SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14c-5(d) (2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MEDICORE, INC.
................................................................................
(Name of Registrant as Specified In Its Charter)
................................................................................
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
April 26, 1999
To: Our Shareholders
From: Thomas K. Langbein
Subject: Invitation to the Medicore, Inc. 1999 Annual Meeting of Shareholders
Management is extending its invitation to you to attend Medicore's
Annual Meeting on June 9, 1999. The Annual Meeting is being held at Medicore,
Inc.'s executive offices at 2337 West 76th Street, Hialeah, Florida at 10:00
a.m. In addition to the formal items of business, I will review the major
developments of 1998 to the present and answer your questions.
This booklet includes the Notice of Annual Meeting and the Proxy
Statement. The Proxy Statement describes the business that we will conduct at
the meeting and provides information about Medicore, Inc. and its directors and
management.
I am sure you will notice that this year the Proxy Statement is written
in "plain English," which we hope makes its reading and understanding easier for
you.
Your presence at the Annual Meeting would be appreciated. Your vote is
important. Whether you plan to attend the Annual Meeting or not, please
complete, date, sign and return the enclosed proxy card as soon as possible.
We look forward to seeing you at the Annual Meeting.
Thomas K. Langbein
Chairman, Chief Executive
Officer and President
<PAGE>
MEDICORE, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
-------------------------------------------------------
Date: Wednesday, June 9, 1999
Time: 10:00 a.m.
Place: Medicore, Inc.
2337 West 76th Street
Hialeah, Florida 33016
-------------------------------------------------------
Dear Shareholder:
At our Annual Meeting, we will ask you to:
1. Re-elect one director, Peter D. Fischbein, for a term
of three years;
2. Ratify the selection of Ernst & Young LLP as
independent auditors for 1999; and
3. Transact any other business that may properly be
presented at the Annual Meeting.
If you were a shareholder of record at the close of business on April
23, 1999, you are entitled to vote at the Annual Meeting.
Your copy of the Annual Report on Form 10-K of Medicore, Inc. for 1998
is enclosed.
By order of the Board of Directors
Lawrence E. Jaffe
General Counsel and Corporate Secretary
April 26, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
Information About the Annual Meeting and Voting................ 2
Proposals ..................................................... 5
Information About Directors and Executive Officers............. 6
Executive Compensation ....................................... 8
Board Executive Compensation Report .......................... 15
Performance Graph ............................................ 17
Certain Relationships and Related Transactions................ 17
Beneficial Ownership of the Company's Securities.............. 22
<PAGE>
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Q: WHY DID YOU SEND ME A PROXY?
A: Management of Medicore, Inc. ("Medicore" or the "Company") is asking you
to vote at the 1999 Annual Meeting. This Proxy Statement summarizes the
information you need to know to vote intelligently.
Q: MUST I ATTEND THE MEETING?
A: No. You are invited and welcome to attend the Annual Meeting, but instead
of attending you may participate and vote by completing, signing and
returning the enclosed proxy card.
Q: WHO IS ENTITLED TO VOTE?
A: Shareholders who owned Medicore common stock at the close of business on
April 23, 1999 ("Record Date").
Q: HOW MANY VOTES DO I HAVE?
A: Each share of common stock is entitled to one vote. The proxy card
indicates the number of shares of Medicore common stock that you own.
Medicore is sending this Proxy Statement, the attached Notice of Annual
Meeting, the enclosed proxy card, and its 1998 Annual Report, which
includes our financial statements, on May 4, 1999 to all shareholders
entitled to vote.
Q: WHAT AM I VOTING ON?
A: Re-election of a class 1 director, Peter D. Fischbein, for a three year
term; and ratification of Ernst & Young LLP as Medicore's independent
auditors.
Q: HOW DO I VOTE?
A: You may vote by proxy or in person by attending the Annual Meeting.
Q HOW DO I VOTE BY PROXY?
A: Complete, sign and date the enclosed proxy card and return it promptly in
the prepaid postage envelope provided. Returning the proxy card will not
affect your right to attend the Annual Meeting.
Q: MAY I REVOKE MY PROXY?
A: Yes. You may revoke your proxy at any time before it is voted. There are
three ways you may revoke your proxy: 1. by sending in another proxy card
with a later date; 2. by notifying Lawrence E. Jaffe, the corporate
Secretary to Medicore, before the Annual Meeting; or 3. by voting in
person at the Annual Meeting
Q: HOW DO I VOTE IN PERSON?
A: By attending the Annual Meeting. At that time you will be given a ballot
and you may vote your shares. If your shares of Medicore common stock are
held in the name of a broker, bank or other nominee, you must bring an
account statement or letter from the nominee showing you were the
beneficial owner of the shares on April 23, 1999, the Record Date.
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Q: HOW DOES DISCRETIONARY AUTHORITY APPLY?
A: If you properly fill in your proxy card and send it to us in time, your
"proxy" (one of the individuals named on your proxy card) will vote your
shares as you have directed. If you sign and return your proxy card but
do not make any specific choices, your proxy will vote your shares as
recommended by the board as follows:
o "FOR" the election of Peter D. Fischbein
o "FOR" the ratification of the selection of independent
auditors for 1999
If any other matter is presented at the Annual Meeting, which is not
presently contemplated, your proxy will vote in accordance with his best
judgment.
Q: IS MY VOTE CONFIDENTIAL?
A: Yes. Only the inspectors of election and other employees of the Company
assisting in tallying the vote will have access to your vote and
comments, unless you tell us to disclose such information.
Q: WHO COUNTS THE VOTES?
A: The Company appoints two persons to act as inspectors of election, who
each take an oath to accept that responsibility and certify the voting to
the board.
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
A: Your shares of Medicore common stock are probably registered in more than
one name or account. You should complete, sign, date and return all your
proxy cards to make sure all your shares are voted. It would be
appreciated if you would contact our transfer agent, Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004
(Attention: Proxy Department) and tell them to put all your accounts
registered in the same name at the same address.
Q: WHAT DOES A QUORUM MEAN?
A: A quorum means a majority of the outstanding shares. The Annual Meeting
may only proceed if a quorum is present at the meeting. A majority of the
outstanding shares may be present at the meeting in person or by proxy.
At April 23, 1999, the Record Date, there were 5,715,540 shares of
Medicore common stock outstanding. A majority (quorum) would be no less
than 2,857,771 shares. If you are present or vote by proxy and you
abstain, you will be counted toward a quorum, but your abstention will
have the legal effect as a vote "against" the proposals. A shareholder
list will be available at the offices of the Company in Hialeah, Florida
at the meeting and for 10 days prior to the meeting for your review.
Q: HOW MUCH COMMON STOCK DO OFFICERS AND DIRECTORS OWN?
A: Approximately 30% of our common stock as of the Record Date.
Q: WHO ARE THE LARGEST PRINCIPAL SHAREHOLDERS?
A: As of the Record Date, Thomas K. Langbein: 773,014 shares (approximately
13.5%); Seymour Friend: 357,705 shares (approximately 6.3%). Their
beneficial interest increases, for Mr. Langbein (approximately 17.1%) and
Mr. Friend (approximately 7.5%)if Medicore shares are included which they
have the right to acquire under options. However, until such options are
exercised, they are not entitled to vote those shares. Messrs. Langbein
and Friend are officers and directors of the Company. See "Information
About Directors and Executive Officers" and "Beneficial Ownership of the
Company's Securities."
Q: WHO SOLICITS THE PROXIES AND WHAT ARE THE COSTS?
A: The board is soliciting these proxies. In addition to the use of the
mails, officers, directors or employees of Medicore, who will receive no
additional compensation for doing so, may solicit proxies by telephone or
personal interview.
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We will ask banks, brokers and other institutions, nominees and
fiduciaries to forward the proxy material to their principals and to
obtain authority to execute proxies. We will then reimburse them for
their reasonable expenses. Medicore pays all expenses of soliciting the
proxies, including printing, envelopes, mailing and similar out-of-pocket
expenses.
Q: HOW COULD I, AS A SHAREHOLDER, NOMINATE A DIRECTOR?
A: You must provide Lawrence E Jaffe, the corporate Secretary of the
Company, for the year 2000 Annual Meeting, written notice at least 60
days prior to that Annual Meeting, detailing the nominee and his or her
qualifications, for consideration by the board. Other details are
contained in the Company's by-laws and will be forwarded to you without
charge upon your written request. Your proposed nominee must submit a
notarized statement indicating willingness to serve; and provide a five
year employment history.
Q: WHO IS ELIGIBLE TO SUBMIT A PROPOSAL?
A: To be eligible, you must have continuously held at least $2,000 in market
value, or 1%, of Medicore's common stock for at least one year by the
date you submit the proposal. You must continue to hold these Medicore
shares through the date of the meeting.
Q: HOW DO I DEMONSTRATE TO MEDICORE THAT I AM AN ELIGIBLE SHAREHOLDER?
A: If your shares are registered in your name, you are the record holder and
the Company can verify your eligibility on its own.
If a nominee, fiduciary, bank, broker or other custodian holds your
shares of Medicore common stock in its name on your behalf, you may
establish your eligibility in two ways:
1. written verification from such custodian or nominee that you
continuously held your Medicore shares for one year at the
time you submitted your proposal; you also have to submit to
the Company your written statement that you intend to
continue to hold your Medicore common stock through the date
of the shareholder meeting; or
2. submit to the Company any required filings of share
ownership of Medicore that you filed with the Securities and
Exchange Commission, and your written statement that you
continuously held the required number of Medicore common
stock for the one-year period and your intention to
continuously hold your Medicore shares through the date of
the Company's meeting.
Q: HOW MANY PROPOSALS MAY I MAKE?
A: One proposal for a particular shareholder meeting.
Q: WHEN ARE THE YEAR 2000 SHAREHOLDER PROPOSALS DUE?
A: Shareholder proposals must be submitted in writing by January 4, 2000 to
Lawrence E. Jaffe, corporate Secretary, Medicore, Inc., 777 Terrace
Avenue, Hasbrouck Heights, New Jersey 07604. Any proposal should provide
the reasons for it, the text of any resolution, and must comply with Rule
14a-8 of Regulation 14A of the proxy rules of the Securities and Exchange
Commission.
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PROPOSALS
1. RE-ELECTION OF DIRECTOR
The Company has a staggered board of directors consisting of classes 1, 2
and 3 directors, each class consisting of two members. However, class 1
presently only has one member, Peter D. Fischbein; each class serves for a
three-year term at the end of which that class comes before the shareholders for
re-election.
Nominee for re-election this year is:
o Peter D. Fischbein (director since 1984)
Mr. Fischbein has consented to re-election for a three-year term. For
more information about all directors and executive officers, see "Information
About Directors and Executive Officers."
If Mr. Fischbein is unable to serve (not presently anticipated), the
proxies will be voted for a substituted nominee as may be designated by the
board.
A majority of the directors, although less than a quorum or by a sole
remaining director, has the right to appoint candidates to fill any vacancies on
the board. Class 1 has one vacancy. Any such appointee shall serve for the
remainder of the term.
Nominations for directors are considered by the entire board. There is no
nominating committee.
The affirmative vote of a plurality of the shares of common stock
represented at the meeting is required to elect Peter D. Fischbein as a
director. Abstentions and votes withheld from Mr. Fischbein will have the same
effect as a vote against his re-election.
- --------------------------------------------------------------------------------
THE BOARD RECOMMENDS YOU VOTE "FOR" THE ELECTION OF PETER D. FISCHBEIN,
NOMINEE FOR CLASS 1 DIRECTOR.
- --------------------------------------------------------------------------------
2. RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
The audit committee and the board believe that the experience and
expertise of Ernst & Young LLP ("E & Y") and its knowledge of Medicore and its
subsidiaries justifies their re-appointment as its independent auditors for
1999. E & Y has served as the Company's auditors since 1978. Representatives of
E & Y have direct access to the audit committee and the board.
No relationship exists between the Company and E & Y other than the usual
relationship between independent public auditor and client.
A representative of E & Y will attend the Annual Meeting to respond to
shareholder questions.
The affirmative vote of the majority of the shares present (in person or
by proxy) and entitled to vote at the Annual Meeting is needed to ratify E & Y
as independent auditors for 1999.
- --------------------------------------------------------------------------------
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE SELECTION OF
ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR 1999.
- --------------------------------------------------------------------------------
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<PAGE>
OTHER MATTERS TO BE PRESENTED TO SHAREHOLDERS
Management is not currently aware of any other matter to be presented for
action at the Annual Meeting other than the election of a class 1 director,
Proposal No. 1, and ratifying selection of independent auditors, Proposal No. 2,
in the accompanying Notice of Annual Meeting of Shareholders, and management
does not presently intend to bring any other matter before the meeting.
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
THE BOARD OF DIRECTORS
The board of directors oversees the business and affairs of Medicore and
monitors the performance of management. In accordance with corporate governance
principles, the board does not involve itself in day-to-day operations. The
board is kept knowledgeable and informed through discussions with the Chairman,
other directors, executives and advisors (counsel, outside auditors, investment
bankers and other consultants), by reading reports, contracts and other
materials sent to them and by participating in board and committee meetings.
The board met six times during 1998. All directors participated at all
the meetings, either present in person or by telephone conference call.
DIRECTOR STANDING FOR RE-ELECTION
The class 1 director's term ends in June, 1999. Each of the class 1, 2
and 3 directors consists of two members serving three year terms, except class 1
presently has a vacancy, which has not, but may be, filled by the board.
PETER D. FISCHBEIN - The singular class 1 director is Peter D.
Fischbein. Mr. Fischbein is 59 years of age and has been a director of Medicore
since 1984. He is a director of Medicore's 62% owned public subsidiary,
Techdyne, Inc. (since 1985), and a former public subsidiary, now affiliated
company, Viragen, Inc. (since 1981). Mr. Fischbein is an attorney who from time
to time represented the Company, Techdyne, Viragen and Todd & Company, Inc.
("Todd"), a securities brokerage firm registered with the Securities and
Exchange Commission and a member of the National Association of Securities
Dealers, Inc. Todd is owned by the Chairman of the Board of Medicore. Mr.
Fischbein is a general partner of several limited partnerships engaged in real
estate development.
CURRENT DIRECTORS
THOMAS K. LANGBEIN - Class 3 director; term runs through June, 2001. Mr.
Langbein is 53 years of age and has been Chairman of the Board, Chief Executive
Officer and President of Medicore since 1980. He is Chairman of the Board and
Chief Executive Officer of Techdyne (since 1982, when acquired by the Company),
Dialysis Corporation of America ("DCA") (since 1980), another public subsidiary
(68% owned) of Medicore. He is also an officer and director of most of
Medicore's subsidiaries. He is President, sole shareholder and director of Todd.
Mr. Langbein devotes most of his time and efforts to the affairs of the Company,
Techdyne and DCA. See "Executive Compensation" and "Certain Relationships and
Related Transactions."
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SEYMOUR FRIEND - Class 3 director; term runs through June, 2001. Mr.
Friend is 78 years of age and has been a director of Medicore since 1975 and a
Vice President since 1981. Mr. Friend is a real estate investor and devotes a
portion of his time to the affairs of the Company.
ANTHONY C. D'AMORE - Class 2 director; term runs through June, 2000. Mr.
D'Amore is 68 years of age and is been a director of Medicore (since 1979), and
is a director of Techdyne (since 1984). Mr. D'Amore is an insurance consultant.
ROBERT P. MAGRANN - Class 2 director; term runs through June, 2000. Mr.
Magrann is 55 years of age and has been a director of Medicore since 1997. He
has been a senior executive and general manager of major national and
international food distributors. From 1994 to 1996 he was Senior Vice President
at Borden Inc., involving management supervision and responsibility for
marketing, sales and public relations. In 1996, Mr. Magrann became affiliated
with Tetley USA, Inc., a beverage producer and distributor, with whom he holds
the position of Senior Vice President, Sales for its North American Food Group.
EXECUTIVE OFFICERS
Name AGE Position Held Since
---- --- -------- ----------
Thomas K. Langbein 53 Chief Executive 1980
Officer and President
(Chairman of the Board)
Seymour Friend 78 Vice President (Director) 1981
Daniel R. Ouzts 52 Vice President (Finance) 1986
and Controller 1983
OTHER SIGNIFICANT EMPLOYEES
Barry Pardon 47 President of Techdyne 1991
(Director of Techdyne) 1990
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 has served 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."
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 1988, and appointed President in 1991.
Mr. Pardon is Chairman of the Board of Lytton and is a director of Techdyne
(Scotland).
There are no family relationships among any of the officers or directors
of the Company.
BOARD COMMITTEES
The only committee the Company has is an audit committee consisting of
Thomas K. Langbein (employee director), and Peter D. Fischbein and Robert P.
Magrann (non-employee directors). The audit
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committee, which meets informally, usually on a monthly basis, is responsible
for recommending to the board of directors the firm of independent accountants
to serve the Company, reviewing fees, services and results of the audit by such
independent accountants, reviewing the accounting books and records of the
Company and reviewing the scope, results and adequacy of the internal audit
control procedures of the Company. No member of the audit committee receives a
fee for his services.
COMPENSATION OF DIRECTORS
No standard arrangements for compensating directors for services as
directors or for participating on any committee exists. We reimburse directors
for travel and related expenses incurred in attending shareholder, board and
committee meetings, which expenses are minimal. In lieu of any cash compensa-
tion or per meeting fees to directors for acting as such, the Company has pro-
vided directors, among others, with options to purchase common stock of the
Company at fair market value as of the date of grant. See "Executive Compensa-
tion - Options, Warrants or Rights," and "Beneficial Ownership of the Company's
Securities" below.
EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth compensation paid by the
Company and its subsidiaries for the last three fiscal years ended December 31,
1998 for services in all capacities for its Chief Executive Officer and each of
its principal executive officers whose total annual salary and bonus exceeded
$100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards
------
(a) (b) (c) (e) (g) (i)
Other
Annual Securities All Other
Name and Compen- Underlying Compensation
Principal Position Year Salary($) sation($) Options/SARs(#) ($)
- ------------------ ---- --------- --------- -------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Medicore(3) Techdyne DCA
CEO
Thomas K. Langbein 1998 258,000(1) 32,300(2) --- --- --- ---
1997 257,000(1) 34,300(2) --- 100,000 --- 74,500(1)(4)
1996 262,000(1) 24,800(2) 250,000 --- --- 94,200(1)(5)
Barry Pardon(6) 1998 150,800 7,300 --- --- --- ---
1997 144,100 8,000 --- 100,000 --- ---
1996 160,600(7) 8,800 75,000 --- --- 22,500(7)(8)
Bart Pelstring(9) 1998(10) 112,000 3,000(11) --- --- --- ---
1997 77,300(10) 8,900(10) --- --- --- 74,500(1)(4)
1996 (12) --- 30,000 --- --- 21,700(5)
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- ----------
</TABLE>
(1) Includes a $25,000 bonus in 1996 for Mr. Langbein. Does not include (i)
the Company's June, 1996 forgiveness of indebtedness of a promissory note
issued in 1994 for an option exercise for 130,000 shares of the Company's
common stock; (ii) DCA's December, 1997 forgiveness of a promissory note
issued in December, 1997 for an option exercise for 50,000 shares of DCA
common stock (see "Options, Warrants or Rights" below); and (iii) DCA's
payment of a $25,000 bonus in 1998.
(2) Includes automobile allowance and related expenses, life and disability
insurance premiums.
(3) In April, 1995, the Company granted non-qualified stock options under its
1989 Stock Option Plan to officers, directors, employees and consultants
for 809,000 shares of common stock, now 841,000, originally exercisable
at $3.00 per share adjusted to $2.38 per share on December 30, 1996, the
fair market value on that date. In June, 1997 a new director was elected
and was granted options for 35,000 shares of the Company's common stock
exercisable at $3.75 per share, adjusted to $2.38 per share on September
10, 1997, the fair market value on that date, equivalent to the exercise
price of the other directors. See "Options, Warrants or Rights" below.
(4) The options for 50,000 shares of DCA common stock were exercised
effective December 31, 1997 at $1.50 per share. Consideration for these
shares was paid in cash for the par value and a promissory note issued
for the balance. On December 31, 1997, DCA forgave the indebtedness under
the notes, which notes were cancelled. See Note (1) above.
(5) The option for the 130,000 shares of the Company's common stock was
exercised in 1992 at $.69 per share. Consideration for these shares was
paid in cash for the par value and a three year promissory note issued
for the balance with interest at 5.36% per annum. On June 5, 1996, the
Company forgave the indebtedness under the notes, which notes were
cancelled. See Note (1) above.
(6) President and director of Techdyne, and an officer and/or director of its
subsidiaries.
(7) Does not include the Company's June, 1996 forgiveness of indebtedness of
a promissory note issued in 1994 for an option exercise for 30,000 shares
of the Company's common stock. See "Options, Warrants or Rights" below.
(8) The option for the 30,000 shares of the Company's common stock was
exercised in 1992 at $.69 per share. See above Note (5) for the
consideration and Note (7).
(9) President and director of DCA, and an officer and director of its
subsidiaries.
(10) Mr. Pelstring has no employment agreement with DCA. 1998 compensation
includes a $25,000 bonus paid by DCA. Mr. Pelstring's salary does not
include (i) the June, 1996 Medicore forgiveness of a promissory note in
the amount of $21,700 (including interest) for an option exercise for
Medicore common stock by Mr. Pelstring in 1994; and (ii) the December,
1997 DCA forgiveness of a promissory note in the amount of $74,500 for an
option exercise for DCA common stock in December, 1997.
(11) Includes payment for $100,000 term life insurance policy and auto
allowances for fuel, repairs and maintenance.
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(12) Annual compensation, bonuses and other compensation did not exceed
$100,000.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Mr. Langbein has an employment agreement with Medicore through August 31,
2003 at an annual salary of $261,504 with yearly increases in increments of no
less than $10,000. The agreement provides for Mr. Langbein to serve as the
Chairman, Chief Executive Officer and President.
The Medicore employment agreement also provides
o $850 per month automobile allowance
o employee benefit plans and other fringe benefits and programs
available to Medicore employees and executives
o reimbursement for business expenses
o payment of universal and term life insurance owned by Mr. Langbein
the aggregate face value of $1,600,000 - beneficiaries designated
by Mr. Langbein
o indemnification of Mr. Langbein against losses, judgments and
expenses in any claim against him for acting as an officer and/or
director of Medicore and subsidiaries, provided he acted in good
faith and in a manner he reasonably believed was in the best
interests of Medicore and subsidiaries
o non-competition for two years from termination within 20 miles of
Medicore's primary operations, presently Hialeah, Florida;
Medicore has option to request Mr. Langbein's non-competition
within the United States at $4,000 per month for each 12 month
period, increasing 5% each succeeding 12 month period
o full compensation for first 90 days of disability with option of
Medicore to continue employment of Mr. Langbein with full
compensation less disability payments or terminate ("Disability
Termination" see below)
The Medicore employment agreement also contains different termination
provisions as follows:
o upon death, wrongful termination (defined below), Disability
Termination or Change in Control (defined below), Mr. Langbein
will receive a lump sum payment (as severance allowance (see
below) and liquidated damages) in an amount equal to Mr.
Langbein's salary, including expenses and benefits, for three
years from the date of termination ("Lump Sum Payment")
o Mr. Langbein has the option to take 400,000 shares of Medicore
common stock ("Medicore Shares") instead of the Lump Sum Payment;
Mr. Langbein has the right for two years to demand registration of
the Medicore Shares and for three years to include the Medicore
Shares in any registration statement filed by Medicore;
registration of the Medicore Shares to be at the sole cost of
Medicore except any of Mr. Langbein's legal fees and commissions
for sale of the Medicore Shares
o full vesting of any warrants, options or similar rights held by
Mr. Langbein with choice of Mr. Langbein to keep those options and
warrants, otherwise Medicore has to repurchase them at a certain
repurchase formula
o for Cause by Medicore - no benefits or salary
o for Good Reason (defined below) by Mr. Langbein - Medicore
continues to pay salary, benefits and expenses under the
agreement, and all options, warrants and other securities shall
be fully vested and exercisable; or provide Mr. Langbein with the
Lump Sum Payment or instead, at Mr. Langbein's option, to acquire
Medicore Shares
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o upon expiration at August 31, 2003, if Medicore does not renew or
enter into new employment agreement, there is a severance
allowance which is the Lump Sum Payment or Mr. Langbein's option
to take the Medicore Shares.
DEFINITIONS
o "Cause" for termination includes willful failure to perform duties
under the employment agreement, and illegal conduct or gross
misconduct which damages the business or reputation of Medicore
o "Good Reason" to terminate his employment includes assigning Mr.
Langbein duties inconsistent with his position with Medicore or
any action that results in reducing Mr. Langbein's authority, duty
or responsibilities; reduction of salary, expenses or benefits; or
other substantial breach of the agreement
o "Change in Control" generally includes (a) the announcement for
and/or acquisition by an individual, entity or group ("Person") of
25% or more of the common stock then outstanding, except by
Persons affiliated with Mr. Langbein, or (b) a sale of
substantially all of the assets, or a merger or acquisition of
Medicore, or (c) certain changes in the board other than through
shareholder elections of members nominated by the existing board.
Barry Pardon, director and President of Techdyne, has a five-year
employment agreement with that subsidiary through December 31, 2000, retaining
him as President of Techdyne. Mr. Pardon's employment agreement provides for the
following:
o base annual salary of $120,000
o over-ride commission of .5% of net sales in excess of $22,000,000
(increasing $1,000,000 each of the next two years); net sales of
acquired companies are added to the base $22,000,000
o automobile, travel and entertainment expenses
o termination may occur by (i) expiration of the term; (ii) death of
Mr. Pardon; (iii) Mr. Pardon's disability; (iv) conviction of a
crime, failure to carry out policies of Techdyne, dishonest
practice, conduct prejudicing Techdyne or breach of the employment
agreement; severance, which is nine months' salary, only paid upon
death or termination without cause
o non-competition for one year from termination; restrictions on Mr.
Pardon calling upon customers or suppliers of Techdyne, diverting
customers, services, or products of Techdyne, or disclosing any
trade secrets
Certain executive and accounting personnel and administrative facilities
of Medicore and its subsidiaries, including Techdyne and DCA, were common for
fiscal 1998. The costs of executive and accounting salaries and other shared
corporation overhead for these companies were charged on the basis of direct
usage when identifiable with any balance allocated on the basis of time spent.
The allocation with Techdyne is accomplished pursuant to a Service Agreement
between that subsidiary and Medicore which commenced in October, 1996. Mr.
Langbein, as an officer and director, and Mr. Ouzts, as an officer, of the
Company, Techdyne and DCA, divide their time and efforts among these companies.
See "Certain Relationships and Related Transactions."
OPTIONS, WARRANTS OR RIGHTS
1989 Medicore Stock Option Plan ("1989 Medicore Plan")
o expires May 18, 2009
o grants available to employees, officers, directors, consultants,
advisors and similar persons
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o non-qualified; five year term; exercise price fair market value on
date of grant
o may be exercised with cash or Company common stock or both; if
exercised with stock, optionee receives additional option for
amount of shares used for exercise at exercise price of the then
current market price exercisable for remainder of original option
o termination of optionee's affiliation with Medicore
- death, disability or retirement after age 65; exercisable
for two years from such event but not beyond expiration date
of option
- any other termination; right to exercise terminates
immediately
o forced redemption at formulated prices upon change in control of
Medicore which includes (i) sale of substantially all assets of
Medicore or its merger or consolidation, (ii) majority of board
changes other than by election of shareholders pursuant to board
solicitation or vacancies filled by board caused by death or
resignation, or (iii) a person or group acquires or makes a tender
offer for at least 25% of Medicore's common stock; optionee may
waive redemption
o options are non-transferable
o 1989 Medicore Plan history to March 15, 1999
- 1,000,000 shares reserved for issuance
- 844,000 granted (809,000 in 1995; 35,000 in 1997)
- none exercised
- 78,000 cancelled
- 766,000 outstanding (including 11 officers and directors of
Medicore and its subsidiaries and eight employees)
- exercisable at $2.38 per share (806,000 options, original
exercise price at $3.00 per share, repriced in December,
1996; 35,000 options, original exercise price at $3.75 per
share, repriced in September, 1997)
1994 Techdyne Stock Option Plan ("1994 Techdyne Plan")
o expires May 24, 1999
o grants available to officers, directors, consultants, key
employees, advisors and similar parties o options, qualified and
incentive, may be up to five years, may require vesting, and
exercise price
established by board or stock option committee
o options may, at discretion of board, be exercised either with
cash, common stock with fair market value equal to cash exercise
price, optionee's personal recourse note, or assignment to
Techdyne of sufficient proceeds from sale of common stock acquired
upon exercise of the option with an authorization to the broker to
pay that amount to Techdyne, or any combination of such payments
o termination of optionee's affiliation with the company by optionee
- death, disability or retirement after age 65, exercisable
for nine months but not beyond option expiration date
- termination for cause, right to exercise terminates
immediately
- any other termination, 30 day exercise
o options are non-transferable
o forced redemption at formulated prices upon change in control of
Techdyne which includes (i) sale of substantially all the assets
of Techdyne or its merger or consolidation, (ii) majority of board
changes other than by election of shareholders pursuant to board
solicitations or vacancies filled by board caused by death or
resignation, or (iii) a person or group acquires or makes a tender
offer for at least 25% of Techdyne's common stock; optionee may
waive redemption
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<PAGE>
o 1994 Techdyne Plan history to March 15, 1999
- 250,000 shares reserved for issuance
- 227,900 granted
- 166,400 exercised
- 4,900 cancelled
- 56,600 outstanding (including 27 employees, one director
and two advisors to Techdyne)
- exercise price $1.00 per share through May 24, 1999
1995 Techdyne Options
o non-qualified
o 152,500 granted to eight directors of Techdyne and its
subsidiaries and counsel
o exercisable at $1.75 per share through February 26, 2000
1997 Techdyne Stock Option Plan ("1997 Techdyne Plan")
o expires June 22, 2002
o substantially similar to 1994 Techdyne Plan (see above);
non-qualified and incentive options available for grant
o 1997 Techdyne Plan history to March 15, 1999
- 500,000 reserved for issuance
- 375,000 granted (including 14 officers, directors and key
employees of Techdyne)
- none exercised
- none cancelled
- exercisable at $3.25 per share through June 22, 2002
1995 Dialysis Corporation of America Stock Option Plan ("1995 DCA Plan")
o expires November 9, 2000
o grants available to officers, directors, consultants, key
employees, advisors and similar parties
o options (non-qualified) may be up to five years, may require
vesting, exercise price determined by board of directors
o options may, at discretion of board, be exercised either with
cash, common stock with fair market value equal to cash exercise
price, optionee's personal recourse note, or assignment to DCA if
sufficient proceeds from the sale of common stock acquired upon
exercise of the option with an authorization to the broker to pay
that amount to DCA, or any combination of such payments
o termination of optionee's affiliation with DCA by
- death, disability or retirement after age 65, exercisable
for nine months but not beyond option expiration date
- termination for cause, right to exercise terminates
immediately
- any other termination, 30 day exercise
o options are non-transferable
o forced redemption at formulated prices upon change in control of
DCA which includes (i) sale of substantially all of the assets of
DCA or its merger or consolidation; (ii) majority of the board
changes other than by election of shareholders pursuant to board
solicitations or vacancies filled by board caused by death or
resignation; or (iii) a person or group acquires or makes a tender
offer for at least 25% of the DCA's common stock
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<PAGE>
o 1995 DCA Plan history to March 15, 1999
- 250,000 shares reserved for issuance
- 210,000 granted in 1995
- 168,500 exercised
- 37,000 cancelled
- 4,500 outstanding (six employees ) exercisable at $1.50
per share through November 9, 2000
- 5,000 granted in 1998 to a new director exercisable at
$2.25 per share through June 9, 2003
o non-affiliates, employees free to immediately sell their common
stock upon exercise of options
o affiliates may sell their shares of common stock upon exercise of
options under Rule 144 of the Securities Act
1996 DCA Options
o non-qualified
o options for 5,000 shares of common stock issued each to two
medical directors of DCA's dialysis facilities (one a director of
DCA)
o one option exercisable at $4.75 per share through August 18, 1999
o second option exercisable at $2.25 per share through August 18,
1999 (reduced in June, 1998 from original $4.75 per share exercise
price)
o termination of director affiliation with DCA or with professional
association acting as medical director of DCA's dialysis facility
- death, disability or retirement after age 65, exercisable
for six months but not beyond option expiration date of the
option
- termination for cause, right to exercise terminates
immediately
- any other termination, 30 day exercise
o only exercisable with cash
The exercise price and any repricing of options is 100% of the fair
market value of the common stock on the date of grant or repricing.
No options were granted to any officers or directors of Medicore,
Techdyne or DCA in 1998 except for an option for 5,000 shares to a new director
of DCA.
On July 31, 1997, Techdyne acquired Lytton Incorporated ("Lytton"), and a
portion of the consideration included 300,000 shares of Techdyne common stock
guaranteed by Techdyne at certain levels which included earnings objectives of
Lytton. If such guaranteed minimum proceeds from the sale of the Techdyne shares
by the seller of Lytton was not satisfied, Techdyne is required to make up the
difference in cash or its common stock, or a combination of both, at the
discretion of Techdyne. See "Certain Relationships and Related Transactions."
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<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End (#) at FY-End($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable
- ---- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
CEO
Thomas K. Langbein
Medicore Options -0- -0- 250,000 (exer) (exer) (1)
Techdyne Options 40,000 140,000 140,000 (exer)(2) 27,600 (exer)(3)
DCA Options -0- -0- -0- -0-
Barry Pardon(4)
Medicore Options -0- -0- 75,000 (exer) (exer) (1)
Techdyne Options 40,000 140,000 140,000 (exer)(2) 27,600 (exer)(3)
DCA Options -0- -0- -0- -0-
Bart Pelstring(5)
Medicore Options -0- -0- 30,000 (exer) (exer) (1)
Techdyne Options -0- -0- -0- -0-
DCA Options -0- -0- -0- -0-
- ----------
</TABLE>
(1) The options were out-of-the-money, the exercise price being $2.38 per
share, and the closing price of the common stock on December 31, 1998, as
reported by the Nasdaq National Market was $1.25. "In-the-money" options
are options for which the exercise price is less than the market price
of the underlying common stock on a particular date.
(2) 40,000 options exercisable at $1.75 under the 1995 Techdyne Plan and
100,000 options exercisable at $3.25 pursuant to the 1997 Techdyne Plan.
(3) The value of the in-the-money options, which included only the 40,000
1995 Techdyne Options (the 1997 Techdyne Options were out-of-the-money
since the exercise price is higher than the year-end market value), was
determined by the difference between the exercise price and the closing
price of the common stock as reported by Nasdaq National Market on
December 31, 1998, which was $2.44.
(4) President and director of Techdyne.
(5) President and director of DCA.
BOARD EXECUTIVE COMPENSATION REPORT
The Company has no executive compensation committee. Compensation of its
executive officers is considered by all five members of the board of directors.
Our philosophy is to align compensation of
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management with the long-term interests of shareholders. Executive compensation
is structured to motivate management to create sustained shareholder value.
The board attempts to accomplish this goal by:
(i) aligning the interests of management and shareholders
through stock ownership; and
(ii) seeking continued growth and performance of Medicore by
attracting, retaining and motivating talented executives and
employees through competitive compensation.
WHAT IS THE STRUCTURE OF EXECUTIVE COMPENSATION?
The elements of executive compensation include:
o base pay
o long-term incentives
o special awards in recognition of extraordinary efforts and
achievements
HOW IS BASE PAY DETERMINED?
Base pay is determined by individual performance and position with and
responsibilities to the Company. We also try to be competitive with salaries to
insure the Company is able to maintain its quality executives. Base salaries for
management are below major competitors, which are much larger than the Company,
but are within the range of similarly positioned electronic, electro-mechanical
manufacturers and outpatient dialysis service providers.
BASE SALARY FOR CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
Thomas K. Langbein is most responsible for the Company's performance. He
has been the motivating force behind the Company's strengthened sales growth,
expense control, profit margins, structuring and implementing efficiency
programs, asset management, inventory control, and strategic business planning.
In evaluating the performance and setting Mr. Langbein's compensation, the board
took into account his successful efforts in directing the Company's operations,
seeking new sources of capital for the Company and its subsidiaries' operations,
aggressively pursuing new areas of growth in the electronics, electro-mechanical
and dialysis industries, and motivating key executive management toward greater
overall efficiencies in labor, cost control, increased sales and new business.
Mr. Langbein does not participate in decisions affecting his compensation.
WHAT ARE LONG-TERM INCENTIVES?
Long-term incentive awards for executives usually take the form of
granting stock options under the Company's or its subsidiaries' option plans or
granting restricted stock awards, meaning shares which cannot be publicly sold
for a certain period of time, usually from one to two years. We believe the
granting of stock options or restricted shares helps align the interests of the
Company's executives with its shareholders. This is premised on the basic
principle that the executives will receive value only if the market value of the
Company's common stock increases over time. Market price will only increase if
management strives to improve the Company's operations, sales and profitability.
To increase the importance of creating shareholder value over the shorter term,
we normally limit the time of stock options to five years.
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<PAGE>
SPECIAL AWARDS
Special awards may be granted from time to time in recognition of
extraordinary efforts and achievements. Such may arise based upon an executive's
extraordinary efforts in accomplishing expansion, acquisitions, realizing sub-
stantial marketing results, increasing market share and similar events. These
situations and extent of awards are evaluated on a case by case basis.
SUBMITTED BY THE BOARD OF DIRECTORS
Thomas K. Langbein Seymour Friend
Anthony C. D'Amore Peter D. Fischbein
Robert P. Magrann
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total
shareholder returns for the Company, the Nasdaq Market Index and the Electronics
Industry Index from December 31, 1993 through December 31, 1998. The cumulative
total shareholder returns on the Company's common stock was measured by dividing
the difference between the Company's share price at the end and the beginning of
the measurement period by the share price at the beginning of the measurement
period. The total shareholder return assumes $100 invested at the beginning of
the period in the Company's common stock, in the Nasdaq Market Index and the
Electronics Industry Index. The Company did not pay dividends on its common
stock during the measurement period and the calculations of cumulative total
shareholders return on the common stock did not include dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS AMONG MEDICORE,
NASDAQ MARKET INDEX AND ELECTRONICS INDUSTRY INDEX
Measurement Period Electronic
- ----------------------- Medicore, Inc. Nasdaq Index Industry Index
(Fiscal Year Covered) -------------- ------------ --------------
Measurement Pt-12/31/93 $ 100.00 $ 100.00 $ 100.00
FYE 12/31/94 278.53 104.99 120.65
FYE 12/31/95 542.86 136.18 186.40
FYE 12/31/96 285.71 169.23 282.58
FYE 12/31/97 257.14 207.00 300.68
FYE 12/31/98 142.86 291.96 440.11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain of the officers and directors of the Company are officers and/or
directors of Techdyne and DCA, including Thomas K. Langbein, who holds the
position of Chairman of the Board of Directors,
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<PAGE>
President and Chief Executive Officer of the Company, Chairman of the Board of
Directors and Chief Executive Officer of Techdyne and DCA, as well as officer
and/or director of these companies' subsidiaries. Mr. Langbein is also the Pres-
ident, sole shareholder and director of Todd, a securities broker-dealer. Daniel
R. Ouzts is Vice President of Finance, Controller and Treasurer of the Company
and DCA and is Vice President of finance and Controller of Techdyne. Peter D.
Fischbein and Anthony C. D'Amore are each a director of the Company and
Techdyne. Lawrence E. Jaffe is Secretary and corporate counsel to the Company,
DCA and Techdyne, and receives a substantial portion of his fees from these com-
panies. Approximately 1% of the Company's common stock and DCA's securities, and
options for less than 1% of Techdyne's common stock are in the name of and held
in trust for Mr. Jaffe's wife.
In addition, certain of the accounting personnel and administrative
facilities of the Company and its subsidiaries, including Techdyne and DCA, are
common. The costs of executive and accounting salaries and other shared
corporate overhead for these companies are charged first on the basis of direct
usage when identifiable, with the remainder allocated on the basis of time
spent, either through a corporate overhead allocation or in the case of
Techdyne, through a Service Agreement. Since the shared expenses are allocated
on a cost basis, there is no intercompany profit involved. Utilization of
personnel and administrative facilities in this manner enables the Company to
share the cost of qualified individuals with its subsidiaries rather than
duplicating the cost for various entities. It is the opinion of management that
these services are on terms as favorable as obtainable from unaffiliated
parties.
The amount of expenses charged by the Company to Techdyne and DCA for
each of the three years ended December 31, 1998 were approximately $408,000 and
$240,000, respectively. These were included in the intercompany advance accounts
with Techdyne and DCA. There was an intercompany indebtedness due from the
Company to DCA of approximately $121,000 at December 31, 1998.
Management of DCA is exploring accounting and bookkeeping programs that
would provide DCA with its own independent functions in these areas, and reduce
its dependence on the Company's personnel and facilities. The system is
anticipated to cost in the range from $10,000 to $20,000, and is anticipated to
be ready no later than mid-1999.
In 1990 Medicore acquired land, two buildings and a parking lot in
Hialeah, Florida from Techdyne. Medicore is leasing to Techdyne the two
buildings and the parking lot under a five year net lease expiring March 31,
2000 at $94,000 per year plus applicable taxes. Management is of the opinion
that the rentals are on terms as favorable as obtainable from unaffiliated
parties.
Medicore has been advancing funds at no interest to finance Techdyne's
business since its acquisition of Techdyne in November, 1982. After several
repayments to Medicore over the years Techdyne issued to Medicore an unsecured
demand promissory note convertible into Techdyne common stock at a rate of $1.75
per share, which at December 31, 1998 had an outstanding balance of $2,426,510,
which includes accrued interest of $134,133. The annual interest rate on the
note is 5.7%. Medicore converted $350,000 of Techdyne's promissory note into
200,000 shares of Techdyne's common stock in 1996, and $875,000 of the note into
500,000 shares of Techdyne's common stock in 1997, resulting in Medicore's
ownership interest in Techdyne of 3,227,797 shares of common stock (61.5% of the
outstanding shares, or approximately 70% including the beneficial ownership of
the convertible note). Medicore does not intend to require repayment of its
advances prior to January 1, 2000.
Techdyne has a credit facility and three commercial loans with
NationsBank in Florida. The $1,600,000 line of credit is secured by all of
Techdyne's assets, with interest at the bank's prime rate, 7.75% as of December
31, 1998. This line of credit has a maturity date of May 1, 2000 and had an
outstanding balance of $1,600,000 at December 31, 1998 and $1,000,000 at
December 31, 1997. Two of the
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<PAGE>
commercial loans were obtained in 1996. One loan is for $712,500 for five years
expiring on February 7, 2001 at an annual rate of interest equal to 8.28% with
monthly payments of principal and interest of $6,925 based on a 15-year amorti-
zation schedule with the unpaid principal and accrued interest due on the ex-
piration date. This loan had an outstanding balance of $636,000 at December 31,
1998 and $663,000 at December 31, 1997. This term loan has a prepayment penalty
and is secured by a mortgage on properties in Hialeah, Florida owned by the Com-
pany, two of which properties are leased to Techdyne and one parcel used as a
parking lot. Under this term loan Techdyne is obligated to adhere to a variety
of affirmative and negative covenants similar to those of the 1997 five year
term loan of $1,500,000 with NationsBank. See below. The mortgage issued by the
Company to secure the $712,500 term loan provides the bank with reappraisal
rights so that should the principal amount outstanding under the Note exceed 75%
of the reappraised value of the mortgaged property, such excess has to be repaid
by the Company and/or Techdyne. The Company, as lessor to Techdyne of these
mortgaged properties, has assigned the leases, rents and profits to the bank as
further security for this $712,500 term loan, provided the Company may continue
to collect the rents until an event of default, if any. The Company, as lessor
of the properties mortgaged, has subordinated its interests in the leases to the
mortgage held by NationsBank to secure this term loan. See the accompanying 1998
Annual Report, Item 2, "Properties."
The second commercial term loan obtained in 1996 is for the principal
amount of $200,000 for a period of five years bearing interest at a per annum
rate of 1.25% over NationsBank's prime rate and requiring monthly principal
payments with accrued interest of $3,333 through expiration on February 7, 2001.
This loan had an outstanding balance of $87,000 at December 31, 1998 and
$127,000 at December 31, 1997. This $200,000 term loan carries no prepayment
penalty and is secured by all of Techdyne's tangible personal property, goods
and equipment, and all cash or non-cash proceeds of such collateral.
Techdyne also obtained a five year term loan of $1,500,000 due December
29, 2002 at an annual interest rate of 8.60%. The interest was fixed based upon
a variable rate note (LIBOR plus 2.25% floating rate) and an interest rate swap
agreement entered into with the bank. The swap agreement in effect reduces the
interest rate risk by allowing Techdyne to lock-in a fixed rate by converting
the foregoing variable rate obligation. The term loan is payable in equal
principal payments of $25,000 plus interest. 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 market risk from such early termination
that arises from the movement in interest rates may cause a liability to
Techdyne if interest rates are down, and a benefit to Techdyne if interest rates
are up, with Techdyne recognizing a loss or gain resulting from the difference
between its fixed interest rate and the market value of interest rates at the
time of early termination. Under the term loan, Techdyne is obligated to adhere
to a variety of affirmative and negative covenants, including but not limited to
a debt service ratio of 1:25 to 1:00, a current ratio of 1:5 to 1:00, a capital
funds ratio of total debt to capital funds of no more than 1:7 to 1:00,
maintenance of capital funds equal to or in excess of $3,500,000, and Techdyne
may not sell any of its assets or properties, except inventory in the ordinary
course of business, within any calendar year for which the aggregate book value
exceeds $500,000. The term loan also provides for restrictions on transactions
with related persons, precludes changes in ownership in Techdyne which would
reduce the ownership by Medicore, to less than 51%, and restricts Techdyne from
engaging in any new unrelated business which might adversely affect the
repayment of the term loan.
The revolving and term financing facilities are secured by a first
security interest on corporate assets. The Company has also subordinated
$2,291,665 in principal indebtedness due to it from Techdyne to these financing
facilities, provided Techdyne may make payments to Medicore on the subordinated
debt from additional equity that is injected into Techdyne or from reduced
earnings, provided Techdyne is in compliance with all the financial covenants of
the loan agreements.
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<PAGE>
There are cross defaults between the revolving and term loans exclusive
of the $200,000 term loan.
The Company has unconditionally guaranteed the payment and performance by
Techdyne of the $1,600,000 revolving line of credit and the three commercial
term loans. See the accompanying 1998 Annual Report, Note 3 to "Notes to
Consolidated Financial Statements."
Techdyne guaranteed a line of credit for Techdyne (Scotland) from The
Royal Bank of Scotland Plc which credit line had a U.S. equivalency of
approximately $330,000 at December 31, 1997, which was not renewed. No amounts
were outstanding under this line of credit during 1998 and no amounts were
outstanding as of December 31, 1997.
On July 31, 1997, Techdyne acquired Lytton Incorporated, which is engaged
in the manufacture and assembly of printed circuit boards and other electronic
products for commercial customers. This acquisition required $2,500,000 cash at
closing, funded by the modified revolving 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 on the date of acquisition for which
Techdyne has guaranteed $2,400,000 minimum proceeds to Patricia Crossley,
the seller of Lytton, payable at the option of Techdyne in cash or additional
Techdyne common stock. Patricia Crossley is the wife of Lytton Crossley, the
former President and now Assistant to the President of Lytton and a nominee for
director of Techdyne. The guarantee was modified in 1998 providing Patricia
Crossley the right to sell enough of her Techdyne common stock to yield her
$1,300,000, and Techdyne would issue to her additional shares in an amount
to assure her Techdyne ownership was 150,000 shares of common stock. In July,
1998, Techdyne advanced Patricia Crossley approximately $1,278,000 ("Advance")
toward her sale of shares sufficient to provide her with $1,300,000. Proceeds
from Mrs. Crossley's sale of her Techdyne common stock up to 195,000 shares
would repay the Advance. To the extent the proceeds of such sales were
insufficient to pay the Advance, any such balance of the Advance would be
forgiven. Techdyne also guaranteed Patricia Crossley aggregate proceeds of
$1,100,000 from the sale of the remaining Techdyne common stock she owns if
sold on or prior to July 31, 1999.
The Stock Purchase Agreement also provided for incentive consideration
based on specific sales levels of Lytton for each of three successive specified
years, which includes payment to Patricia Crossley of 4% of Lytton's sales of
$14,000,000 up to $20,000,000, and 5% of Lytton's sales over $20,000,000.
Pursuant to this incentive consideration, $154,000 was paid to Mrs. Crossley
during 1998. Lytton Crossley had a one year employment agreement with Lytton
through July 30, 1998 at an annual salary of $135,000, plus participation in
medical and life insurance programs and profit and other employee benefit plans,
and reasonable business costs and expenses. Mr. Crossley's current employment
agreement retains him as Assistant to the President, requiring 40 hours per
month at an annual salary of $30,000, with a one year automatic renewal and a 30
day termination provision without cause by either party.
Mr. Crossley had borrowed an aggregate of approximately $155,000 from
Lytton, which was repaid at the closing date of the Lytton acquisition on July
31, 1997. The repayment was made through use of a portion of the cash
consideration paid to Patricia Crossley for the sale of Lytton to Techdyne.
Lytton has a deferred compensation arrangement with its President, Lytton
Crossley, 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 and the interest to be calculated on any unpaid balance as
of August 1, 1999. During the period ended December 31, 1998 a total of $59,000
was paid under this agreement. The balance outstanding under this agreement
amounted to approximately $108,000 at December 31, 1998 and $167,000 at December
31, 1997.
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On September 16, 1996, Lytton sold its offices and operating facility to
Stanley Avenue Properties, Ltd., a limited liability company whose membership
includes Lytton's President, Mr. Crossley and his wife. Stanley Avenue
Properties, Ltd. acquired the facilities in exchange for a note receivable to
Lytton for $147,000 and the assumption of two mortgage notes payable for a total
sales price of $1,200,152. Lytton recognized a gain on the sale of the property
and equipment in the amount of approximately $14,400, which was reflected in the
revenues section of Lytton's financial results. The note receivable from Stanley
Avenue Properties, Ltd. of approximately $139,000 was also repaid on July 31,
1997 upon Techdyne's acquisition of Lytton.
Stanley Avenue Properties, Ltd. leases the property to Lytton under a
five year lease with 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 two renewal options each for five years at the then fair
market resale value. Techdyne is guarantor of this lease.
In 1995, Lytton entered into loan agreements with The Provident Bank in
Ohio for revolving ($1,500,000), term ($1,000,000), equipment (up to $900,000)
and mortgage loans ($900,000), secured by a mortgage on the real property leased
to Lytton and owned by Stanley Avenue Properties, Ltd., and by other collateral,
and guaranteed by Lytton Crossley. The mortgage loan was assigned to and assumed
by Stanley Avenue Properties, Ltd. and the mortgage was amended to delete the
other loans from indebtednesses secured by the mortgage. The revolving line was
renewed through June 30, 1999 and has monthly interest payments at prime plus
.5%, with an interest rate of 8.25% at December 31, 1998. This line had an
outstanding balance of $962,000 as of December 31, 1998 and $549,000 as of
December 31, 1997. The $1,000,000 installment loan matures 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 of a variable or fixed
interest rate. The balance outstanding on this loan was $733,000 as of December
31, 1998 and $933,000 as of December 31, 1997. Lytton also has a $500,000
equipment loan with the same bank payable through August 1, 2003 with interest
at prime plus 1%. There was no outstanding balance on this loan as of December
31, 1998 or December 31, 1997. All of these bank loans are secured by the bus-
iness assets of Lytton. See accompanying 1998 Annual Report, Note 3 to "Notes to
Consolidated Financial Statements."
Lytton conducts a portion of its operations with equipment acquired under
equipment financing obligations which extend through July 1999 with interest
rates ranging from 8.55% to 10.09%. The remaining principal balance under these
financing obligations amounted to $112,000 at December 31, 1998 and $390,000 at
December 31, 1997. Lytton has an equipment loan at an annual interest rate of
5.5% maturing in April 2002 with monthly payments of principal and interest of
$4,298. This loan had an outstanding balance of approximately $157,000 at
December 31, 1998 and $198,000 at December 31, 1997 and is secured by equipment
of Lytton.
Techdyne manufactured lancets for Medicore which sales amounted to
$172,000 and $214,000 for the two year period ended December 31, 1998,
respectively. Medicore's Medical Products Division has recently taken over the
lancet production.
Lance International, with which company Edward Diamond, a nominee for
director of Techdyne, is affiliated as President and one of the owners, does
subcontract manufacturing for Techdyne. For the two years ended December 31,
1998 and 1997, Lance International revenues from manufacturing for Techdyne
amounted to approximately $2,245,000 (30%) and $2,837,000 (31%), respectively.
The Lance International manufacturing for Techdyne represented approximately 6%
and 10% of the Company's assembly and subcontract manufacturing orders for the
two years ended December 31, 1998 and 1997, respectively.
21
<PAGE>
Anthony C. D'Amore, a director of the Company and Techdyne, acts as an
insurance consultant and receives nominal commissions from the property,
casualty, and general liability insurance coverage for the Techdyne, Medicore
and DCA. The Company, Techdyne and DCA obtain group health insurance coverage
and several executive and key employee life insurance policies through George
Langbein, brother of Thomas K. Langbein. This insurance includes $100,000 term
life insurance each covering and owned by Barry Pardon, President and director
of Techdyne, Joseph Verga, Senior Vice President, Treasurer and director of
Techdyne (each purchased and paid for by Techdyne), Daniel R. Ouzts, Vice
President of Finance and Controller of the Company and Techdyne, and Bonnie
Kaplan, a key employee of the Company (both purchased and paid for by the
Company). Medicore also pays for $1,600,000 of life insurance owned by Thomas K.
Langbein. See "Executive Compensation." Premiums on these insurance coverages
totaled approximately $589,000 during 1998 of which $348,000 was for Techdyne.
Management is of the opinion that the cost and coverage of the insurance are as
favorable as can be obtained from unaffiliated parties.
Dialysis Services of Pennsylvania, Inc. - Lemoyne, a wholly-owned
subsidiary of DCA, is leasing its dialysis center from DCA under a five year net
lease expiring December 22, 2003 at $43,088 per annum, plus applicable taxes,
separately metered utilities, insurance and additional rent of $5,386 per year
covering common area maintenance expenses, with two renewals of five years each
at escalating base rent for each renewal period. Management is of the opinion
that the rental is on terms as favorable as can be obtained from unaffiliated
parties.
The Company established Viragen, Inc. in 1980 as a research and
development bio-medical company, primarily for production and use of human
leukocyte interferon. In 1986, the Company spun-off Viragen and entered into
certain agreements with its former subsidiary, the singular existing agreement
being a royalty agreement expiring in November, 2001, pursuant to which Viragen
is to pay a schedule of royalty payments with respect to Viragen's interferon
and related product sales with a maximum cap of $2,400,000. As of December 31,
1998, Viragen has paid approximately $64,000 of royalties to the Company.
Certain of Viragen's indebtedness to the Company was paid with Viragen common
stock, with the Company at December 31, 1998 owning approximately 259,000 shares
of Viragen. Although the Company had been selling a portion of its Viragen
shares over the previous few years, there were no such sales in 1998. The
Company leases 2,800 square feet of office space from Viragen for $22,000 per
annum under a five year renewed lease through December 31, 2002.
The only remaining common director of the Company and Viragen is Peter D.
Fischbein, also a director of Techdyne. Mr. Fischbein is an attorney who had
acted from time to time as counsel to the Company, Techdyne, Todd and Viragen.
Mr. Fischbein is the only nominee for director re-election. See "Proposals" and
"Information About Directors and Executive Officers."
BENEFICIAL OWNERSHIP OF THE COMPANY'S SECURITIES
The following table sets forth as of April 23, 1999, the names and
beneficial ownership of the equity securities of the Company and its
subsidiaries for directors, individually itemized, and for directors and
officers as a group, without naming them, and for each of the named executive
officers disclosed in the Summary Compensation Table (see "Executive
Compensation"), and for shareholders known to the Company to beneficially own
more than 5% of its voting securities.
22
<PAGE>
<TABLE>
<CAPTION>
Medicore Techdyne DCA
Common Common Common
Name Stock(1) %(2) Stock(3) %(4) Stock(5) %(6)
- ---- -------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Medicore, Inc. --- --- 4,614,374 69.5% 2,410,622 68.0%
Thomas K. Langbein 1,023,014 17.1% 180,000(3) 3.3% 50,000(5) 1.4%
Seymour Friend 432,705 7.5% 31,333 * 3,000 *
Peter D. Fischbein(7) 176,229 3.0% 55,000 1.0% --- ---
Anthony C. D'Amore 273,890 4.7% 44,000 * 3,000 *
Robert P. Magrann 44,000 * --- --- 2,000 *
Barry Pardon(8) 136,950 2.4% 187,533 3.5% --- ---
Bart Pelstring(9) 85,000 1.5% 1,250 * 50,000 1.4%
All directors and 2,020,888 32.3% 335,333 6.1% 65,500 1.8%
executive officers
as a group (6 persons)
- ---------------
* less than 1%.
</TABLE>
(1) Includes the following shares that may be acquired upon exercise of
options as of April 23, 1999 or within 60 days after that date:
Shares obtainable upon exercise of options under the 1989 Stock
Option Plan: Messrs. Langbein 250,000; Friend 75,000; Fischbein
75,000; D'Amore 75,000; Magrann 35,000; Pardon 75,000 and Pelstring
30,000.
Includes: Fischbein 100,000 shares held in trust for his son, Mr.
Fischbein's wife is trustee (to which shares Mr. Fischbein disclaims
beneficial interest); Pardon 8,400 shares owned by his wife.
Does not include: Messrs. Langbein 15,700 shares held by his two
children of majority age, and 400,000 shares in his employment
agreement issuable under certain conditions (see "Executive
Compensation"); Fischbein 196,382 shares owned by his wife
(financially independent and to which shares Mr. Fischbein disclaims
beneficial interest).
(2) Based on 5,715,540 shares outstanding exclusive of (i) 841,000 shares of
common stock underlying options granted in 1995 and 1998 under the
Company's 1989 Stock Option Plan; (ii) 5,000 shares of common stock
underlying options granted in 1998 to a former investor relations firm;
(iii) 400,000 shares of common stock available for issuance under certain
conditions of Thomas K. Langbein's employment agreement (see "Executive
Compensation"); and (iv) 98,000 shares of common stock reserved for
issuance under a key employee stock plan.
(3) The Company owns 3,227,797 shares (61.5%) of the common stock of Techdyne
(upon conversion of its demand convertible promissory note, its Techdyne
ownership will be 4,614,374 shares or
23
<PAGE>
approximately 69.5%). Officers and directors of the Company, including
those directors of the Company and Techdyne who may be officers and/or
directors and shareholders of each company, disclaim any indirect bene-
ficial ownership of Techdyne common shares through the Company's 61.5%
ownership of Techdyne. Thomas K. Langbein, by virtue of his position
with the Company and Techdyne and stock ownership of the Company, which
may deem Mr. Langbein to have beneficial ownership of such shares through
shared voting and investment power with respect to the Company's owner-
ship of Techdyne, disclaims such entire beneficial ownership. See below
and Note (5).
Includes the following shares that may be acquired upon exercise of
Techdyne's 1994, 1995 and 1997 stock options or Warrants (see Note (4))
as of April 23, 1999 or within 60 days of that date: Messrs. Langbein
140,000 (40,000 1995 options and 100,000 1997 options); Friend 15,000
(10,000 1994 options and 5,000 1997 options); Fischbein 55,000 (20,000
each of 1994 and 1995 options, and 15,000 1997 options); D'Amore 29,000
(4,000 Warrants held in his retirement plan, 10,000 1995 options and
15,000 1997 options); and Pardon 141,000 (1,000 Warrants, 40,000 1995
options and 100,000 1997 options).
Includes: D'Amore 15,000 shares held in retirement plan; Pardon 2,333
shares held in the name of his wife.
If Thomas K. Langbein included the Company's ownership of Techdyne,
then his beneficial ownership would be 3,407,797 (63.2%) or 4,794,374
(70.8%) assuming the Company's conversion of its Techdyne promissory
note. Mr. Langbein disclaims such beneficial ownership.
(4) Based on 5,250,167 Techdyne Shares outstanding exclusive of (i) 1,386,577
shares obtainable under the Company's convertible note; (ii) outstanding
options granted in 1994, 1995 and 1997 for an aggregate of 584,100 shares
of Techdyne common stock; (iii) common stock issuable under 959,152
public Warrants exercisable at $4.00 per share through May 17, 1999, (iv)
the underwriter's option for 200,000 shares of common stock exercisable
through September 12, 2000; (v) common stock issuable under an option to
a former investor relations firm for 6,250 shares exercisable through May
14, 2001; and (vi) any additional shares that may have to be issued
pursuant to Techdyne's guarantee to the seller of Lytton. See "Certain
Relationships and Related Transactions."
(5) The Company owns 2,410,622 shares (68%) of the common stock of DCA.
Officers and directors of the Company, including those officers and
directors of the Company and DCA who may be officers and/or directors and
shareholders of each company, disclaim any indirect beneficial ownership
of DCA common stock through the Company's 68% ownership of DCA. Thomas K.
Langbein, by virtue of his position with the Company and DCA and his
stock ownership of the Company, which may deem Mr. Langbein to have
beneficial ownership of such shares through shared voting and investment
power with respect to the Company's ownership of DCA, disclaims such
entire beneficial ownership.
Includes the following shares that may be acquired upon exercise of
options or Warrants (see Note (6)) as of April 23, 1999 or within 60 days
after that date:
Messrs. Friend 2,000 Warrants; D'Amore 2,000 Warrants; and Magrann
2,000 Warrants.
If Thomas K. Langbein included the Company's ownership of DCA, then
his beneficial ownership would be 2,460,622 (69.4%). Mr. Langbein
disclaims such beneficial ownership.
24
<PAGE>
(6) Based on 3,546,344 DCA shares outstanding exclusive of (i) common stock
exercisable under 2,300,000 public Warrants exercisable at $4.50 per
share through October 16, 1999; (ii) the underwriter's option for
300,000 shares of common stock exercisable through April 16, 2001; and
(iii) outstanding options for 19,500 shares of DCA common stock.
(7) Class 1 director; see "Proposals."
(8) President and director of Techdyne; not an executive officer or director
of the Company, but deemed a significant person based on Techdyne's
financial importance relating to the Company.
(9) President and director of DCA; not an executive officer or director of
the Company.
DID DIRECTORS, EXECUTIVE OFFICERS AND 10% SHAREHOLDERS COMPLY WITH SECTION 16(A)
OWNERSHIP REPORTING IN 1998?
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and 10% shareholders to file reports with the
Securities and Exchange Commission, the Nasdaq Stock Market and the Company,
indicating their ownership of common stock of the Company and any changes in
their beneficial ownership of their common stock ownership interests. The rules
of the Securities and Exchange Commission require that the Company disclose
failed or late filings of reports of Company stock ownership by its directors
and executive officers. To the best of the Company's knowledge, all beneficial
ownership reports by these reporting persons were filed on a timely basis.
UPON WRITTEN REQUEST BY ANY SHAREHOLDER TO THE SECRETARY OF THE COMPANY,
LAWRENCE E. JAFFE, 777 TERRACE AVENUE, HASBROUCK HEIGHTS, NEW JERSEY 07604, A
COPY OF THE FINANCIAL SCHEDULES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 1998 (COPIES OF WHICH ANNUAL REPORT ARE INCLUDED
WITH THIS NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT) WILL BE
PROVIDED WITHOUT CHARGE.
25
<PAGE>
APPENDIX A
PROXY
MEDICORE, INC.
The Board of Directors Solicits This Proxy
The undersigned appoints Thomas K. Langbein or Lawrence E. Jaffe, with
power of substitution in each, proxies to vote all the shares of MEDICORE, INC.
which the undersigned may be entitled to vote as a stockholder of record on
April 23, 1999 at the Annual Meeting of Shareholders to be held Wednesday, June
9, 1999, or any adjournment thereof.
When properly executed and returned in a timely manner, this proxy will
be voted at the Annual Meeting and any adjournment thereof in the manner
directed herein. If you do not specify otherwise for each proposal, the proxy
will be voted as recommended by the Board of Directors. The Board of Directors
recommends a vote FOR Proposals 1 and 2.
1. Election of Directors:
Nominee: PETER D. FISCHBEIN for Class 1 director.
[ ] FOR director nominee listed; [ ] WITHHOLD AUTHORITY to vote for
director nominee listed.
2. Ratify the selection of Ernst & Young LLP as independent auditors for
1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion such other business as may properly come before the
meeting.
(Back side of the card)
IMPORTANT: PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED.
Signatures(s) should be exactly as your name(s)
appears on this proxy. If signing as executor,
administrator, trustee, guardian or attorney,
please give full title when signing. If stock
is registered in the names of joint owners, the
proxy should be signed by each. If the stock-
holder is a corporation, sign full corporate
name by a duly authorized officer.
- ----------------------------------------
(Signature)
- ----------------------------------------
(Signature)
Dated: , 1999
----------------------------
