum of Sixty-one Thousand Nine Hundred Twenty ($61,920.00) Dollars
per annum.
5. During the New Extended Term, the words "tax base" defined in
Article 4(a)(ii) of the Lease shall mean the taxes for the base year and
the words "base expenses" defined in Article 4(a)(iv) of the Lease shall
mean the operating expenses for the base year.
6. During the New Extended Term, the estimated Electric Energy Charge
is hereby increased to the sum of Four Thousand Eight Hundred Thirty-seven
and 50/100 ($4,837.50) Dollars per annum.
7. During the New Extended Term, the Security Deposit being held by
Landlord in the sum of Eleven Thousand Seven Hundred Seventy-One and 25/100
($11,771.25) Dollars shall be applied to the fixed rent which would other-
wise be payable until such time as said Security Deposit has been fully
credited against the fixed rent due and owing during the New Extended Term.
8. Upon the execution of this Fourth Amendment to Lease, Landlord
agrees to proceed with all due diligence to perform at its sole cost and
expense all of the work set forth on the
<PAGE> 2
Jeffrey Barton, AIA, P-1 drawing dated October 31, 1995, which drawing has
been counter-initialed by the parties hereto.
9. The Lease is hereby amended by adding at the end thereof the
following new Article 36:
"36. RENEWAL OPTION.
--------------
A. Subject to the provisions set forth below, Tenant shall have the
option to renew this Lease for an additional term of five (5) years (the
"Renewal Term"), which Renewal Term shall commence upon the expiration of
the New Extended Term. All of the terms, covenants and conditions of this
Lease shall govern the Renewal Term, except as otherwise specifically set
forth hereinafter or if inapplicable thereto.
(1) The fixed rent shall be the greater of (i) Market Rent (as
defined in subparagraph (2) below), or (ii) the fixed rent as adjusted
pursuant to Article 4, as of the last day of the New Extended Term.
(2) "Market Rent" shall mean the fair market rent for the
demised premises for the New Extended Term, determined as of the date one
hundred eighty (180) days prior to the expiration of the New Extended
Term (the "Determination Date"), based upon the rents generally in effect
for comparable office space in comparable condition in Bergen County, New
Jersey. Market Rent (for the purposes of determining the fixed rent only
during the New Extended Term) shall be determined on what is commonly known
as a "gross" basis; this is, in computing Market Rent it shall be assumed
that all real estate taxes and customary services are included in such
fixed rent. Notwithstanding the foregoing, the fixed rent for the New
Extended Term shall be thereafter increased from time to time as provided
in this Lease, and the base year, tax base and base expenses for the New
Extended Term shall all three be deemed re-defined as and re-computed on
the basis of the last calendar year of the New Extended Term of this Lease.
(3) Landlord shall notify Tenant ("Landlord's Determination
Notice") of Landlord's determination of the Market Rent within sixty (60)
days of the Determination Date. If Tenant disagrees with Landlord's deter-
mination, Tenant shall notify Landlord ("Tenant's Notice of Disagreement")
within twenty (20) days of receipt of Landlord's Determination Notice.
Time shall be of the essence with respect to Tenant's Notice of Disagree-
ment, and the failure of Tenant to give such notice within the time period
set forth above shall conclusively be deemed an acceptance by Tenant of
the Market Rent as determined by Landlord and a waiver by Tenant of any
right to dispute such Market Rent. If Tenant timely gives its Tenant's
Notice of Disagreement, then the Market Rent shall be determined as
follows: Landlord and Tenant shall, within thirty (30) days of the date
on which Tenant's Notice of Disagreement was given, each appoint an
Appraiser for the purpose of determining the Market Rent, an "Appraiser"
shall mean a duly qualified impartial real estate appraiser who is a
member of the American Institute of Real Estate Appraisers and who has
at least ten (10) years experience in appraising the rental value of
office properties comparable to the Building and located in Northern
New Jersey. In the event that the two (2) Appraisers so appointed fail
to agree as to the Market Rent within a period of thirty (30) days after
the appointment of the second Appraiser, such two (2) Appraisers shall
forthwith appoint a third Appraiser who shall
<PAGE> 3
make a determination in the manner hereinafter described within thirty
(30) days thereafter. If such two (2) Appraisers fail to agree upon such
third Appraiser within ten (10) days following the last thirty (30) day
period, such third Appraiser shall be appointed by the Bergen County
Assignment Judge of the New Jersey Superior Court. Such two (2)
Appraisers or the third Appraiser, as the case may be, shall proceed
with all reasonable dispatch to determine the Market Rent. Within
fifteen (15) days following the appointment of the third Appraiser, each
party shall submit to the third Appraiser a written report setting forth
its determination of the Market Rent of the applicable premises for the
applicable term, together with such information on comparable rentals, or
such other evidence as such party shall deem relevant. The third Appraiser
shall, within thirty (30) days following the submission of such written
reports render its decision by selecting the determination of Market Rent
submitted by either the Appraiser selected by Landlord or the Appraiser
selected by Tenant which, in the judgment of the third Appraiser, most
nearly reflects the Market Rent of the applicable premises for the appli-
cable term. It is expressly understood that such third Appraiser shall
have no power or authority to select any Market Rent other than a Market
Rent submitted by the appraiser selected by Landlord or the Appraiser
selected by Tenant, and the decision of such third Appraiser shall be
final and binding upon the parties hereto. The decision of such Appraisers
shall be final; such decision shall be in writing and a copy shall be
delivered simultaneously to Landlord and to Tenant. If such Appraisers
fail to deliver their decision as set forth above prior to the commencement
of the New Extended Term, Tenant shall pay Landlord the fixed rent at the
rate as of the last day of the New Extended Term, until such decision is
so delivered. If the Market Rent as determined above is in excess of the
actual rent paid, then Tenant, upon demand, shall pay to Landlord the
difference between the actual rent paid and the Market Rent from the
commencement of the New Extended Term. Landlord and Tenant shall each
be responsible for and shall pay the fee of the Appraiser appointed by
them respectively, and Landlord and Tenant shall share equally the fee
of the third Appraiser.
B. Tenant's option to renew, as provided in subparagraph A above,
shall be conditioned upon and subject to each of the following:
(1) Tenant shall notify Landlord in writing of its exercise of
its option to renew at least nine (9) months, but not more than fifteen
(15) months, prior to the expiration of the New Extended Term;
(2) At the time Landlord receives Tenant's notice as provided
in (1) above, Tenant shall not be in default under the terms or provisions
of this Lease beyond the applicable grace period for the cure thereof, and
at the time of the exercise of its option, Tenant shall not have subleased
more than twenty-five (25) percent of the demised premises;
(3) Tenant shall have no further renewal option other than the
option to extend for the one (1) Renewal Term as set forth in subparagraph
(A) above;
(4) This option to renew shall be deemed personal to the Tenant
and may not be assigned, except to an assignee under an assignment made
pursuant to the provisions of this Lease; and
(5) Landlord shall have no obligation to do any work or perform
any services for the New Extended Term with respect to the demised premises
which Tenant agrees to accept in its then "as is" condition."
<PAGE> 4
10. As herein amended, the Lease is ratified, confirmed and remains
in full force and effect.
11.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals as of the day and year first above written.
WITNESS: HEIGHTS PLAZA ASSOCIATES
(Landlord)
By Sanzari Associates, its
general partner
- ------------------------------ By-----------------------------------
David Sanzari, general
partner
ATTEST: MEDICORE, INC. (Tenant)
/s/ Lawrence E. Jaffe /s/ Thomas K. Langbein
By:-------------------------- By:----------------------------------
Name: Lawrence E. Jaffe Name: Thomas K. Langbein
----------------------- -------------------------------
Title: Secretary Title: CEO President
-------------- -------------------------------
<PAGE>
EXHIBIT B
ROYALTY AGREEMENT
This ROYALTY AGREEMENT is made effective this 7th day of November,
1986 by and between VIRAGEN, INC., a Delaware Corporation, having its
principal offices at 2343 West 76th Street, Hialeah, Florida 33016
(hereinafter referred to as "Viragen") and Medicore, Inc., a Florida
corporation with its principal offices at 2201 West 76th Street, Hialeah,
Florida 33016, (hereinafter referred to as "Medicore"):
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Viragen, has been engaged in biomedical research and
development and the manufacture of various immunological and biomedical
products including interferon (which term includes any interferons
whether it is made naturally or through genetic engineering processes
now or hereafter developed) and transfer factor and products using
interferon and transfer factor;
WHEREAS, Viragen recognizes the fact that Medicore (formerly
Automated Medical Laboratories, Inc.) had established Viragen and
financed Viragen since its inception in 1980 through advances, loans and
equity offerings, and provided Viragen with the raw materials and
facilities necessary for its research and development in the immuno-
logicial and biomedical field and acknowledges and recognizes the
assistance of Medicore;
<PAGE> 1
WHEREAS, Viragen hereby in consideration for Medicore's efforts and
services wishes to provide Medicore with a royalty with regard to sales
of interferon and transfer factor and products using interferon and
transfer factor;
WHEREAS, Medicore is interested in obtaining a royalty fee with
regard to interferon, transfer factor and products using interferon and
transfer factor.
NOW THEREFORE, for in consideration of the mutual covenants contained
herein and in consideration of the financing and operational efforts
provided to Viragen by Medicore and the establishing of Viragen by
Medicore as otherwise set forth herein and above, and for ten dollars
($10.00) in hand paid by Viragen to Medicore and for other good and
valuable consideration from Medicore to Viragen, including but not
limited to deferrment of certain liabilities owing from Viragen to
Medicore, Viragen hereby agrees to grant a royalty fee with respect to
interferon, transfer factor and products using interferon and transfer
factor as otherwise set forth in this Royalty Agreement as follows:
ARTICLE 1 - Definitions
-----------------------
1.01 - In the terms defined herein, the singular shall include the
plural and vice-versa.
1.02 - "Interferon" shall mean and include a protein substance
currently characterized as a viral neutralizing
<PAGE> 2
protein substance, whether produced naturally by lymphocytes, connective
(fibroblast) tissue, including alpha, beta, and gamma interferon, and
whether produced naturally or through a genetic engineering process.
1.03 - "Transfer Factor" shall mean and include any lymphokine which
exhibits specific biological activity for the protection of the body from
viruses which is now recognized as mobilizing the natural immunological
defense system of the body, whether the transfer factor is produced
naturally from lymphokines or from other natural substances or whether
produced through genetic engineering technology.
1.04 - "Licensed Product" shall mean Interferon, Transfer Factor and
all products or any substance or group of substances which involve and
include Interferon or Transfer Factor or any part of which product or any
substance or group of substances includes Interferon or Transfer Factor.
1.05 - "Net Sales" shall mean the gross selling price by Viragen and
sub-licensees for the sale of any Licensed Product(s), less trade discounts
allowed, credits for claims or allowances, refunds, returns and recalls.
In the event that Viragen or any subsidiary or sub-licensee or affiliated
company sells a Licensed Product in combination with other products ("Other
Products') which are not Licensed Product(s), Net Sales for purposes of
royalty payments on the combination shall be calculated by multiplying the
gross
<PAGE> 3
selling price on the combination by the fraction A/A + B, where A is
Viragen's costs of all Licensed Product(s) in the combination, and B
is Viragen's costs of all Other Products in the combination, each A and
B to be Viragen's costs of the material product components, exclusive of
bottling, packaging and similar handling charges.
The Licensed Product is considered sold hereunder when billed out
or if not billed out, when shipped or mailed or otherwise delivered, or
when paid for, if paid for before delivery. All sales shall be bona fide,
arms-length transactions.
1.06 - "Related Company" shall mean an organization of which more
than fifty (50%) percent of the voting stock is controlled or owned, directly or
indirectly, by either party to this Royalty Agreement; or an organization,
which, directly or indirectly, owns or controls more than fifty (50%) percent of
the voting stock of either party to this Royalty Agreement; or an organization,
the majority ownership of which is, directly or indirectly, common to the
majority ownership of either party to this Royalty Agreement.
1.07 - "Viragen" shall mean and include, unless the context otherwise
indicates, every Related Company of Viragen and any and all sub-licensees
of Viragen with respect to the Licensed Product(s).
1.08 - "Territory" shall mean the entire world.
<PAGE> 4
ARTICLE II - Payments and Royalties
-----------------------------------
2.01 - In consideration for Medicore having established Viragen and
providing the facilities and financing for Viragen to engage in the
research, development and production of Licensed Product(s) and in con-
sideration of the advances and loans made by Medicore to Viragen and the
deferrment of the immediate repayment of the same, Viragen hereby grants
a royalty to Medicore and agrees and shall pay to Medicore a royalty fee
as follows:
(a) Ten (10%) percent of the annual Net Sales of Licensed Product(s)
sold in the Territory by Viragen up to and on the first Twenty Million
Dollars ($20,000,000) of such sales; and
(b) Five (5%) percent of the annual Net Sales of Licensed Product(s)
sold in a Territory by Viragen in excess of Twenty Million Dollars
($20,000,000) of such sales.
2.02 - The obligation of Viragen to pay to Medicore under this
Royalty Agreement shall be imposed once with respect to the same unit of
the Licensed Product(s), even through the manufacture, use and/or sale
may occur in one or more countries. Sales between Viragen and any Related
Company shall not be subject to royalty so long as the Related Company is
not the end user of the Licensed Product(s), in which case the royalty
payment shall be based upon the resale of the Licensed Product(s) by the
Related Company.
<PAGE> 5
If the Realted Company is the end user, such sales to a Related Company
shall be subject to the royalty payment as provided in this Article II,
and said royalty shall be based on retail prices that such Licensed
Product(s) would be sold to unrelated third parties.
2.03 - Annual Net Sales will be Net Sales which transpire during
each year of the life of this Royalty Agreement, commencing and each year
being measured from the anniversary date to anniversary date from the
effective date of this Royalty Agreement.
2.04 - Viragen agrees that any income, withholding or other similar
tax levied by any country, state or jurisdiction on payments to Medicore
under this Royalty Agreement shall be born by Viragen.
2.05 - This Royalty Agreement shall not be deemed or construed as any
repayment of indebtedness of Viragen to Medicore, nor as any interest
payment on any such indebtedness, such indebtedness and interest being
reflected in a subordinated three year secured promissory note from
Viragen to Medicore dated the same date as this Royalty Agreement.
ARTICLE III - Term
------------------
3.01 - This Royalty Agreement shall commence as of the date first
written above and shall be for a period of ten years from such date;
provided, however, that if Viragen has Licensed Product(s) and does not
use its best efforts to market the same or otherwise obtain approval for
Licensed
<PAGE> 6
Product(s), then during such period that any Licensed Product(s) was not
pursued with the best efforts of Viragen for approval for commercialization,
and after commercialization Viragen did not use its best efforts to market
said Licensed Product(s), whether to avoid making royalty payments to
Medicore pursuant to his Royalty Agreement or otherwise, this Agreement
shall be so extended for an additional period equal to such period that
Viragen did not use its best efforts to seek approval and/or marketing of
such Licensed Product(s) as contemplated herein.
3.02 - The failure of any party to exercise or enforce any right
granted in this Royalty Agreement shall not be deemed to be a waiver of
such right or operate to bar the exercise or enforcement thereof at any
time or times thereafter.
ARTICLE IV - Infringement
-------------------------
4.01 - Medicore shall have no responsibility whatsoever with respect
to any infringement claims, whether by a third party or Viragen (or
customers of Viragen), in the manufacture, use or sale of any Licensed
Product(s), or claim by Viragen against third-parties charging infringement
of any patents, patent pendings, or other proprietary rights whatsoever
with respect to the Licensed Product(s) or any part or process involved
therein, and Viragen hereby indemnities and holds harmless Medicore from
and against and and all losses,
<PAGE> 7
claims, damages, liabilities, causes of action, judgments, settlements,
royalty payments, accounting, or related liabilities in connection with
any such charges of infringement as contemplated herein including any
reasonable counsel fees that may be incurred by Medicore in defending
itself or participating in any investigation with regard to the subject
matter of this Section 4.01.
4.02 - Viragen also assumes responsibility for any personal or property
injury arising from the manufacture, sale and use of the Licensed Product(s)
and in no circumstances shall Medicore assume responsibility for the
Licensed Product(s) manufactured, used and sold by Viragen or its
customers, and Viragen agrees and will indemnify and hold Medicore harmless
against any and all liability, damage, loss, cost or expense based upon
the manufacure and production, use and sale of the Licensed Product(s)
including any reasonable counsel fees that may be incurred by Medicore in
defending itself or participating in any investigation with regard to the
subject matter of this Section 4.02.
ARTICLE V - Reports and Times of Payment
----------------------------------------
5.01 - Viragen shall keep complete and accurate records of all Net
Sales with respect to which royalties are payable to Medicore pursuant to
this Royalty Agreement. Sixty (60) days following the close of each
quarter of the year in
<PAGE> 8
which Net Sales are made and for which royalties are due to Medicore in
accordance with the terms of this Royalty Agreement, Viragen shall submit
to Medicore a written report setting forth Net Sales and calculations of
the amounts of royalties due and payable pursuant to Article II hereof
with respect to said quarter. This report shall set forth information
regarding gross sales and deductions in such reasonable detail as to allow
Medicore to verify the Net Sales and royalty calculation. Each report
shall be accompanied by the amount of royalty payment shown by the report
to then be due to Medicore.
5.02 - Medicore shall have the right to nominate at its cost, an
independent certified public accountant (or the equivalent in foreign
countries) acceptable to and approved by Viragen, which approval and
acceptance shall not be unreasonably withheld, who shall have access to
the records of Viragen during reasonable business hours for the purpose of
verifying the royalties due Medicore herein; provided that this right may
not exercised more than once in any six-month period. Said accountant
shall disclose to Medicore only information relating to the accuracy of
the royalty reports and the royalty payments made according to this
Royalty Agreement. Exercise of this right shall be effected by giving
Viragen sixty (60) days written notice. Once the records for any period
have been audited and the auditor has verified the royalties then due to
Medicore for
<PAGE> 9
that quarter or that year, as the case may be, and the royalties have
been paid, the records for that period will not be re-audited. Particular
documents, from which the accounting required herein need not be retained
more than six (6) months after completion of any audit thereof, if an audit
has been requested; nor more than two (2) years from the date of their
origin; no more than one (1) year after the date of termination of this
Royalty Agreement.
5.03 - Royalty payments required to be made to Medicore as provided
for herein shall be determined in the national currency for the sale on
which the royalty was made. The royalty payments accruing on sales in any
country shall then be converted to United States currency at the official
rate of exchange in each country on the date royalties are paid, and
payments shall be made in the United States currency to the account of
Medicore and sent to Medicore, Inc.
Dennis W. Healey
Senior Vice President/Treasurer
Medicore, Inc.
2201 West 76th Street
Hialeah, FL 33016
or any other party Medicore designates in writing to Viragen.
ARTICLE VI - Miscellaneous
--------------------------
6.01 - This Agreement and the royalty fees granted herein shall be
binding upon, and shall unure to the benefit of, successors of the parties
hereto, or to an assignee of all the good will and entire business and
assets of a party hereto.
<PAGE> 10
6.02 - All communications, reports, payments, and notices required by
this Royalty Agreement by one party to the other shall be addressed to the
parties at their respective addresses set forth below or to such other
addresses within the United States as requested by either party by notice
in writing to the other:
If to Viragen: Viragen, Inc.
2343 West 76th Street
Hialeah, FL 33016
Attn: Dr. Alex Canales
With a copy to: Peter D. Fischbein, Esq
Rosenfeld Fischbein Bernstein
& Tannenhauser
919 Third Avenue
New York, New York 10022
If to Medicore: Medicore, Inc.
2201 West 76th Street
Hialeah, FL 33016
Attn: Dennis W. Healey
Senior Vice President/
Treasurer
With a copy to: Lawrence E. Jaffe, Esq.
777 Terrace Avenue
Hasbrouck Heights, NJ 07604
All such notices, reports, payments and communications shall be made
by first class mail, postage pre-paid, and shall be considered made as of
the date of the deposit with the United States Post Office if sent by
registered or certified mail.
6.03 - This Royalty Agreement is acknowledged to have been made and
shall be construed in accordance with the laws of the State of Florida.
<PAGE> 11
6.04 - The undersigned represent that they hold the designated offices
with the respective parties hereto, that they are duly authorized to execute
this Royalty Agreement and thereby bind their respective parties to its
terms and provisions and that any request and approval of their superiors
or any committee or board has been obtained.
6.05 - This Royalty Agreement constitutes the entire understanding
between the parties with respect to the subject matter hereof and shall
supercede all previous communications, representations, understandings and
agreements, either oral or written, between the parties or any official
representative thereof with respect to the subject of this Royalty
Agreement. It is expressley understood that there has not been made to
either party hereto any inducement either oral or written to enter this
Royalty Agreement other than the terms hereof.
6.06 - Nothing in this Royalty Agreement shall be construed to
constitute, create, give effect or otherwise imply a joint venture, part-
nership, principal-agent or formal business organization of any kind
between the parties.
6.07 - All captions herein are for convenience only, and shall not
be interpreted as having any substantive meaning.
<PAGE> 12
IN WITNESS WHEREOF, Viragen, Inc. and Medicore, Inc. have caused this
Royalty Agreement to be duly executed, in duplicate, as o he date and year
first above written.
ATTEST: MEDICORE, INC.
/s/ Lawrence E. Jaffe By: /s/ Thomas K. Langbein
- ---------------------------- ------------------------------
LAWRENCE. JAFFE THOMAS K. LANGBEIN President
ATTEST: VIRAGEN, INC.
/s/ Dennis W. Healey By: /s/ Alex Canales
- --------------------------- ------------------------------
DENNIS W. HEALEY ALEX CANALES
Secretary Vice President
<PAGE>
AMENDMENT TO ROYALTY AGREEMENT
This is Amendment No. 1 to the Royalty Agreement dated November 7,
1986 ("Royalty Agreement") by and between VIRAGEN, INC., a Delaware
corporation ("Viragen") and MEDICORE, INC., a Florida corporation
("Medicore").
R E C I T A L S
- - - - - - - -
WHEREAS, the parties hereto have entered into the Royalty Agreement
in 1986; and
WHEREAS, the Board of Directors of Viragen and Medicore have
authorized amending the Royalty Agreement.
NOW, THEREFORE, in consideration of the elimination of indebtedness
of Viragen to Medicore and of the promises and covenants set forth herein
and for other good and valuable consideration, Viragen and Medicore agree
as follows:
1. Article II - Payments and Royalties is hereby modified as follows:
a) The Royalty in Section 2. 01 (a) is increased from Ten (10%)
Percent to Twelve (12%) Percent;
b) The Royalty in Section 2.01 (b) is increased from Five (5%)
Percent to Seven (7%) Percent; and
c) Section 2.05 is rescinded.
2. Article III - Term is hereby extended five years as per Section 3.01
from ten years ending November 6, 1996, to fifteen years from the date of
the Royalty Agreement to November 6, 2001; provided this modification does
not otherwise alter the additional extensions as set forth in Section 3.01.
3. All other terms, conditions and provisions of the Royalty Agreement,
other than the amendments and modifications provided for herein, shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 to the Royalty Agreement this 21st day of November, 1989.
MEDICORE, INC.
By /s/ Thomas K. Langbein
-------------------------------
THOMAS K. LANGBEIN, President
VIRAGEN, INC.
By /s/ Dennis W. Healey
--------------------------------
DENNIS W. HEALEY, President
<PAGE>
AMENDMENT TO ROYALTY AGREEMENT
This is Amendment No. 2 to the Royalty Agreement dated November 7, 1986
and as amended on November 21, 1989 ("Royalty Agreement") by and between
VIRAGEN, INC., a Delaware corporation ("Viragen") and MEDICORE, INC. , a
Florida corporation ("Medicore").
R E C I T A L S
- - - - - - - -
WHEREAS, the parties hereto have entered into the Royalty Agreement
and circumstances dictate its modification; and
WHEREAS, the Board of Directors of Viragen and Medicore have
authorized amending the Royalty Agreement.
NOW, THEREFORE, in accordance with the terms of an Agreement for the
Sale of Stock between Viragen and Cytoferon, Inc. dated February 5, 1993
(the "Agreement") and the Addendum to the Agreement dated May 4, 1993
(included in term "Agreement") and of the promises and covenants set
forth therein and herein for other good and valuable consideration,
Viragen and Medicore agree as follows:
1. "Article II - Payments and Royalties" Sections 2.01 (a) and (b) are
hereby modified as follows:
(a) The cumulative royalty fees and payments under this Royalty Agree-
ment shall aggregate a maximum of Two Million Four Hundred Thousand
($2,400,000) Dollars. At such time the cumulative maximum royalties are
paid to Medicore, this Royalty Agreement shall terminate with no further
royalty payments or fees due from Viragen to Medicore hereunder.
(b) No royalty payments shall be paid hereunder for a period of six
(6) months following the Closing Date of the Agreement with respect to the
delivery of any Licensed Product(s); and commencing with the last day of
the tenth (10th) month following the Closing Date, Viragen shall pay to
Medicore the accrued royalties then earned under this Royalty Agreement
for the seventh, eighth and ninth months following the Closing Date and
continuing thereafter for each quarter payable on the thirtieth (30th)
day immediately following the close of that quarter.
(c) Royalties to the aggregate cumulative maximum as provided in
subparagraph (a) of this Section 2.01 shall be paid based on gross sales
which are invoiced, delivered. and paid as follows:
5% of the first $ 7,000,000 = $ 350,000
4% of the next $10,000,000 = 400,000
3% of the next $55,000,000 = 1,650,000
----------
$2,400,400
==========
<PAGE> 1
2. "Article III - Term" is hereby amended by eliminating the expiration
date of November 6, 2001 and substituting a Term of the Royalty., Agreement
that shall be on such date the aggregate cumulative maximum royalties as
per Section l(a) of this Amendment to Royalty Agreement are paid in full
to Medicore.
3. All other terms, conditions and provisions of the Royalty Agreement,
other than the amendments and modifications provided for herein, shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 2 to the Royalty Agreement this 11th day of May, 1993.
MEDICORE, INC.
By /s/ Thomas K. Langbein
----------------------------
THOMAS K. LANGBEIN
President
VIRAGEN, INC.
By /s/ Dennis W. Healey
----------------------------
DENNIS W. HEALEY
President
<PAGE>
LEASE
This Lease made and entered into this 8th day of December, 1992,
between VIRAGEN, INC., a Delaware corporation with its offices at 2343
West 76th Street, Hialeah, Florida 33016, hereinafter called "Lessor" and
MEDICORE, INC., a Florida corporation, with offices at 2201 West 76th
Street, Hialeah, Florida 33016, hereinafter called "Lessee".
1. Premises. Lessor hereby leases to Lessee, and Lessee hereby leases
--------
from Lessor the following premises situated and being in the City of
Hialeah, County of Dado, State of Florida, described as that approximately
2,800 square feet ("Premises") in the building located at 2343 West 76th
Street, Hialeah, Florida 33016 ("Building").
2. Term. The term of this Lease shall be for five (5) years,
----
commencing January 1, 1993 ("Commencement Date") and ending December 31,
1997 ("Term"; renewals and hold overs, if any, shall be included in the
phrase "Term").
3. Rent.
----
(a) The Lessee shall pay to the Lessor as rent for the Premises
during the Term the sum of Nineteen Thousand Six-Hundred ($19,600) Dollars
per annum or One Thousand Six Hundred Thirty-Three and 34/100 ($1,633.34)
Dollars per month, plus Florida sales tax, said rental to be paid in
advance on the first day of each month during the Term, with a ten (10)
day grace period. Payment of $1,633.34 upon execution of this Lease shall
represent the rent for the month of January, 1993. Late payments shall be
subject to a five (5%) percent late charge. Payments, when received by
Lessor, shall be applied first to late charges, if any, and then toward
additional rents, if any, that may be due and delinquent rents.
(b) All payments to be made to the Lessor as set forth herein
shall be payable in lawful money of the United States made at the address
of Lessor as set forth in Section 23-hereunder or at such other place and
to such other person as the Lessor may from time to time designate in
writing.
4. Utilities. Utility charges, which shall be separately metered for
---------
the Premises, shall include only those utilities directly consumed by
Lessee for the Premises and not Lessee's pro rata portion of the Building
usage of utilities, and which utilities the Lessee shall be responsible
include water,
<PAGE> 1
electricity and gas (or other fuel used at the Premises). Lessee shall
pay all its utility charges before such charges become delinquent. Lessee
shall not overload the electrical capacity furnished to the Premises.
Lessee shall pay for its pro rata portion of janitorial services to be
provided by Lessor. The Premises comprise 20% of the Building which
represents Lessee's pro rata portion.
5. Use of Premises.
---------------
5.1 Use. The Premises shall be used and occupied only for offices.
---
5.2 Compliance with Law. Lessee shall, at Lessee's expense, comply
-------------------
with the rules and regulations of the Board of Fire Underwriters having
jurisdiction over. the Premises, and with all applicable statutes,
ordinances, regulations, and codes of all governmental authorities
wherein the Premises are located, but only insofar as any of such rules,
ordinances and regulations pertain to the manner in which the Lessee shall
use the Premises; the obligation to comply in every other case, and also
all cases where such rules, regulations and ordinances require repairs,
alterations, changes or additions to the Building (including the Premises)
or Building equipment, or any part of either, being hereby expressly
assumed by Lessor, and Lessor covenants and agrees promptly and duly to
comply with all such rules, regulations and ordinances. Lessor warrants
to Lessee that the Building and the Premises, on the Commencement Date,
shall not violate any covenants or restrictions of record, or building
code, regulations or ordinances in effect on the Commencement Date. In
the event it has been determined that this warranty has been violated,
then it shall be the obligation of Lessor to promptly, at Lessor's sole
cost and expense, rectify such violations. Lessee shall not use nor
permit the use of the Premises in any manner that will tend to create
waste or a nuisance or, if there shall be one or more than one tenant
in the Building, shall tend to disturb such other tenants. Lessee will
comply with the Americans With Disabilities Act only within the Premises
and not otherwise with respect to the Building which shall be Lessor's
responsibility.
6. Option to Extend. Lessee shall have two (2) successive options to
----------------
extend the Lease from the end of the original Term, each option for five
(5) additional years and each option on the same terms and conditions
provided in the Lease. Each renewal option may only be exercised by any
subtenant or assignee of the Lessee with the written approval of Lessor.
The second renewal option for five (5) years shall only be operative and
effective if Lessee has exercised the initial five (5) year renewal option;
provided, each of the five (5) year renewal options is contingent upon and
may only be exercised if Lessee is not in default of the terms of the Lease,
and if such exercise is of the second renewal option, then Lessee has
complied with all the terms of the first renewal. The
<PAGE> 2
first five (5) year renewal option shall be at an additional rental to
that required during Term based on the increase in the Revised Consumer
Price Index - Cities (1987=100) (the "Index") published by the Bureau of
Labor Statistics, provided, in no event shall such increase exceed five
(5%) percent. The "base Index number" shall be the Index number indicated
for the City of Hialeah, entitled "all items" for the month of December,
1992. The "current Index number" shall be the corresponding Index number
for the month of December, 1997. The current Index number shall be divided
by the base Index number with the resulting number (quotient), if a
positive number, shall be deemed to be the percentage of increase in the
cost of living. The same measurement of rent increase shall be applicable
for the second renewal option, provided as to the latter, the Index shall
be (1997=100), the base Index number" shall be the Index number for the
City of Hialeah, for the month of December, 1997, and the "current Index
number" shall be. the corresponding Index number for the month of December,
2002.
Lessor shall give Lessee notice of any such increase within a
reasonable time after obtaining the necessary data for its computation.
Lessor's computation shall be conclusive and binding, but shall not pre-
clude any adjustment that may be required by a published amendment of the
index figures upon which said computation was based unless Lessee notifies
Lessor of any claimed error therein within forty-five (45) days after such
notice is given. Any dispute between the parties as to any such computation
shall be resolved by arbitration.
If publication of the Index is discontinued, the parties shall accept
comparable statistics on the cost of living for the City of Hialeah, as
such statistics are computed and published by a federal agency or by a
recognized financial periodical selected by the parties.
The two (2) options to renew each for an additional five (5) years as
granted herein shall be exercisable by the Lessee notifying Lessor in
writing no less than three (3) nor more than five (5) months prior to the
expiration of the Term (or the first renewal period, as the case may be)
that the Lessee wishes to exercise the option to extend.
7. Maintenance, Repairs and Alterations.
------------------------------------
7.1 Lessor's obligations.
--------------------
(a) Subject to the provisions of sections 5, 7.2 and 11 and
except for damage caused by any negligent act of the Lessee, Lessee's
agents, employees, or invitees, Lessor, at Lessor's expense, shall keep
in good, safe and sanitary order, condition and repair the foundation,
the main plumbing leading into the Building and into the Premises, the
exterior walls, windows, doors and roof
<PAGE> 3
of the Building and the exterior walls of the Premises, the paving and
outside walks and parking lot, and the structural parts of the Building;
and Lessor shall not do anything to interfere with or otherwise interrupt
the continued accessibility and operation of the utilities to and sewage
and drainage of the Building and Premises, including all service facilities
such as air-conditioning, heating, electrical and lighting facilities.
Lessor warrants that the HVAC systems are and shall continue to be in good
operating condition and shall be repaired and maintained at Lessor's sole
cost; and Lessor to maintain the shrubbery and lawns adjacent to the
Building. Lessor shall have the obligation to make repairs under this
Section 7.1 within thirty (30) days after receipt of written notice of
the actual need for such repairs.
Lessor shall further, at its sole expense, provide for sufficient and
timely trash removal from the Building and the parking areas and walk-ways
leading to the Building, and to insure the Building and the Premises are
free from pests and any infestations during the Term.
(b) Lessee shall provide Lessor with written notice of any
violation and Lessor shall have thirty (30) days to cure, or if the cure
cannot be completed within thirty (30) days then Lessor shall not be in
default if Lessor commences performance within such thirty (30) day period
and thereafter diligently prosecutes the same to completion. If Lessor
fails to perform Lessor's obligations under this Section 7.1, Lessee may
at Lessee's option perform such obligations on Lessor's behalf and put
the Building and/or Premises in good order, condition and repair, and the
cost thereof together with interest at prime for monies expended by the
Lessee for such cure from the date of disbursement to the date of reim-
bursement or reduction of rental payments as provided herein, shall, at
the option of the Lessee, be immediately reimbursed to Lessee or be a
reduction of rent commencing with the Lessee's next rental installment
and continuing as a rental reduction adjustment until such cost and
interest is fully satisfied.
7.2 Lessee's Obligations.
--------------------
(a) Subject to the provisions of Sections 5, 7.1 and 11 and
except for damage caused by any negligent act of the Lessor, Lessee, at
Lessee's expense, shall keep the Premises in good, safe and sanitary order,
condition and repair including, without limiting the generality of the
foregoing, with respect to the interior of the Premises only, the
plumbing, security, electrical and lighting facilities and equipment,
fixtures, interior walls, ceilings, windows and doors, unless caused by
the negligence of Lessor or Lessor's agents, employees, or representatives,
in which case such maintenance and repair shall be at the cost and expense
of the Lessor.
<PAGE> 4
(b) Lessor shall provide Lessee with written notice of the
violation and Lessee shall have thirty (30) days to cure, or if the cure
cannot be completed within thirty (30) days then Lessee shall not be in
default if Lessee commences performance within such thirty (30) day period
and thereafter diligently prosecutes the same to completion. If Lessee
fails to perform Lessee's obligations under this Section 7.2, Lessor may
at Lessor's option enter upon the Premises after thirty (30) days prior
written notice to Lessee, perform such obligations on Lessee's behalf and
put the Premises in good order, condition and repair, and the cost thereof
together with interest at prime for monies expended by the Lessor for such
cure from the date of disbursement to the date of reimbursement shall be
due and payable as additional rent to Lessor together with Lessee's next
rental installment.
(c) On the last day of the Term, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as
received, ordinary wear and tear excepted, clean and free of debris.
Lessee shall repair any damage to the Premises occasioned by the installa-
tion or removal of its trade fixtures, furnishings and equipment.
8. Insurance and Indemnity.
-----------------------
8.1 Bodily Injury and Property. Lessee shall, at Lessee's cost
--------------------------
and expense, for the mutual benefit of the Lessor and Lessee, carry and
keep in force during the Term -a policy of Combined Single Limit Bodily
Injury and Property Damage Insurance such insurance to afford protection
in the amount of One Million ($1,000,000) Dollars combined single limit,
insuring the Lessor and the Lessee against any liability arising out of
the use, occupancy or maintenance of the Premises and all other areas
appurtenant thereto, said policy to provide for thirty (30) days notice
to Lessor prior to any cancellation.
8.2 Property Insurance. Lessor shall obtain and keep in force during
------------------
the Term a policy or . policies of insurance covering loss or damage to
the Building and the Premises, but not Lessee's fixtures or equipment, in
an amount not to exceed the full replacement value thereof, as the same
may exist from time to time, providing protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, floor (in the event same is required by lender having
a lien on the Building) special extended perils ("all risk", as such term
is used in the insurance industry) but not plate glass insurance.
8.3 Waiver of Subrogation. Lessor and Lessee hereby waive and
---------------------
release any and all rights, claims, demands, and causes of action each
may have against the other on account of any loss or damage occasioned to
Lessor or to Lessee, as the case may be, their respective properties, real
and personal, the Building and the
<PAGE> 5
Premises, or their contents, arising from any risk or peril generally
covered or covetable, by standard fire and extended coverage issued in
the State of Florida, and the parties each, on behalf of their respective
insurance companies insuring the property of Lessor or Lessee against any
such loss, waive and release any rights of subrogation that such companies
may have against Lessor or Lessee, as the case may be.
8.4 Indemnity. Lessee shall indemnify and hold harmless Lessor from
---------
and against any and all claims arising from Lessee's use of the Premises,
or from the conduct of Lessee's business or from any activity, work or
things done, permitted or suffered by Lessee in or about the Premises and
shall further indemnify and hold harmless Lessor from and against any and
all claims arising from any breach or default in performance of any
obligation on Lessee's part to be performed under the terms of this
Lease, or arising from any negligence of the Lessee, or any of Lessee's
agents, contractors, or employees, and from and against all costs,
reasonable attorneys fees, expenses and liabilities incurred in the
defense of any such claim or any action or proceeding brought hereon;
and in case any action or proceeding be brought against Lessor by reason
of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense except for a breach of this Lease by Lessor and except
if any such injury or damage as provided in this Section 8.4 is due to or
caused by, directly or indirectly, the negligence or intentional act or
omission of Lessor's its agents, employees, invitees, contractors or
representatives.
9. Signs. Lessee shall have the right to place such reasonable
-----
business signs exhibiting its identity and business upon the exterior of
the Building and within the Building and the Premises, with Lessor's
reasonable approval as to such signs being reasonable in number, size,
and design, provided, however, that the Lessee shall comply in all
respects with any' governmental agency orders, regulations or ordinances
with respect to the placement of all of said signs, that Lessee shall
obtain insurance with respect to the signs, and provided Lessee, at the
end of the Term, at Lessee's expense, removes all such signs without
damage to the Building and/or the Premises.
10. Subleasing and Assignment. The Lessee shall not assign this
-------------------------
Lease, nor sublet the Premises or any part thereof, nor permit anyone
other than Lessee to occupy the Premises or any part thereof, except
with the prior written approval of the Lessor. Any such assignee shall
assume all obligations under this Lease. Lessee may sublet all or a
portion of the Premises to a wholly-owned subsidiary or division or
affiliate of the Lessee without approval of the Lessor. In the event
of any assignment or subletting or other occupancy through and by the
Lessee, then Lessee shall remain liable to the Lessor for the performance
of all obligations imposed on Lessee hereunder. Any business combination,
<PAGE> 6
consolidation, merger, sale of substantially all of its stock or assets or
change in control, or similar business restructure, involving the Lessee
shall not be deemed an assignment.
11. Casualty.
--------
11.1 If the Premises are totally destroyed by fire or other casualty,
provided neither Lessor nor Lessee were responsible for the casualty, both
Lessor and Lessee shall have the option of terminating this Lease upon
giving written notice at any time within thirty (30) days from the date
of such destruction, and if the Lease be so terminated, all rent shall
cease as of the date of such destruction and any prepaid rent and other
payments shall be immediately refunded to Lessee.
11.2 If such Premises are substantially damaged by fire or other
casualty, or totally destroyed thereby and neither party elects to ter-
minate this Lease within the provisions of Section 11.1 above or Section
11.3 below, or the Building or the Premises are not substantially destroyed
or damaged by fire or other casualty, to the extent certain of the business
of Lessee can reasonably be conducted therein, then Lessor agrees, at
Lessor's sole cost and expense, to restore the Premises to a kind and
quality substantially similar to that immediately prior to such destruction
or damage. Said restoration shall be commenced within a reasonable time
and completed without delay on the part of Lessor and in any event shall
be accomplished within ninety (90) days from the date of the fire or other
casualty. In such case, all rents and other payments paid in advance shall
be proportioned as of the date of damage or destruction and all rent there-
after accruing shall be equitably and proportionately suspended and
adjusted according to the nature and-extent of the destruction or damage,
pending completion of rebuilding, restoration or repair, except that in
the event the destruction or damage is so extensive as to make it
unfeasible for Lessee to conduct Lessee's business in the Premises, the
rent shall be completely abated until the Premises are timely restored by
Lessor as provided herein, or until Lessee resumes use and occupancy of
the Premises, whichever shall first occur. The Lessor shall not be liable
for any inconvenience or interruption of business of the Lessee occasioned
by fire or other casualty, unless Lessor was a contributing cause.
11.3 If Lessor undertakes to restore, rebuild or repair the Premises,
and such restoration, rebuilding or repair is not accomplished within
ninety (90) days, and such failure does not result from causes beyond
the control of Lessor, Lessee shall have the option to complete the
repairs and restoration at Lessor's expense and be reimbursed by Lessor
or reduce the rentals by said costs of repairs and restoration, or Lessee
has the right to terminate this Lease by written notice to Lessor within
thirty (30) days after expiration of said ninety (90) day period.
<PAGE> 7
12. Condemnation. If any part of the Premises should be taken or
------------
condemned for a public or quasi-public use, and a part thereof remains
which is susceptible for the use intended hereunder, this Lease shall, as
to the part so taken, terminate as of the date title shall vest in the
condemnor, and the rent payable hereunder shall be adjusted so that the
Lessee shall be required to pay for the remainder of the Term only such
portion of such rent as the value of the part remaining after the condem-
nation bears to the value of the entire Premises at the date of condem-
nation. If all the Premises, or such part thereof be taken or condemned
so that there does not remain a portion susceptible for occupation here-
under, this Lease shall thereupon terminate. whether or not a portion of
the Premises is susceptible for the use intended shall be determined by
arbitration if the parties cannot otherwise agree on said portion. If a
part or all of the Premises be taken or condemned, all compensation
awarded upon such condemnation or taking, shall go to the Lessor and the
Lessee shall have no claim thereto; provided however, that Lessee shall
be entitled to any award for loss of or damage to Lessee's trade fixtures
and removable personal property. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of
severance damages received by Lessor in connection with such condemnation,
repair any damage to the Premises caused by such condemnation except to
the extent that Lessee has been reimbursed therefor by the condemning
authority.
13. Ingress and Egress. The Lessee, its agents, employees and
------------------
invitees shall have the rights of ingress and egress to and from the
Building and the Premises, including but not limited to ingress and
egress over the walkways or driveways adjoining or common areas within
the Building and the Premises.
14. Parking. Lessor shall provide 12 reserved spaces for and
-------
assigned to Lessee for its agents, employees, representatives and
invitees at no additional cost to Lessee during the Term. Such assigned
and reserved parking spaces shall be clearly marked parking spaces for
the sole use of the Lessee as contemplated herein.
15. Defaults; Remedies.
------------------
15.1 Defaults. The occurrence of any one or more of the following
--------
events shall constitute a material default and breach of this Lease by
Lessee:
(a) The vacating or abandonment of the Premises by Lessee other
than through terminations as provided in this Lease.
(b) The failure by Lessee to make any payments of tent or any
other payment required to be made by Lessee hereunder, as and when due,
where such failure shall continue for a period of five (5) days after
written notice thereof from Lessor to Lessee.
<PAGE> 8
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or
performed by Lessee, other than described in Section (b) above, where
such failure shall continue for a period of thirty (30) days after written
notice thereof from Lessor to Lessee; provided, however, that if the nature
of Lessee's default is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said 30-day period and thereafter dili-
gently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor"
as defined in 11 U.S.C. 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within
sixty (60) days); (iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets located at the Premises
or of Lessee's interest in this Lease, which is not dismissed within sixty
(60) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within sixty
(60) days. Provided, however, in the event that any provision of this
Section 15.1(d) is contrary to any applicable law, such provision shall
be of no force or effect.
15.2 Remedies of Lessor. In the event of any such material default
------------------
or breach by Lessee not otherwise cured as provided herein, Lessor may at
any time thereafter, with notice of demand and without limiting Lessor in
the exercise of any right or remedy which Lessor may have by reason of such
default or breach:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the
cost of recovering possession of the Premises; expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable
attorney's fees, and any real estate commission actually paid, subject to
and reduced by any rental value insurance as per Section 8.2 hereof.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have abandoned
the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder.
<PAGE> 9
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws and judicial decisions of the State of Florida.
15.3 Default by Lessor. Lessor shall not be in default unless Lessor
-----------------
fails to perform obligations required of Lessor within a reasonable time,
but in no event later than thirty (30) days after written notice by Lessee
to Lessor specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that
more than thirty (30) days are required for performance then Lessor shall
not be in default if Lessor commences performance within such 30-day period
and thereafter diligently prosecutes the same to completion.
15.4 Remedies of Lessee. In the event of any material default under
------------------
the terms, covenants or conditions of this Lease on the part of the Lessor
which shall include but not be limited to unreasonably withholding consents,
failure to maintain the Building as required, failure to use due care with
respect to the persons and property of Lessee, and otherwise interfering
with, whether negligently or intentionally, the business of Lessee and its
peaceable and quiet enjoyment of the Premises, and which have not been
timely cured as per Section 15.3 hereof, Lessee has the option to either
terminate this Lease and vacate the Premises immediately without any
further liability under the Lease and take whatever other lawful remedies
that may be available to it upon such default, or cure the default and
at Lessee's option deduct costs, expenses and interest at prime for monies
expended by Lessee for such cure from the date of disbursement to the date
of deduction or reimbursement for such cure from rental payments or other-
wise be immediately reimbursed by Lessor.
16. Estoppel Certificate. Lessee shall at any time upon not less
--------------------
than ten (10) days' prior written notice from Lessor execute, acknowledge
and deliver to Lessor a statement in writing (i) certifying that this
Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect) and the date to which the rent and
other charges are paid in advance, if any, and (ii) acknowledging that
there are not, to Lessee's knowledge, any uncured defaults on the part of
Lessor hereunder, or specifying such defaults if any are claimed. Any
such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
17. Severability. The invalidity of any provision of this Lease as
------------
determined by a court of competent jurisdiction, shall in no way affect
the validity of any other provision hereof.
18. Additional Rent. Any monetary obligations of Lessee to Lessor
---------------
under the terms of this Lease shall be deemed to be rent.
<PAGE> 10
19. Remedies Cumulative-Waiver Not To Be Inferred.
---------------------------------------------
(a) No remedy herein or otherwise conferred upon or reserved to
the Lessor or Lessee shall be considered exclusive of any other remedy, but
the same shall be cumulative and shall be in addition to every other remedy
given hereunder, or now or hereafter existing at law or in equity or by
statute; and every power and remedy given by this Lease to the Lessor or
the Lessee may be exercised from time to time and as often as occasion may
arise or as may be deemed expedient.
(b) No waiver of any breach of any of the covenants of this
Lease shall be construed, taken or held to be a waiver of any other breach,
or waiver of, acquiescence in, or consent to any further or succeeding
breach of the same covenant.
20. Quiet Enjoyment. Upon Lessee paying the rent for the Premises
---------------
provided herein and upon Lessee's performance of the covenants, conditions
and terms of this Lease, Lessee shall during the Term have quiet possession
of the Premises subject to all the provisions of this Lease.
21. Lessor's Access. Lessor and Lessor's agents shall have the
---------------
right to enter the Premises at reasonable times, upon reasonable notice,
for the purpose of inspecting the same, showing the same to prospective
purchasers, lenders, or lessees, and making such alterations, repairs,
improvements or additions to the Premises as Lessor may deem necessary
or desirable provided such entry does not materially interfere with the
business of the Lessee. Lessor may at any time during the last 120 days
of the Term hereof place on or about the Premises any ordinary "For Lease"
sign, all without rebate of rent or liability to Lessee.
22. Subordination. The rights and interests of Lessee under this
-------------
Lease shall be subject and subordinate to any mortgage that presently
exists or may be placed upon the Premises and to any and all advances to
be made thereunder, and to the interest thereon, and all renewals, replace-
ments, extensions, consolidations and modifications thereof, without the
necessity of having further instruments executed by the Lessee to effect
such subordination. Notwithstanding the foregoing, whether this Lease is
dated prior to or subsequent to the date of said mortgage, Lessee shall
execute and deliver whatever instruments may be required for such purposes
and in the event Lessee fails to do so within ten (10) days after demand
in writing, Lessee does hereby make, constitute and irrevocably appoint
Lessor as its attorney-in-fact and in its name, place and stead so to do.
Notwithstanding such subordination, Lessee's right to quiet possession of
the Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the rent and observe and perform all of the provisions
of this Lease, unless the Lease is otherwise terminated pursuant to its
terms.
<PAGE> 11
Lessee agrees to execute any documents required to effectuate an attorn-
ment.
23. Notice. In every case where, under any of the provisions of
------
this Lease, or in the opinion of either the Lessor or Lessee, or otherwise,
it shall or may become necessary or desirable to make, give, serve or
deliver any declaration, demand or notice of any kind or character, or for
any purpose whatsoever, it shall be sufficient to send or cause to be sent
a copy of any such declaration, demand or notice by United States registered
or certified mail, return receipt requested, postage prepaid, properly
addressed to the Lessor or by personal delivery or overnight courier at
2343 West 76th Street, Hialeah, Florida 33016 and to the Lessee at 2201
West 76th Street, Hialeah, Florida 33016 prior to the Commencement Date,
and thereafter at the address of the Lessor, or at such other address as
either party may hereafter furnish to the other party, in writing, for the
declared and express purpose of receiving notices.
24. Amendment. No provision of this Lease may be amended or added
---------
to except by an agreement in writing signed by the parties or their re-
spective successors in interest.
25. Binding on Successors. This Lease shall be binding upon the
---------------------
Lessor and Lessee and their respective assigns, successors, heirs, admin-
istrators, legal or personal representatives or executors, as the case
may be.
26. Governing Law. The Lease shall be governed by and construed
-------------
pursuant to the laws of the State of Florida.
27. Hold Over. If the Lessee shall occupy the Premises with or
---------
without the consent of the Lessor, after the expiration of the Term or
any renewal thereof, and the rent is accepted from the Lessee, such
occupancy and payment shall be construed as an extension of this Lease
on a month-to-month basis.
28. Authority. Each party represents and warrants that it has the
---------
authority and power to enter into this Lease. If either is a corporation,
general or limited partnership, each individual executing this Lease
represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of such entity. Each party shall deliver to
the others evidence of such authority.
29. Brokers. There are no brokers involved in the subject trans-
-------
action, and each party hereto indemnities the other with respect to any
person claiming any such brokerage fee or commission in connection with
this Lease.
The parties hereby agree that the terms of this Lease are commercially
reasonable and effectuate the intent and purpose of
<PAGE> 12
the Lessor and the Lessee with respect to the Premises.
30. Hazardous and Toxic Waste. Lessor shall not permit or cause the
-------------------------
Premises to be used for the handling, storage, transportation, or disposal
of hazardous or toxic materials ("Hazardous Substances" as defined below).
Lessee shall and hereby agrees to indemnify, defend, and hold Lessor
harmless from and against any loss to Lessor, including without limitation
attorneys' fees and expenses, incurred by Lessor as a result of any use,
handling, storage, transportation, or disposal of Hazardous Substances on
or in connection with the Premises by Lessee, or its agents, employees and
representatives.
As used herein, "Hazardous Substances" means any substance or
material (i) identified in Section 101(4) of the Comprehensive Environ-
mental Response Compensation and Liability Act of 1980, 42 U.S.C. Section
9601(14), as amended or (ii) determined to be toxic, a pollutant or
contaminant, under federal, state or local statute, law ordinance, rule
or regulation or judicial or administrative order or decision, as same
may be amended from time to time.
Any breach of any representation or agreement contained in this
Section 30 shall be an Event of Default as per Section 15.1(c).
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals as of the day and year first above written.
VIRAGEN, INC., Lessor
By /s/ Dennis W. Healey
-----------------------------
DENNIS W. HEALEY, President
MEDICORE, INC., Lessee
By /s/ Thomas K. Langbein
-----------------------------
THOMAS K. LANGBEIN, President
<PAGE>
ADDENDUM TO LEASE BETWEEN
VIRAGEN, INC. AND MEDICORE, INC.
DATED DECEMBER 8, 1992
WHEREAS, Viragen, Inc., a Delaware corporation ("Lessor") is the
owner of property located at 2343 West 76th Street, Hialeah, Florida and
has entered into a Lease dated December 8, 1992 ("Lease") with Medicore,
Inc. ("Lessee"); and
WHEREAS, the parties to the Lease are mutually desirous of adding the
following terms and provisions to the Lease as hereinafter set forth.
NOW, THEREFORE, in consideration of the sum of ten ($10) dollars and
other good and valuable consideration paid by each party to the other, the
receipt and sufficiency hereby acknowledged by both parties, and further
consideration of the extension of funds by Lessee to the Lessor as other-
wise acknowledged by the parties and as provided for herein, Lessor and
Lessee do hereby covenant and agree as follows:
1. All of the recital clauses hereinabove set forth are hereby
incorporated by reference as though set forth and at length
herein.
2. Lessor agrees to pay to Lessee, either through insurance reim-
bursement Lessor receives for damages to its Premises as a
result of the recent hurricane ("Storm Damage") and/or to the
extent certain repairs and leasehold improvements are not
subject to the insurance reimbursement, then through rental
adjustments and reductions as otherwise provided for herein,
such sums necessary for (i) maintenance and repair of the
Premises ("Maintenance") due to the Storm Damage (such Main-
tenance being a requirement of Section 7.1 of the Lease
incumbent upon the Lessor), and (ii) leasehold improvements
necessary to accommodate Lessor in order for Lessor to lease
the Premises ("Leasehold Improvements"), both (i) Maintenance
and (ii) Leasehold Improvements being the contingency and basis
for Lessor having entered into the Lease.
Lessor has been dependent upon Lessee for funds to operate since
Lessor's inception in 1980, and Lessor is and was, at the date
of the execution of the Lease, indebted to Lessor for advances
up to approximately $450,000 of which $350,000 is evidenced by a
promissory note and secured by mortgage on the Premises held by
Lessee.
<PAGE> 1
As of the date of this Addendum, the Maintenance expenses
(exclusive of roof repair) and the expenses for Leasehold
Improvements amounted to $39,542. These sums were advanced by
Lessee to Lessor with the understanding and agreement of the
Lessor and Lessee that said sums were to be repaid by Lessor to
Lessee as provided for in this Addendum. Of said aggregate sum,
Lessor has repaid to Lessee from its insurance proceeds for the
Storm Damage $15,000 resulting in a balance due from Lessor to
Lessee under the terms of this Addendum for Maintenance and
Leasehold Improvements of $24,542 ("Aggregate Sum"). To the
extent that Lessor is unable to make a cash reimbursement from
its insurance proceeds for the Maintenance or otherwise make
repayments for the Leasehold Improvements, then the Aggregate
Sum shall be reduced in full, without interest, through and by
deductions from rental payments due by Lessee under the Lease,
commencing from the date hereof through the term of the Lease
in successive continuous monthly deductions until the Aggregate
Sum is fully paid and satisfied, subject to Section 3, below.
3. Lessor and Lessee understand and agree that there remain
additional Maintenance and Leasehold Improvements to be accom-
plished, including but not limited to replacing the lawn,
painting, wallpaper, etc., which when properly documented and
such funds are extended by Lessee to Lessor, will be added to
the Aggregate sum as defined under Section 2 of this Addendum and
shall be repaid as otherwise provided in Section 2 hereof through
cash repayment by Lessor to Lessee or rental adjustments and
deductions due under the Lease as otherwise set forth in Section
2 hereinabove.
4. The roof repair to the extent of approximately $36,000 is not
included in the Aggregate Sum nor in this Addendum.
5. The Lease otherwise remains in full force and effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals as of this 15th day of January, 1993.
ATTEST: VIRAGEN, INC.
/s/ Lawrence E. Jaffe By /s/ Dennis W. Healey
- --------------------------- -----------------------------
Lawrence E. Jaffe DENNIS W. HEALEY, President
Secretary
ATTEST: MEDICORE, INC.
/s/ Lawrence E. Jaffe By /s/ Thomas K. Langbein
- --------------------------- -----------------------------
Lawrence E. Jaffe THOMAS K. LANGBEIN, President
Secretary
<PAGE>
Medicore, Inc.
August 12, 1997
Mr. Dennis W. Healey
Executive Vice President
Viragen, Inc.
865 S.W. 78th Ave., Suite 100
Plantation, Florida 33324
Dear Dennis:
Pursuant to Section 6 of the lease between Viragen, Inc. and Medicore,
Inc. entered into on December 8, 1992, Medicore, Inc. will exercise its
first renewal option under the lease for which the original term expires
December 31, 1997. This letter represents Medicore, Inc.'s notification
to Viragen, Inc. that it is exercising the first renewal option for an
additional 5 years.
Please acknowledge receipt of this notification by signing and dating the
acknowledgment and returning one copy.
Yours very truly,
/s/ Daniel R. Ouzts
Daniel R. Ouzts
Vice President/Finance
ACKNOWLEDGMENT OF RECEIPT:
/s/ Dennis W. Healey 8/14/97
- ------------------------ -----------
Dennis W. Healey Date
Exec. V.P.
2337 West 76th Street, Hialeah, Florida 33016 . (305) 558-4000
<PAGE>
Business Lease
THIS AGREEMENT, entered into this 17th day of November, 1992 between
Brett D. Anderson and Suzanne M. Anderson, hereinafter called the lessors,
party of the first part, and Medicore, Inc. of the County of Dade and State
of Florida hereinafter called the lessee or tenant, party of the second
part:
WITNESSETH, That the said lessor does this day lease unto said lessee,
and said lessee does hereby, hire and take as tenant under said lessor
Warehouse or Space of approximately 5,000 square feet, Unit 4, 75 West
Commerce Center, 2647 West 81st Street, Hialeah, Florida situate in Dade
State of Florida, to be used and occupied by the lessee as Warehouse for
medical supply business and for no other purposes or uses whatsoever, for
the term of five Years, subject and conditioned on the provisions of
clause ten of this lease beginning the 12th day of December, 1992, and
ending the 11th day of December, 1997, at and for the agreed total rental
of Ninety Five Thousand Six Hundred-Four and 02/100 Dollars ($95,604.02),
payable as follows:
See attached Addendum to A
Lease Memorandum, dated
November 13, 1992.
all payments to be made to the lessor on the first day of each and every
month in advance without demand at the office of Brett D. Anderson, 100 SE
2nd St. #3920, Mia Fl 33131 in the City of Miami, Florida or at such other
place and to such other person, as the lessor may from time to time
designate in writing.
The following express stipulations and conditions are made a part of
this lease and are hereby assented to by the lessee:
FIRST: The lessee shall not assign this lease, nor sub-let the
premises, or any part thereof nor use the same, or any part thereof, nor
permit the same, or any part thereof, to be used for any other purpose
than as above stipulated, nor make any alterations therein, and all
additions thereto, without the written consent of the lessor, and all
additions, fixtures or improvements which may be made by lessee, except
movable office furniture, shall become the property of the lessor and
remain upon the premises as a part thereof, and be surrendered with the
premises at the termination of this lease.
SECOND: All personal property placed or moved in the premises above
described shall be at the risk of the lessee or owner thereof, and lessor
shall not be liable for any damage to said personal property, or to the
lessee arising from the bursting or leaking of water pipes, or from any
act of negligence of any co-tenant or occupants of the building or of any
other person whomsoever.
THIRD: That the tenant shall promptly execute and comply with all
statutes, ordinances rules, orders, regulations and requirements of the
Federal, State and City Government and of any and all their Departments
and Bureaus applicable to said premises, for the correction, prevention,
and abatement of nuisances or other grievances, in, upon, or connected
with said premises during said term; and shall also promptly comply with
and execute all rules, orders and regulations of the applicable fire
prevention of fires, at its own cost and expense.
FOURTH: In the event the premises shall be destroyed or so damaged
or injured by fire or other casualty
<PAGE>
SIXTH: If the lessee shall abandon or vacate said premises before the
end of the term of this lease, or shall suffer the rent to be in arrears,
the lessor may, at his option, forthwith cancel this lease or he may enter
said premises as the agent of the lessee, without being liable in any way
therefor, and relet the premises with or without any furniture that may be
therein, as the agent of the lessee, at such price and upon such terms and
for such duration of time as the lessor may determine, and receive the rent
therefor, applying the same to the payment of the rent due by these pre-
sents, and if the full rental herein provided shall not be realized by
lessor over and above the expenses to lessor in such re-letting, the said
lessee shall pay any deficiency, and if more an the full rental is realized
lessor will pay over to said lessee the excess of demand.
SEVENTH: Lessee agrees to pay the cost of collection and ten per
cent attorney's fee on any part of said rental that may be collected by
suit or by attorney, after the same is past due.
EIGHTH: The lessee agrees that he will pay all charges for rent,
gas, electricity or other illumination, and for all water used on said
premises, and should said charge for rent, light or water herein provided
for at any time remain due and unpaid-for the space of five days after
the same shall have become due, the lessor may at its option consider the
said lessee tenant at sufferance and the entire rent for the rental period
then next ensuing shall at once be due and payable and may forthwith be
collected by distress or otherwise.
NINTH: [deleted]
TENTH: [deleted]
ELEVENTH: The lessor, or any of his agents, shall have the right to
enter said premises during all reasonable hours, to examine the same to
make such repairs, additions or alterations as may be deemed necessary for
the safety, comfort, or preservation thereof, or of said building, or to
exhibit said premises, and to put or keep upon the doors or windows
thereof a notice "FOR RENT" at any time within thirty (30) days before
the expiration of this lease. The right of entry shall likewise exist
for the purpose of removing placards, signs, fixtures, and alterations,
or additions, which do not conform to this agreement, or to the rules
and regulations of the building.
TWELFTH: Lessee hereby accepts the premises in the condition they
are in at the beginning of this lease and agrees to maintain said premises
in the same condition, order and repair as they are at the commencement of
said term, excepting only reasonable wear and tear arising from the use
thereof under this agreement, and to make good to said lessor immediately
upon demand, any damage to water apparatus, or electric lights or any
fixture, appliances or appurtenances of said premises, or of the building,
caused by any act or neglect of lessee, or of any person or persons in
the employ or under the control of the lessee.
THIRTEENTH: It is expressly agreed and understood by and between
the parties to this agreement, that the landlord shall not be liable for
any damage or injury by water, which may be sustained by the said tenant
or other person or for any other damage or injury resulting from the
carelessness, negligence, or improper conduct on the part of any other
tenant or agents, or employees, or by reason of the breakage, leakage, or
obstruction of the water, sewer or soil pipes, or other leakage in or
about the said building.
FOURTEENTH: If the lessee shall become insolvent or if bankruptcy
proceedings shall be begun by or against the lessee, before the end of
said term the lessor is hereby irrevocably authorized at its option, to
forthwith cancel this lease, as for a default. Lessor may elect to accept
rent from such receiver, trustee, or other judicial officer during the
term of their occupancy in their fiduciary capacity without affecting
lessor's rights as contained in this contract but no receiver, trustee or
other judicial officer shall ever have any right, title or interest in or
to the above described property by virtue of this contract.
FIFTEENTH: Lessee hereby waives and renounces for himself and family
any and all homestead and exemption rights he may have now, or hereafter,
under or by virtue of the constitution and laws of the State of Florida,
or of any other State, or of the United States, as against the payment of
said rental or any portion hereof, or any other obligation or damage that
may accrue under the terms of this agreement.
SIXTEENTH: This contract shall bind the lessor and its assigns or
successors, and the heirs, assigns, personal representatives, or successors
as the case may be, of the lessee.
SEVENTEENTH: It is understood and agreed between the parties hereto
that time is of the essence of this contract and this applies to all terms
and conditions contained herein.
EIGHTEENTH: It is understood and agreed between the parties hereto
that written notice mailed or delivered to the premises leased hereunder
shall constitute sufficient notice to the lessee and written notice mailed
or delivered to the office of the lessor shall constitute sufficient notice
to the Lessor, to comply with the terms of this contract.
NINETEENTH: The rights of the lessor under the foregoing shall be
cumulative, and failure on the part of the lessor to exercise promptly
any rights given hereunder shall not operate to forfeit any of the said
rights.
TWENTIETH: It is further understood and agreed between the parties
hereto that any charges against the lessee by the lessor for services or
for work done on the premises by order of the lessee or otherwise accruing
under this contract shall be considered as rent due and shall be included
in any lien for rent due and unpaid.
TWENTY-FIRST: It is hereby understood and agreed that any signs or
advertising to be used, including awnings, in connection with the premises
leased hereunder shall be first submitted to the lessor for approval
before installation of same.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
instrument for the purpose herein expressed, the day and year above written.
Signed, sealed and delivered in the present of:
/s/ Debra Elaine Hamilton /s/ Suzanne A. Anderson (Seal
- ----------------------------- ---------------------------------------
a licensed real estate agent in FL
/s/ Debra Elaine Hamilton /s/ Brett D. Anderson (Seal
- ----------------------------- ---------------------------------------
As to Lessor Lessor
/s/ Dan Cook /s/ Dennis R. Healey Sr. V.P. (Seal
- ----------------------------- ---------------------------------------
As to Lessee Lessee
STATE OF )
County of-------------------)
Before me, a Notary Public in and for said State and County, per-
sonally came to me well known and known to be the
-------------------------
person named in the foregoing lease, and
-------- ---------------------------
acknowledged that executed the same for the purpose therein expressed.
--------
<PAGE>
ADDENDUM TO A LEASE MEMORANDUM
DATE: November 13, 1992
IN RE: 2647 West 81 Street, Hialeah, Florida 33106
LESSEE: Mediocre, Inc.
LESSOR: Brett Anderson and Suzanne Anderson, his wife
ADDITIONAL TERMS AND CONDITIONS:
1. Lessee shall deposit with the escrow agent, upon acceptance of this
lease memorandum by all parties, the sum of Five Thousand Fifty Eight and
71/100 Dollars ($5,058.71), said sum representing the first month's and
last month's rent plus sales tax ($3,508.71) and a security deposit equal
to one months rent ($1,550.00).
2. Lessee shall pay lessor an additional sum of Four Thousand Five Hundred
Dollars ($4,500.00), upon completion of construction, as lessee's contribu-
tion towards construction of additional office space of approximately 676
square feet (26'x 26') to be constructed by the lessor. Said office shall
have two interior doors, two 4'x 4' windows, drop ceiling & lighting,
complete electric including outlets, a new minimum 3 ton central air
conditioning unit, wallboard walls, and vinyl floors. Lessor also agrees
to repair the overhead door in the unit so that it is operational at the
time of occupancy. Said construction to be completed by December 12,
1992.
3. The monthly payments shall be as follows:
a) December 12, 1992 to December 11, 1993: $1,550.00 plus sales tax (1650.75)
b) December 12, 1993 to December 11, 1994: $1,596.50 plus sales tax (1700.27)
c) December 12, 1994 to December 11, 1995: $1,644.40 plus sales tax (1751.29)
d) December 12, 1995 to December 11, 1996: $1,693.75 plus sales tax (1803.84)
e) December 12, 1996 to December 11, 1997: $1,744.56 plus sales tax (1857.91)
4. Lessee reserves the right to renew this lease for an additional five
(5) years. Should lessee exercise their right to renew this lease, then
the base rent for year one (1) of renewed lease shall be equal to the fifth
years annual rent under the old lease plus three (3%) percent. All subse-
quence years shall have a Three Percent (3%) increase. Any real property
tax increases over the base year 1997 shall be born by the lessee In the
renewal years. All other terms and conditions shall remain the same.
5. Lessor shall give the lessee two month's free rent, said month's being
January 12, 1993 and January 12, 1994.
6. The date of occupancy will be after acceptance by all principal parties
and clearance of monies deposited with escrow agent.
EXECUTED BY THE PARTIES ON THE DATES SET BELOW:
WITNESS: LESSEE: 11/13 1992
------
<PAGE>
SECOND ADDENDUM TO A LEASE MEMORANDUM
DATE: November 16, 1992
IN RE: 2647 West 81 Street, Hialeah, Florida 33106
LESSEE: Medicore, Inc.
LESSOR: Brett Anderson and Suzanne Anderson, his wife
ADDITIONAL TERMS AND CONDITION:
1. Lessor warrants that there are five (5) parking spaces for the subject
property and enough visitor/guest parking to accommodate an additional
four (4) cars.
2. Lessor agrees to place to electric lights in the ceiling area of
warehouse in their proper location.
EXECUTED BY THE PARTIES ON THE DATES SET BELOW:
WITNESS: LESSEE: 11/13 1992
-------
- ----------------------------- Medicore, Inc
/s/ Dennis R. Healey Sr. V.P.
- ----------------------------- By------------------------------
WITNESS: LESSOR: 11/17 1992
-------
/s/ Debra Elaine Hamilton /s/ Brett D. Anderson
- ----------------------------- --------------------------------
/s/ Debra Elaine Hamilton /s/ Suzanne Anderson, a licensed
- ----------------------------- --------------------------------
Real Estate Agent
<PAGE>
Medicore, Inc.
October 20, 1997
Mr. Brett D. Anderson
100 S.E. 2nd Street, Suite 3920
Miami, Florida 33131
RE: Unit 4, 75 West Commerce Center
2647 West 81st St., Hialeah, Florida 33016
Dear Mr. Anderson:
Pursuant to the terms and conditions of our lease of November 17, 1992, on
2647 West 81st St., Hialeah, Florida 33016, we are exercising our option to
renew the lease, for which the initial lease term ends December 11, 1997,
for an additional 5 years.
Please acknowledge receipt of this correspondence by signing the enclosed
copy and returning to me in the enclosed self-addressed, stamped envelope.
If you have any questions regarding our renewal or need any additional in-
formation, please feel free to contact either Ms. Bonnie Kaplan who is in
charge of our Medical Supply Division located at the leased property or
myself at (305) 558-4000.
Yours very truly,
/s/ Daniel R. Ouzts
Daniel R. Ouzts
Vice President/Finance
Receipt is hereby acknowledged:
/s/ Brett D. Anderson 10/27/97
- ------------------------- --------
Brett D. Anderson Date
cc: Bonnie Kaplan, Medicore, Inc.
Lawrence E. Jaffe, c/o Medicore, Inc.
James Sullivan, Sullivan Realty, Inc. (via fax to (305)557-8585)
Certified Mail-Receipt P 263 348 480
2337 WEST 76th STREET, HIALEAH, FLORIDA 33016 . (305) 558-4000
<PAGE>
EXHIBIT 21
SUBSIDIARIES
Owned By Jurisdiction of
Registrant Incorporation Percentage
- ---------- ------------- ----------
DCA Medical Services, Inc.(1) Florida 66.0%
Dialysis Corporation of America Florida 66.0%
Dialysis Medical, Inc.(2) Florida 52.8%
Dialysis Services of Florida, Inc. -
Fort Walton Beach(2) Florida 52.8%
Dialysis Services of NJ, Inc. -
Manahawkin(1) New Jersey 66.0%
Dialysis Services of NJ, Inc. -
Toms River(2) New Jersey 66.0%
Dialysis Services of Pennsylvania, Inc. -
Carlisle(1) Pennsylvania 66.0%
Dialysis Services of Pennsylvania, Inc. -
Chambersburg(2) Pennsylvania 66.0%
Dialysis Services of Pennsylvania, Inc. -
Lemoyne(1) Pennsylvania 66.0%
Dialysis Services of Pennsylvania, Inc. -
Wellsboro(1) Pennsylvania 66.0%
Lytton Incorporated(3) Ohio 62.9%
Renal Services of Pa., Inc.(1) Pennsylvania 66.0%
Techdyne, Inc. Florida 62.9%
Techdyne Livingston Limited(3) Scotland 62.9%
Techdyne (Scotland) Ltd.(3) Scotland 62.9%
- ----------
(1) Owned 100% by Dialysis Corporation of America.
(2) Owned 100% by Dialysis Corporation of America - inactive.
(3) Owned 100% by Techdyne, Inc.
<PAGE>
EXHIBIT 23(i)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement, Forms S-3, No. 333-26769, of Medicore, Inc. and in the related
Prospectus of our report dated March 25, 1998, with respect to the
consolidated financial statements and schedule of Medicore, Inc. included
in this Annual Report (Form 10-K) for the year ended December 31, 1997.
By /s/ Ernst & Young, LLP
ERNST & YOUNG, LLP
March 27, 1998
Miami, Florida
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 11,099,418
<SECURITIES> 726,538
<RECEIVABLES> 6,298,089
<ALLOWANCES> 0
<INVENTORY> 8,683,439
<CURRENT-ASSETS> 28,964,632
<PP&E> 13,929,043
<DEPRECIATION> 5,024,016
<TOTAL-ASSETS> 40,861,519
<CURRENT-LIABILITIES> 10,107,972
<BONDS> 5,240,034
0
0
<COMMON> 58,569
<OTHER-SE> 16,018,689
<TOTAL-LIABILITY-AND-EQUITY> 40,861,519
<SALES> 38,888,233
<TOTAL-REVENUES> 44,119,482
<CGS> 32,198,701
<TOTAL-COSTS> 32,198,701
<OTHER-EXPENSES> 6,615,768
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 393,515
<INCOME-PRETAX> 4,911,498
<INCOME-TAX> 953,000
<INCOME-CONTINUING> 2,240,971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,240,971
<EPS-PRIMARY> .39
<EPS-DILUTED> .36
<FN>
Accounts receivable are net of allowance of $231,000 at December 31, 1997.
<FN>
Inventories are net of reserve of $238,000 at December 31, 1997.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,665,826
<SECURITIES> 1,405,579
<RECEIVABLES> 3,711,600
<ALLOWANCES> 0
<INVENTORY> 3,637,556
<CURRENT-ASSETS> 20,139,535
<PP&E> 10,767,376
<DEPRECIATION> 4,728,167
<TOTAL-ASSETS> 27,084,852
<CURRENT-LIABILITIES> 6,295,387
<BONDS> 1,677,367
0
0
<COMMON> 54,569
<OTHER-SE> 12,966,889
<TOTAL-LIABILITY-AND-EQUITY> 27,084,852
<SALES> 29,680,520
<TOTAL-REVENUES> 34,719,406
<CGS> 24,247,403
<TOTAL-COSTS> 24,247,403
<OTHER-EXPENSES> 6,211,485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 217,615
<INCOME-PRETAX> 4,042,903
<INCOME-TAX> 1,350,746
<INCOME-CONTINUING> 2,417,269
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,417,269
<EPS-PRIMARY> .44
<EPS-DILUTED> .39
<FN>
Accounts receivable are net of allowance of $385,000 at December 31, 1996.
<FN>
Inventories are net of reserve of $169,000 at December 31, 1996.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,836,512
<SECURITIES> 855,351
<RECEIVABLES> 3,853,913
<ALLOWANCES> 0
<INVENTORY> 3,872,912
<CURRENT-ASSETS> 14,499,079
<PP&E> 9,488,270
<DEPRECIATION> 3,880,549
<TOTAL-ASSETS> 21,247,154
<CURRENT-LIABILITIES> 7,465,470
<BONDS> 963,980
0
0
<COMMON> 54,549
<OTHER-SE> 9,699,890
<TOTAL-LIABILITY-AND-EQUITY> 21,247,154
<SALES> 34,140,573
<TOTAL-REVENUES> 36,660,080
<CGS> 28,072,444
<TOTAL-COSTS> 28,072,444
<OTHER-EXPENSES> 4,748,113
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 246,393
<INCOME-PRETAX> 3,593,130
<INCOME-TAX> 1,295,626
<INCOME-CONTINUING> 2,251,271
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,251,271
<EPS-PRIMARY> .41
<EPS-DILUTED> .37
<FN>
Accounts receivable are net of allowance of $244,000 at December 31, 1995.
<FN>
Inventories are net of reserve of $319,000 at December 31, 1995.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,741,440
<SECURITIES> 606,687
<RECEIVABLES> 6,118,756
<ALLOWANCES> 0
<INVENTORY> 8,197,033
<CURRENT-ASSETS> 24,216,988
<PP&E> 14,439,784
<DEPRECIATION> 5,351,404
<TOTAL-ASSETS> 35,523,636
<CURRENT-LIABILITIES> 11,839,835
<BONDS> 2,976,357
0
0
<COMMON> 58,569
<OTHER-SE> 13,670,526
<TOTAL-LIABILITY-AND-EQUITY> 35,523,636
<SALES> 26,472,183
<TOTAL-REVENUES> 27,068,677
<CGS> 21,566,904
<TOTAL-COSTS> 21,566,904
<OTHER-EXPENSES> 4,549,813
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234,578
<INCOME-PRETAX> 717,382
<INCOME-TAX> (28,760)
<INCOME-CONTINUING> 412,837
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 412,837
<EPS-PRIMARY> .08
<EPS-DILUTED> .06
<FN>
Accounts receivable are net of allowance of $354,000 at September 30, 1997.
<FN>
Inventories are net of reserve of $589,000 at September 30, 1997.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,775,063
<SECURITIES> 655,948
<RECEIVABLES> 4,524,939
<ALLOWANCES> 0
<INVENTORY> 4,160,429
<CURRENT-ASSETS> 18,932,627
<PP&E> 11,455,886
<DEPRECIATION> 5,044,697
<TOTAL-ASSETS> 26,301,989
<CURRENT-LIABILITIES> 5,458,689
<BONDS> 1,762,464
0
0
<COMMON> 54,569
<OTHER-SE> 12,855,008
<TOTAL-LIABILITY-AND-EQUITY> 26,301,989
<SALES> 15,844,626
<TOTAL-REVENUES> 16,274,759
<CGS> 12,702,846
<TOTAL-COSTS> 12,702,846
<OTHER-EXPENSES> 2,878,297
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,226
<INCOME-PRETAX> 583,390
<INCOME-TAX> (39,867)
<INCOME-CONTINUING> 382,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 382,053
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
<FN>
Accounts receivable are net of allowance of $353,000 at June 30, 1997.
<FN>
Inventories are net of reserve of $152,000 at June 30, 1997.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,767,258
<SECURITIES> 648,170
<RECEIVABLES> 4,735,801
<ALLOWANCES> 0
<INVENTORY> 4,174,063
<CURRENT-ASSETS> 18,974,391
<PP&E> 11,009,331
<DEPRECIATION> 4,864,728
<TOTAL-ASSETS> 26,010,337
<CURRENT-LIABILITIES> 5,269,080
<BONDS> 1,765,752
0
0
<COMMON> 54,569
<OTHER-SE> 12,799,133
<TOTAL-LIABILITY-AND-EQUITY> 26,010,337
<SALES> 7,757,836
<TOTAL-REVENUES> 8,014,254
<CGS> 6,165,392
<TOTAL-COSTS> 6,165,392
<OTHER-EXPENSES> 1,421,120
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,791
<INCOME-PRETAX> 371,951
<INCOME-TAX> (24,341)
<INCOME-CONTINUING> 266,363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 266,363
<EPS-PRIMARY> .05
<EPS-DILUTED> .04
<FN>
Accounts receivable are net of allowance of $369,000 at March 31, 1997.
<FN>
Inventories are net of reserve of $178,000 at March 31, 1997.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,456,016
<SECURITIES> 1,571,390
<RECEIVABLES> 3,751,968
<ALLOWANCES> 0
<INVENTORY> 3,603,768
<CURRENT-ASSETS> 19,217,648
<PP&E> 10,294,422
<DEPRECIATION> 4,601,106
<TOTAL-ASSETS> 25,891,673
<CURRENT-LIABILITIES> 5,553,972
<BONDS> 1,562,595
0
0
<COMMON> 54,569
<OTHER-SE> 12,782,487
<TOTAL-LIABILITY-AND-EQUITY> 25,891,673
<SALES> 22,387,167
<TOTAL-REVENUES> 26,478,468
<CGS> 18,110,329
<TOTAL-COSTS> 18,110,329
<OTHER-EXPENSES> 4,472,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 169,011
<INCOME-PRETAX> 3,726,302
<INCOME-TAX> 1,125,389
<INCOME-CONTINUING> 2,339,685
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,339,685
<EPS-PRIMARY> .43
<EPS-DILUTED> .38
<FN>
Accounts receivable are net of allowance of $254,000 at September 30, 1996.
<FN>
Inventories are net of reserve of $134,000 at September 30, 1996.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,994,526
<SECURITIES> 2,617,010
<RECEIVABLES> 4,007,236
<ALLOWANCES> 0
<INVENTORY> 3,133,449
<CURRENT-ASSETS> 20,513,756
<PP&E> 10,182,433
<DEPRECIATION> 4,470,740
<TOTAL-ASSETS> 27,193,406
<CURRENT-LIABILITIES> 6,633,310
<BONDS> 1,603,993
0
0
<COMMON> 54,569
<OTHER-SE> 13,087,402
<TOTAL-LIABILITY-AND-EQUITY> 27,193,406
<SALES> 15,753,557
<TOTAL-REVENUES> 19,163,038
<CGS> 12,764,939
<TOTAL-COSTS> 12,764,939
<OTHER-EXPENSES> 3,066,132
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,990
<INCOME-PRETAX> 3,218,977
<INCOME-TAX> 1,016,710
<INCOME-CONTINUING> 2,006,579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,006,579
<EPS-PRIMARY> .37
<EPS-DILUTED> .32
<FN>
Accounts receivable are net of allowance of $227,000 at June 30, 1996.
<FN>
Inventories are net of reserve of $207,000 at June 30, 1996.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,473,991
<SECURITIES> 2,525,808
<RECEIVABLES> 4,121,993
<ALLOWANCES> 0
<INVENTORY> 3,451,198
<CURRENT-ASSETS> 16,354,186
<PP&E> 9,559,963
<DEPRECIATION> 4,030,237
<TOTAL-ASSETS> 23,166,927
<CURRENT-LIABILITIES> 6,718,432
<BONDS> 1,640,342
0
0
<COMMON> 54,549
<OTHER-SE> 11,437,324
<TOTAL-LIABILITY-AND-EQUITY> 23,166,927
<SALES> 8,229,558
<TOTAL-REVENUES> 9,052,012
<CGS> 6,636,687
<TOTAL-COSTS> 6,636,687
<OTHER-EXPENSES> 1,289,290
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,919
<INCOME-PRETAX> 1,071,116
<INCOME-TAX> 189,927
<INCOME-CONTINUING> 725,253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 725,253
<EPS-PRIMARY> .13
<EPS-DILUTED> .11
<FN>
Accounts receivable are net of allowance of $274,000 at March 31, 1996.
<FN>
Inventories are net of reserve of $318,000 at March 31, 1996.
</TABLE>
