[MEDIFAST LOGO]
Medifast, Inc.
11445 Cronhill Drive
Owings Mills, MD 21117
August 2, 2004
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of
Shareholders of Medifast, Inc., (the "Company"), to be held on Friday, September
3, 2004 at Sunrise Distributing, the distribution headquarters of Medifast, Inc.
Sunrise Distributing is located at 601 Sunrise Avenue Ridgely, MD 21660. The
meeting will begin at 1:00 P.M., Eastern Daylight Time, for the following
purposes:
(1) To elect a classified Board of Directors consisting of seven
directors, divided into three classes. The terms of Class I will
expire in 2007 and the terms of Class II and III will expire at
the next Annual Meeting of Shareholders in 2005, at which their
respective class term expires and their respective successors
will be duly elected and qualified.
(2) To approve the re-appointment of Bagell, Josephs & Company, LLC,
an independent member of the BDO Seidman alliance, as the
Company's independent auditors for the fiscal year ending
December 31, 2004.
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Please read the attached Proxy Statement carefully for information on
the matters shareholders are being asked to consider and vote on.
In addition to these specific matters, there will be a report on the
progress of Medifast, Inc. and an opportunity to ask questions of general
interest to shareholders.
Your Board of Directors and Management look forward to greeting those
shareholders able to attend. Only shareholders of record at the close of
business on July 28, 2004 will be entitled to notice of, and to vote at, the
meeting or any adjournments thereof.
It is important that your shares be represented and voted at the
annual meeting, regardless of whether or not you plan to attend in person. You
are therefore urged to vote your shares in a timely fashion.
By Order of the Board of Directors,
/s/ Bradley T. MacDonald
-------------------------------------------------
Bradley T. MacDonald
Chairman of the Board & Chief Executive Officer
MEDIFAST, INC.
-----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held September 3, 2004
-----------------------
To the Shareholders of Medifast, Inc.:
The Annual Meeting of shareholders of Medifast, Inc., (the "Company"), will be
held on Friday, September 3, 2004 at Sunrise Distributing, the distribution
headquarters of Medifast, Inc. Sunrise Distributing is located at 601 Sunrise
Avenue Ridgely, MD 21660. The meeting will begin at 1:00 P.M., Eastern Daylight
Time, for the following purposes:
(1) To elect a classified Board of Directors consisting of seven
directors, divided into three classes. The terms of Class I will
expire in 2007 and the terms of Class II and III will expire at the
next Annual Meeting of Shareholders in 2005, at which their respective
class term expires and their respective successors will be duly
elected and qualified.
(2) To approve the re-appointment of Bagell, Josephs & Company, LLC, an
independent member of the BDO Seidman alliance, as the Company's
independent auditors for the fiscal year ending December 31, 2004.
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
YOUR BOARD OF DIRECTORS URGES SHAREHOLDERS TO VOTE FOR ITEMS 1 AND 2.
All of these proposals are more fully described in the Proxy Statement that
follows. Shareholders of record at the close of business on July 28, 2004, will
be entitled to vote at the meeting and any adjournments thereof.
By Order of the Board of Directors,
/s/ Bradley T. MacDonald
----------------------------
Bradley T. MacDonald
Chairman of the Board
& Chief Executive Officer
August 2, 2004
1
CONTENTS
Page
----
Proxy Statement............................................................... 3
ITEM 1. Election of Directors................................................. 4
Principal Stockholders........................................................ 7
Security Ownership of Directors and Executive Officers........................ 7
Executive Compensation........................................................ 8
Report of the Audit Committee................................................. 9
Section 16(a) Beneficial Ownership Reporting Compliance....................... 9
Performance Graphs........................................................... 10
ITEM 2. Ratification of Appointment of Independent Auditors.................. 12
Annual Report................................................................ 13
Proxy Solicitation........................................................... 13
Other Matters................................................................ 13
2
MEDIFAST, INC.
-----------------------
PROXY STATEMENT
This proxy statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of Medifast, Inc., a Delaware
corporation (the "Company" or "Medifast"), to be voted at the Annual Meeting of
Shareholders (the "Meeting") scheduled to be held at Sunrise Distributing, the
distribution headquarters of Medifast, Inc. Sunrise Distributing is located at
601 Sunrise Avenue Ridgely, MD 21660. The meeting will begin at 1:00 P.M.,
Eastern Daylight Time, Friday, September 3, 2004, and at any adjournments
thereof.
Only shareholders of record as of the close of business on July 28,
2004* are entitled to notice of and to vote at the Meeting or any adjournment
thereof. On that date, the Company had outstanding 10,954,098 shares of Common
Stock, par value $.01 per share (the "Common Stock"), 311,730 shares of Series
"B" Preferred Convertible Stock (the "Preferred Stock") and 200,000 shares of
Series "C" Preferred Convertible Stock. Each share of Common Stock is entitled
to one vote, each share of Series "B" Preferred Stock is entitled to two votes
and each share of Series "C" Preferred Stock is entitled to one vote. Total
voting power equals to 11,777,558 votes eligible at the annual meeting.
Each form of proxy which is properly executed and returned to the
Company will be voted in accordance with the directions specified thereon, or,
if no directions are specified, will be voted (i) for the election as Directors
of the persons named herein under the caption "Election of Directors," and (ii)
for the approval of the appointment of Bagell, Josephs & Company, LLC as the
Company's independent auditors for the fiscal year ending December 31, 2004. Any
stockholder giving a proxy may revoke it at any time before it is exercised.
Such revocation may be affected by voting in person or by proxy at the Meeting,
by returning to the Company prior to the Meeting a proxy bearing a later date,
or by otherwise notifying the Secretary of the Company in writing prior to the
Meeting.
The Company's executive offices are at 11445 Cronhill Drive, Owings
Mills, Maryland 21117 and its telephone number is (410) 581-8042. This proxy
statement and the accompanying proxy are first being distributed to the
shareholders of the Company on or about August 2, 2004.
* Record Date
3
ITEM 1. ELECTION OF DIRECTORS
The Board of Directors are divided into three classes consisting of
Class I, Class II, and Class III, and these classes are based upon seniority. In
as much as the Annual Meeting represents the first re-election of these classes,
directors for each of the three classes will need to be elected at the Annual
Meeting. At subsequent annual meetings, only directors for the class whose term
is expiring will be elected at that annual meeting.
The number of directors in each class is determined by the Board of
Directors and consists of as nearly equal a number of directors as possible.
There are seven nominees for directors therefore, Classes I and II will include
two directors, and Class III will include three directors, all of which may be
adjusted, should the Board of Directors change the number of directors
representing a class. The term of Class I will expire in 2007. The term of
Classes II and III will expire in 2005. Class II will then be up for re-election
for a three-year term expiring in 2008. Class III will then be up for
re-election for a one-year term, followed by an election for a three-year term
ending in 2009.
The Board of Directors has nominated the nominees named below, which
nominees are currently serving as directors and have indicated their willingness
to continue serving as directors. The Board of Directors knows of no reason why
such nominees would be unable to serve as directors. If any of the nominees
should for any reason become unable to serve, then valid proxies will be voted
for the election of such substitute nominee as the Board of Directors may
designate. The two nominees for Class I Directors are Bradley T. MacDonald and
Rev. Donald F. Reilly, O.S.A. The two nominees for Class II Directors are R.
Scott Zion and Michael C. MacDonald. The three nominees for Class III Directors
are Michael J. McDevitt, Mary T. Travis and Rev. Joseph D. Calderone, O.S.A.
Each director serves until his or her successor is elected and
qualified or until his or her death, retirement, resignation, or removal. Should
a vacancy occur or be created, whether arising through death, resignations,
retirement or removal of a director, the vacancy will be filed by a majority
vote of the remaining directors. A director so elected to fill a vacancy will
serve for the remainder of the present term of office of the class to which he
or she was elected.
INFORMATION CONCERNING NOMINEES
The name and age of each nominee and the year he/she became a director of the
Company, according to information furnished by each, is as follows:
FIRST
BECAME A
NAME AGE DIRECTOR
---- --- --------
Bradley T. MacDonald(1).................................... 56 1996
Rev. Donald F. Reilly, O.S.A. (2) (3) (4).................. 57 1998
Michael C. MacDonald (1)................................... 51 1999
R. Scott Zion (1) (2) (4).................................. 53 1999
Michael J. McDevitt (3).................................... 55 2002
Mary T. Travis (2) (3) (4)................................. 52 2002
Rev. Joseph Calderone, O.S.A. (4).......................... 56 2003
-----------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Independent director per the American Stock Exchange regulations.
4
CLASS I DIRECTORS
Bradley T. MacDonald became Chairman of the Board and CEO of Medifast, Inc. on
January 28, 1998. Prior to joining the company, he was appointed as Program
Director of the U.S. Olympic Coin Program of the Atlanta Olympic Games. From
1991 through 1994, Colonel MacDonald returned to active duty to be Deputy
Director and Chief Financial Officer of the Retail, Food, Hospitality, and
Recreation Businesses for the United States Marine Corps. Prior thereto, Mr.
MacDonald served as Chief Operating Officer of the Bonneau Sunglass Company,
President of Pennsylvania Optical Co., and Chairman and CEO of MacDonald and
Associates. Mr. MacDonald was national president of the Marine Corps Reserve
Officers Association and retired from the United States Marine Corps Reserve as
a Colonel in 1997, after 27 years of service. Mr. MacDonald is also serving on
the Board of Directors of the Wireless Accessories Group (WIRX:OB), a Nasdaq
Bulletin Board Company and the Board of Directors of the Toys for Tots
Foundation. In February of 2004 the Secretary of Defense appointed Mr. MacDonald
to the Defense Advisory Board for Employer Support of the Guard and Reserve.
Very Reverend Donald Francis Reilly, O.S.A. holds a Doctorate in Ministry
(Counseling) from New York Theological and an M.A. from Washington Theological
Union as well as a B.A. from Villanova University. Very Reverend Reilly was
ordained an Augustinian priest in 1974 and now serves as the Provincial for the
Augustinian Order at Villanova, Pennsylvania. He is currently on the Board of
Trustees of Villanova University, is President of the Board of "Bird Nest" in
Philadelphia, Pennsylvania and is board member of Prayer Power. Fr. Reilly
oversees more than 250 Augustinian Friars and their service to the Church,
teaching at universities and high schools, ministering to parishes, serving as
chaplains in the Armed Forces and hospitals, ministering to AIDS victims, and
serving missions in Japan, South America, and South Africa. He is a member of
the Medifast Compensation and Audit Committees.
CLASS II DIRECTORS
R. Scott Zion is a Director and the Corporate Secretary for Medifast, Inc. He
received a Bachelor of Arts Degree from Denison University, Granville, Ohio. Mr.
Zion is currently a principal in Resources Development, Inc., a health care
consulting company in Napa, California. Prior to forming Resources Development,
he was Senior Vice President of Sales and Marketing for Santen, Inc., an
ophthalmic pharmaceutical company. He also spent 20 years with the Mead Johnson
Nutritional Division of Bristol Myers Squibb in various positions of increasing
responsibility in sales management. He is a member of the Medifast Executive and
Audit Committees.
Michael C. MacDonald is a corporate officer and the President of North American
Solutions Group for the Xerox Corporation. Mr. MacDonald's organization is
responsible for all products, services and solutions sold by the Xerox direct
sales force in the United States and Canada. Mr. MacDonald's former positions at
Xerox Corporation include executive positions in the sales and marketing areas.
He is currently on the Board of overseers of Rutgers University and a director
of the Jimmy V Foundation. He is also serving on the Board of Directors of US
LEC Corp. (NASDAQ:CLEC), Xerox Capital Services, and the U.S. Chamber of
Commerce. Mr. MacDonald is the brother of Bradley T. MacDonald, the CEO of the
Company. He is a member of the Medifast Executive Committee.
CLASS III DIRECTORS
Mary T. Travis is currently the Senior Vice President of Wholesale Operations
for Sunset Mortgage Company, L.P. in Pennsylvania and was formerly the Vice
President of Operations for the Financial Mortgage Corporation. Mrs. Travis is
an expert in mortgage banking with over 31 years of diversified experience. She
is an approved instructor of the Mortgage Bankers Association Accredited School
of Mortgage Banking and is a Delegate and 2nd Vice president of the Mortgage
Bankers Association of Greater Philadelphia. She is a member of the Medifast
Audit Committee and is the qualified financial expert per the American Stock
Exchange and Securities and Exchange Commission regulations. She is also a
member of the Medifast Compensation Committee.
Michael J. McDevitt is a retired Federal Bureau of Investigation (FBI) Senior
Executive and currently is employed in private industry as a security
specialist. While in the FBI Mr. McDevitt developed and managed highly
successful technical security programs through a succession of leadership posts,
culminating in a Senior Executive Services (SES) position in the Investigative
Technology Branch, FBI Laboratory Division. He managed nearly two hundred
5
Special Agent and engineering support staff spanning a broad spectrum of
technical security programs, as well as an annual budget exceeding $200 million.
Senior government personnel regard him as a leading expert on technology applied
to physical security and has played a leading role in developing critical
partnerships within his industry, coupling technical capabilities with
operational requirements. He is a member of the Medifast Compensation Committee.
Reverend Joseph D. Calderone, O.S.A., Ed.D., is the Associate Director of Campus
Ministry at Villanova University. Prior to his work at Villanova University,
Reverend Calderone spent over eight years with the Loyola University Medical
Center as the hospital Chaplain and taught multiple courses including
Introduction to the Practice of Medicine and Business Ethics. Rev. Calderone has
taught at Merrimack College, Rollins College, St. Leo's College, De Paul
University and Washington Theological Union. Also, he is currently a Captain in
the US Navy Reserves and serves as the Wing Chaplain for the 4th Marine Aircraft
Wing.
MEETINGS AND COMMITTEES
For the fiscal year ended December 31, 2003 ("Fiscal 2003"), the Board
of Directors held three (3) meetings, including those in which matters were
adopted by unanimous written consent. The Board has an Audit Committee, an
Executive Committee, and a Compensation Committee. The purpose and
responsibilities for each of these committees is outlined in committee charters
adopted by the Board. The Board may, from time to time, form a new committee or
disband a current committee depending on circumstances. In addition, the Board
may determine to form ad hoc committees from time to time, and determine the
composition and areas of competence of such committees.
The Audit Committee of the Board of Directors consists of Mrs. Mary T.
Travis, Very Rev. Donald F. Reilly O.S.A and Mr. R. Scott Zion. The primary
function of the committee is to assist the Board of Directors in fulfilling
their oversight responsibilities by reviewing: the financial reports and other
financial information provided by the Corporation to any governmental body or
the public; the Corporation's systems of internal controls regarding finance,
accounting, legal compliance, and ethics that management and the Board have
established; and the Corporation's auditing, accounting and financial reporting
processes generally. The committee held five (5) meetings during fiscal year
2003. The Audit Committee encourages continuous improvement of, and fosters
adherence to, the corporation's policies, procedures and practices at all levels
Messrs. Michael C. MacDonald, R. Scott Zion, and Bradley T. MacDonald
are members of the Executive Committee. The Executive Committee has all the
authority of the Board of Directors, except with respect to certain matters that
by statute may not be delegated by the Board of Directors. The Committee meets
periodically during the year to develop and review strategic operational and
management policies for the Company. The Committee held three (3) meetings
during fiscal year 2003.
The Compensation Committee of the Board of Directors held two (2)
meetings during fiscal year 2003. The members were Very Rev. Donald F. Reilly
O.S.A, Mr. Michael J. McDevitt, and Mrs. Mary T. Travis. The primary purpose of
the Compensation Committee is to assist the Board in discharging its
responsibilities with respect to compensation of the Company's executive
officers and to produce an annual report for inclusion in the Company's proxy
statement on executive compensation. The Committee approved a contract salary
for Mr. MacDonald, the Chief Executive Officer to $225,000 in the year 2003 as
compared to $145,000 in 2002, $135,371. The board adjusted his contract salary
accordingly and authorized a bonus of up to $75,000 provided the Company attains
its profit plan per the Board approved forecast.
The Chairman of each committee, in consultation with the committee
members, will determine the frequency and length of the committee meetings
consistent with any requirements set forth in the committee's charter. The
Chairman of each committee, in consultation with the appropriate members of the
committee and management, will develop the committee's agenda. The schedule for
each committee will be furnished to all directors.
6
DIRECTORS' COMPENSATION
The Company is authorized to pay a fee of $300 for each meeting
attended by its directors who are not executive officers. It reimburses those
who are not employees of the Company for their expenses incurred in attending
meetings. Independent Directors claimed $7,939.00 in Director's fees and/or
expenses in 2003. See "Executive Compensation - Stock Options" for stock options
granted under the 1993 Plan to the Directors. The Company authorized a stock
grant under rule 144 of 2,500 shares to the following directors: Michael J.
McDevitt, Mary Travis, R. Scott Zion, Rev. Donald F. Reilly and Michael C.
MacDonald in April 2003.
PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 31, 2003, information
concerning the ownership of Common Stock and Preferred Stock by persons which,
to the Company's knowledge, own beneficially more than 5% of the outstanding
shares of Common Stock or Preferred Stock.
Common Stock % of
Name and Address Beneficially Owned Outstanding
---------------- ----------------- -----------
Bradley T. MacDonald........... 1,259,873 10.4%
11445 Cronhill Drive
Owings Mills, MD 21117
Series "B" Voting
Preferred Convertible Stock % of
Name and Address Beneficially Owned Outstanding
---------------- --------------------------- -----------
"DS" Capital Investors......... 385,202 100%
JPR Capital
Staten Island, NY 10314
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to the
beneficial ownership of shares of Common Stock or voting Preferred Stock as of
March 31, 2004 of the Chief Executive Officer, each Director, each nominee for
Director, each current executive officer named in the Summary Compensation Table
under "Executive Compensation" and all executive officers and directors as a
group. The number of shares beneficially owned is determined under the rules of
the Securities and Exchange Commission and the information is not necessarily
indicative of beneficial ownership for any other person. Under such rules,
"beneficial ownership" includes shares as to which the undersigned has sole or
shared voting power or investment power and shares, which the undersigned has
the right to acquire within 60 days of March 15, 2004 through the exercise of
any stock option or other right. Unless otherwise indicated, the named person
has sole investment and voting power with respect to the shares set forth in the
table.
NUMBER % OF
NAME AND ADDRESS* OF SHARES OUTSTANDING
----------------- ---------- -----------
Bradley T. MacDonald........................ 1,259,873 (1) 10.36%
Donald F. Reilly............................ 65,452 (2) 0.54%
Michael C. MacDonald........................ 38,354 (2) 0.32%
Scott Zion.................................. 177,500 (2) 1.46%
Mary Travis................................. 5,340 (2) 0.04%
Michael J. McDevitt......................... 13,900 (2) 0.11%
Executive Officers and Directors as a group
(7 persons)............................... 1,560,419 12.83%
(1) Mr. MacDonald beneficially owns 1,259,873 shares of common stock and 90,000
shares of voting Series "C" Preferred Convertible Stock. Mrs. Shirley D.
MacDonald and Ms. Margaret E. MacDonald, wife and daughter of Mr.
MacDonald, individually or jointly own 462,605 shares of stock.
(2) Independent directors were issued 2,500 shares of common stock as
compensation for their participation as Board Members in 2002.
7
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information as to the compensation of
the Chief Executive Officer of the Company and each other executive officer that
received or will receive compensation in excess of $100,000 for 2004, 2003, and
2002.
Annual Compensation
Value of Common/
Preferred Stock Issued Option Other Annual
Name Year Salary ($) Bonus ($) in Lieu of Cash Awards Compensation
---- ---- ---------- --------- --------------- ------ ------------
Bradley T. MacDonald 2004 225,000 75,000 0 0 0
2003 225,000 112,000 0 0 0
2002 145,000 75,000 0 100,000(1) 0
Leo V. Williams III 2004 125,000 0 0 10,000 0
(1) The Board of Directors reinstated 100,000 options at 1.50 per share granted
in 1997
STOCK OPTIONS
The Company's 1993 Employee Stock Option Plan (the "Plan"), as amended
in July 1995, December 1997, June 2002, and again in July 2003 authorizes the
issuance of options for 1,250,000 shares of Common Stock. The Plan authorizes
the Board of Directors or the Compensation Committee appointed by the Board to
grant incentive stock options and non-incentive stock options to officers, key
employees, directors, and independent consultants, with directors who are not
employees and consultants eligible only to receive non-incentive stock options.
Employee stock options are vested over 2 years.
* The following tables set forth pertinent information as of December
31, 2003 with respect to options granted under the Plan since the inception of
the Plan to the persons set forth under the Summary Compensation Table, all
current executive officers as a group and all current Directors who are not
executive officers as a group of the Company. In addition, a chart listing
option holders, grants made in FY 2003, and a list of aggregated options and the
value of these options, is provided.
ALL CURRENT ALL CURRENT
EXECUTIVE INDEPENDENT
BRADLEY T. OFFICERS DIRECTORS
MACDONALD(1) AS A GROUP AS A GROUP
------------ ---------- -----------
Options granted........................ 215,000 92,500 110,000
Average exercise price................. $ 0.86 $ 0.67 $ 1.07
Options exercised...................... 215,000 76,665 100,000
Average exercise price................ $ 0.86 $ 0.53 $ 0.70
Shares sold............................ * * *
Options unexercised as of 12/31/03..... 0 15,835 10,000
Approximate 5 YR Value of
FY 03 Grants @ Potential Realizable Unexercised Unexercised
Price & Expiration Value at 10% Annual Options Options
Month/Year Stock Appreciation as of 12/31/03 as of 12/31/03
------------------ -------------------- -------------- --------------
Current Executive Officers and Directors 12,500@$4.80 2008 12,500 $116,250
Employees 69,333@$8.71 2008 46,669 258,260
Consultants 81,667@$2.23 2008 4,445 41,339
------ --------
63,614* $415,849
*Vested options granted are below. 1,250,000 authorized.
8
SELECT EXECUTIVE RETIREMENT PLAN
On May 27, 2003, the Medifast, Inc. Board of Directors approved the
Selective Executive Retirement Plan for Bradley T. MacDonald, its CEO. The Plan
will be funded over two years. During this period, Mr. MacDonald will contribute
$250,000 of his earned compensation and the Corporation will match $250,000 on a
dollar for dollar basis. The funds will be accumulated in a Merrill Lynch
account and upon the retirement of Mr. MacDonald, the Plan will payout the
accumulated principal and interest at the age of sixty or over a ten-year
period. The Deferred Compensation Plan will vest in three equal phases over a
three-year period. The Plan will vest 33% upon the first anniversary date, 33%
upon the second anniversary date, and 34% upon the third anniversary date. At
the discretion of the Board of Directors of Medifast, Inc. a waiver to the
amended vesting period may be granted upon retirement or resignation of Bradley
T. MacDonald.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is composed of three directors who are independent,
as defined under the listing standards of The American Stock Exchange, and
operates under a written charter adopted by the Company's Board of Directors.
The purpose of the Audit Committee is to assist the Board of Directors
in its general oversight of the Company. The primary responsibilities of the
Audit Committee are to review and evaluate the Company's audited financial
statements and to monitor and oversee the Company's internal control system, its
accounting and financial reporting process, its independent audit function and
its compliance with applicable laws and regulations. Management is responsible
for the preparation, presentation and integrity of the Company's financial
statements, accounting and financial reporting principles, internal controls and
procedures designed to assure compliance with accounting standards, applicable
laws and regulations. The Company's independent auditing firm is responsible for
performing an independent audit of the consolidated financial statements in
accordance with generally accepted auditing standards.
The Audit Committee members are not professional accountants or
auditors, and are not responsible for conducting reviews of auditing or
accounting procedures, nor can the Audit Committee certify that the independent
auditor is "independent" under applicable rules. The Audit Committee serves a
board-level oversight role in which it provides advice, counsel and direction to
management and the auditors on the basis of the information it receives,
discussions with the auditors and the experience of the Audit Committee's
members in business, financial and accounting matters.
Recent years have brought a wave of new legislation and regulations in
the area of corporate governance and financial reporting as the U.S. government
took unprecedented measures to set new standards for corporate behavior and to
restore investor confidence. The Company has a long history of corporate
responsibility and good citizenship, and has taken appropriate measures to
respond to the new standards. The Audit Committee took a lead role in overseeing
the efforts of the Company's Controller's Group, Internal Audit Department,
Legal Department, and independent accountants in ensuring the Company's
compliance with these reforms.
AUDIT COMMITTEE
Mary Travis (Chairperson)
R. Scott Zion
Rev. Donald Francis Reilly, O.S.A.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") and the rules of the Securities and Exchange Commission (the "Commission")
thereunder require the Company's directors and officers, and any person who owns
more than ten percent of the Company's Common Stock (collectively, "Reporting
Persons"), to file reports of their ownership and changes in ownership of Common
Stock with the Commission. Reporting Persons are also required to furnish the
Company with copies of all Section 16(a) reports they file.
9
Based solely upon a review of copies of such reports furnished to the
Company, and written representations that certain reports were not required, the
Company believes that all of its Reporting Persons filed on a timely basis all
reports required by Section 16(a) of the Exchange Act during or with respect to
the year ended December 31, 2003.
PERFORMANCE COMPARISON
NUTRACEUTICAL GROUP INDUSTRY COMPARISON OF STOCK PRICES
ONE-YEAR COMPARISON
December 31, 2003 December 31, 2002 $ %
Company Stock Price Stock Price Change Change
------- ----------- ----------------- ------ ------
Medifast (MED)....................................... $14.10 $5.32 8.78 165.0%
Natural Alternatives International, Inc. (NAII)...... 6.40 3.98 2.42 60.8%
Weider Nutrition (WNI)............................... 4.45 1.45 3.00 206.9%
Pure World, Inc (PURW)............................... 2.51 .51 2.00 392.1%
Twinlab Corporation (TWLB)........................... 0.02 .10 (0.08) (80.0)%
Natures Sunshine Products, Inc. (NATR)............... 8.42 9.71 (1.29) (13.3)%
ONE-YEAR STOCK PRICE COMPARISON
Date MED PURW NAII WNI NATR
29-Dec-03 14.1 2.51 6.4 4.45 8.42
22-Dec-03 13.89 2.34 6.34 4.28 8.4
15-Dec-03 14.35 2.74 5.83 4.63 7.82
8-Dec-03 14.86 2.9 5.95 4.85 8.43
1-Dec-03 15 2.99 5.95 4.82 8.21
24-Nov-03 15.2 2.27 5.93 4.76 8.07
17-Nov-03 15.57 1.82 5.78 4.55 7.95
10-Nov-03 14 1.94 5.8 4.45 7.98
3-Nov-03 17.82 1.69 5.9 4.2 8.45
27-Oct-03 15.64 1.61 5.69 4.3 8.13
20-Oct-03 15 1.57 5.21 4 7.76
13-Oct-03 16.02 1.57 5.2 3.99 7.98
6-Oct-03 15.67 1.87 4.7 2.96 8.9
29-Sep-03 14.17 1.37 4.84 3.01 8.24
22-Sep-03 12.2 1.31 4.75 2.89 8
15-Sep-03 13.45 1.35 4.9 2.93 8.36
8-Sep-03 13.39 1.3 4.96 2.8 8.48
2-Sep-03 14.08 1.45 5.26 2.8 8.6
25-Aug-03 13.11 1.48 5.31 2.8 8.47
18-Aug-03 13.24 1.49 5.46 2.81 8.06
11-Aug-03 13.31 1.37 5.1 2.88 7.99
4-Aug-03 13.66 1.44 4.84 3.15 7.41
28-Jul-03 14.79 1.44 4.96 3.09 7.94
21-Jul-03 12.75 1.45 5.03 2.53 7.91
14-Jul-03 15.99 1.6 5.02 2.45 7.86
7-Jul-03 16.04 4.39 5 2.19 8.6
30-Jun-03 11.79 3.27 4.91 2.34 7.95
23-Jun-03 11.69 3.22 4.95 2.41 8.48
16-Jun-03 12.35 2.8 4.83 2.29 8.79
9-Jun-03 11.98 3.3 5.2 2.31 9.21
2-Jun-03 14.25 3.1 4.81 2.25 10.05
27-May-03 12.4 3.18 4.13 2.33 8.58
19-May-03 11.1 2.7 4.14 2.38 8.14
12-May-03 9.41 3.49 4.02 2 8.9
5-May-03 8.75 3.36 4.08 1.75 9.62
28-Apr-03 7.5 3.31 4.5 1.75 10.2
21-Apr-03 6.14 3.05 4.27 1.69 8.98
14-Apr-03 5.54 2.38 3.92 1.7 8.65
7-Apr-03 5.64 0.64 4.03 1.59 7.9
31-Mar-03 4.8 0.7 3.85 1.55 8.82
24-Mar-03 4.34 0.69 3.56 1.55 8.98
17-Mar-03 5 0.61 3.38 1.55 9.24
10-Mar-03 4.77 0.68 3.37 1.4 8.66
3-Mar-03 5 0.62 3.47 1.39 8.58
24-Feb-03 5.3 0.8 3.7 1.45 8.43
18-Feb-03 4.6 0.41 3.47 1.55 7.6
10-Feb-03 4.39 0.45 3.39 1.55 7.12
3-Feb-03 4.38 0.48 3.9 1.61 8.27
27-Jan-03 4.71 0.4 4.35 1.6 8.59
21-Jan-03 4.2 0.42 4.34 1.65 9.3
13-Jan-03 5.4 0.51 4.75 1.72 9.75
6-Jan-03 6.06 0.53 3.95 1.75 9.11
2-Jan-03 6.03 0.49 4 1.59 9.35
10
FOUR-YEAR COMPARISON
December 31, 2003 December 31, 1999 $ %
Company Stock Price Stock Price Change Change
------- ----------- ----------------- ------ ------
Medifast (MED)....................................... $14.10 $ .22 13.88 6309.1%
Natural Alternatives International, Inc. (NAII)...... 6.40 3.25 3.15 96.9%
Weider Nutrition (WNI)............................... 4.45 3.69 .76 20.6%
Pure World, Inc (PURW)............................... 2.51 3.12 (0.61) (19.6)%
Twinlab Corporation (TWLB)........................... 0.02 7.94 (7.92) (99.7)%
Natures Sunshine Products, Inc. (NATR)............... 8.42 8.00 0.42 5.3%
FOUR-YEAR STOCK PRICE COMPARISON
Date MED PURW NAII WNI NATR
1-Dec-03 14.1 2.51 6.4 4.45 8.42
3-Nov-03 15.2 2.27 5.93 4.76 8.07
1-Oct-03 15.64 1.61 5.69 4.3 8.13
2-Sep-03 12.35 1.31 4.8 3 8.3
1-Aug-03 13.11 1.48 5.31 2.8 8.47
1-Jul-03 15 1.55 4.97 3.01 8
2-Jun-03 11.25 3.3 4.95 2.26 7.98
1-May-03 12.4 3.18 4.13 2.33 8.58
1-Apr-03 7.3 2.86 4.22 1.76 9.37
3-Mar-03 4.94 0.73 3.54 1.46 8.77
3-Feb-03 5.3 0.8 3.7 1.45 8.43
2-Jan-03 4.71 0.4 4.35 1.6 8.59
2-Dec-02 5.32 0.51 3.98 1.45 9.71
1-Nov-02 3.09 0.5 3.92 1.76 10.53
1-Oct-02 2.92 0.41 3.95 1.65 11.31
3-Sep-02 1.79 0.43 3.5 1.75 10.82
1-Aug-02 1.26 0.51 2.99 1.78 10.7
1-Jul-02 0.93 0.5 2.8 1.9 10.46
3-Jun-02 0.81 0.59 3 1.98 11.31
1-May-02 0.78 0.62 3 1.95 11.01
1-Apr-02 0.82 0.8 1.96 1.75 10.9
1-Mar-02 0.83 0.84 1.9 1.9 11.21
4-Feb-02 0.61 0.9 2 1.8 12.65
2-Jan-02 0.45 0.9 2.2 2.15 13.15
3-Dec-01 0.22 0.85 2.25 1.68 11.74
1-Nov-01 0.3 0.91 1.9 1.55 13.95
1-Oct-01 0.31 1.02 1.7 1.48 11.55
4-Sep-01 0.2 1.01 1.45 1.55 11.45
1-Aug-01 0.35 1.3 2.04 1.95 13.85
2-Jul-01 0.3 1.18 2.09 2 12.16
1-Jun-01 0.33 1.2 2.25 2.25 11.83
1-May-01 0.37 1.18 2.78 2.45 11.09
2-Apr-01 0.4 1.02 2.25 2.35 8.92
1-Mar-01 0.44 1.12 2.12 2.85 6.94
1-Feb-01 0.3 1.16 2.81 2.85 7.62
2-Jan-01 0.19 1.12 2.97 2.7 7
1-Dec-00 0.14 1.5 2.19 2.12 6.81
1-Nov-00 0.2 1.62 2.5 2.62 6.62
2-Oct-00 0.28 1.56 2.81 3.19 7.06
1-Sep-00 0.31 2.5 2.16 5 7.44
1-Aug-00 0.17 2.31 2 4.06 7.88
3-Jul-00 0.28 2.75 1.94 3.06 8
1-Jun-00 0.38 2.84 1.81 3 7
1-May-00 0.19 3.06 1.59 3.31 7.56
3-Apr-00 0.22 4 1.56 3.5 8.5
1-Mar-00 0.44 5.06 1.97 3.56 8
1-Feb-00 0.75 3.97 2.16 3.71 10.5
3-Jan-00 0.5 4.44 2 3.21 8.72
2-Dec-99 0.19 3.13 3.25 3.65 7.97
1-Nov-99 0.19 2.87 3.31 3.31 8.41
4-Oct-99 0.25 2.62 3.5 3.49 7.31
1-Sep-99 0.19 2.69 3.88 3.12 9.39
3-Aug-99 0.38 3.62 3.75 4.12 9.67
1-Jul-99 1.06 4.25 3.38 4.61 9.27
2-Jun-99 0.62 4.31 3.44 4 10.38
3-May-99 0.75 4.37 3.56 5.04 12.04
5-Apr-99 1 4.19 3.75 5.34 10.53
1-Mar-99 1.44 3.94 4.88 4.56 10.84
1-Feb-99 1.63 4.81 5.75 6.26 12.07
4-Jan-99 1.5 7.09 9.13 6.92 13.09
PHARMACEUTICAL GROUP INDUSTRY COMPARISON OF STOCK PRICES
ONE-YEAR COMPARISON
December 31, 2003 December 31, 2002 $ %
Company Stock Price Stock Price Change Change
------- ----------- ----------------- ------ ------
Medifast (MED)....................................... $14.10 $5.32 8.78 165.0%
Abbott Labs (ABT).................................... 46.34 40.00 6.34 15.9%
Unilever (UL)........................................ 37.60 38.25 (0.65) (1.7)%
Novartis (NVS)....................................... 45.89 36.73 9.16 24.9%
Bristol Myers Squibb (BMY)........................... 28.60 23.15 5.45 23.5%
INDEX COMPARISON
$100 invested in 1999 would return:
1999 2003
---- ----
Nutraceutical Group Index............... $100 $ 1,052
Medifast................................ $100 $ 6,309
S&P 500................................. $100 $ 90
Factual material is obtained from sources believed to be reliable, but the
publisher is not responsible for any errors or omissions contained herein.
11
ITEM 2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company's independent auditor for the previous three (3) years,
Wooden & Benson, Chartered, resigned and will no longer represent the company as
of December 10, 2003. The resignation was due to the fact that Wooden & Benson,
Chartered was acquired by a larger firm on January 1, 2004 and will no longer be
auditing public companies. Such accountants report on the Registrant's financial
statements for the past three years, and any subsequent interim period through
the date of resignation, did not contain an adverse opinion or a disclaimer of
opinion, or was qualified or modified as to uncertainty, audit scope, or
accounting principles. During the Registrant's relationship there were no
disagreements or reportable events with such accountants on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
The Audit Committee, as of December 10, 2003, elected Bagell, Josephs &
Company, LLC, as the Company's independent auditors. Bagell, Josephs & Company,
LLC conducted the audit of the Company's financial statements for the year ended
December 31, 2003. The Sarbanes-Oxley Act of 2002 requires the Audit Committee
to be directly responsible for the appointment, compensation and oversight of
the audit work of the independent auditors. In March 2004, the Audit Committee
appointed Bagell, Josephs & Company, LLC to serve as independent auditors to
conduct an audit of the Company's financial statements for 2004.
PRINCIPAL ACCOUNTANT'S FEES
For the time period ended December 9, 2003, Wooden & Benson, Chartered
Certified Public Accountants, performed professional services for the Company.
During the time period of January 1, 2003 till December 9, 2003, audit fees paid
to Wooden & Benson, Chartered, Certified Public Accountants, were $19,402.60,
and included three (3) 10QSB reviews. Wooden & Benson, Chartered, Certified
Public Accountants did not perform any consulting services for the company. For
the time period from December 10, 2003 till year ended December 31, 2003,
professional services were performed for the Company by Bagell, Josephs &
Company, LLC. During the time period of December 10, 2003 till December 31,
2003, audit fees paid to Bagell, Josephs & Company, LLC, were $37,074.19 and
includes the year-end 10KSB. Bagell, Josephs & Company, LLC did not perform any
consulting services for the company.
A representative of Bagell, Josephs & Company, LLC is expected to be
present or available by telephone at the annual meeting with an opportunity to
make a statement to the stockholders if he desires to do so, and will respond to
appropriate questions.
Selection of the Company's independent auditor is not required to be
submitted to a vote of the shareholders of the Company for ratification.
However, the Board of Directors is submitting this matter to the shareholders as
a matter of good corporate practice. If the shareholders fail to ratify the
selection, the Audit Committee will reconsider whether to retain Bagell, Josephs
& Company, LLC. After doing so, it may retain that firm or another without
re-submitting the matter to the Company's shareholders. Even if the shareholders
ratify the appointment of Bagell, Josephs & Company, LLC, the Audit Committee
may, in its discretion, direct the appointment of different independent auditors
at any time during the year if it determines that such a change would be in the
best interests of the Company and the shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" THE RATIFICATION OF APPOINTMENT OF BAGELL, JOSEPHS & COMPANY, LLC
AS THE COMPANY'S INDEPENDENT AUDITORS.
12
ANNUAL REPORT
The Annual Report of the Company to the stockholders for the year
ended December 31, 2003 on Form 10-KSB immediately follows this Proxy Statement.
No part thereof is incorporated by reference in this Proxy Statement.
On written request, the Company will provide without charge to each
record or beneficial holder of the Common Stock as of July 28, 2004, a copy of
the Company's Annual Report on Form 10-KSB for the year ended December 31, 2003
as filed with the Securities and Exchange Commission. Requests should be
addressed to Investor Relations, c/o Medifast, Inc., 11445 Cronhill Drive,
Owings Mills, Maryland 21117.
PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company. In
addition to the use of mail, proxies may be solicited personally, by telephone,
telegraph, by officers, directors and regular employees of the Company, who will
not be specially compensated for this purpose. The Company will also request
record holders of Common Stock who are securities brokers, custodians, nominees
and fiduciaries to forward soliciting material to the beneficial owners of such
stock, and will reimburse such brokers, custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses in forwarding soliciting material.
OTHER MATTERS
The Company is unaware of any matters, above, which will be brought
before the Meeting.
Any proposals intended to be presented at the Meeting of Stockholders
to be held in 2004 must be received by the Company for inclusion in the
Company's proxy material no later than August 1, 2004.
It is important that your proxy be returned promptly no matter how
small or large your holding may be. Stockholders who do not expect to attend in
person are urged to execute and return the enclosed form of proxy. As a matter
of policy, we keep confidential proxies, ballots and voting tabulations that
identify individual shareholders. Such documents are available for examination
only by the inspector of elections, certain employees and our transfer agent who
are associated with the processing proxy cards and tabulation of the votes. The
vote of any shareholder is not disclosed except in a contested proxy
solicitation or as may be necessary to meet legal requirements.
August 2, 2004
13
PROXY
MEDIFAST, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Bradley T. MacDonald with full power
of substitution, as attorneys for and in the name, place and stead of the
undersigned, to vote all the shares of the common stock of MEDIFAST INC., owned
or entitled to be voted by the undersigned as of the record date, at the Annual
Meeting of Stockholders of said Company scheduled to be held at Sunrise
Distributing, the distribution headquarters of Medifast, Inc., located at 601
Sunrise Avenue Ridgely, MD 21660 on Friday, September 3, 2004, at 1:00 P.M.,
Eastern Daylight Time or at any adjournment or adjournments of said meeting, on
the following proposals as indicated.
1. To elect a classified Board of Directors consisting of seven
directors. The Board of Directors are divided into three classes
consisting of Class I, Class II, and Class III, and these classes are
based upon seniority. The Class I Directors will hold office until
2007, while the Class II and III Directors will hold office until the
next Annual Meeting of Stockholders at which their respective class
term expires and their respective successors will be duly elected and
qualified.
CLASS I ELECTION
Class I Directors: Bradley T. MacDonald and Rev. Donald F. Reilly, O.S.A.
[ ] FOR All nominees (except as marked to the contrary below)
[ ] WITHHOLD
CLASS II & III ELECTION
Class II Directors: R. Scott Zion and Michael C. MacDonald
Class III Directors: Mary T. Travis, Michael J. McDevitt and
Rev. Joseph D. Calderone, O.S.A.
[ ] FOR All nominees (except as marked to the contrary below)
[ ] WITHHOLD
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.
2. To approve the appointment of Bagell, Josephs & Company, LLC, an
independent member of the BDO Seidman alliance, as the Company's
independent auditors for the fiscal year ending December 31, 2004.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To transact such other business as may properly come before the meeting
or any adjournment thereof. (Please date and sign on reverse side).
This proxy, if properly executed and returned will be voted in
accordance with the directions specified hereof. If no directions are specified,
this proxy will be voted FOR the election of the directors named above or their
substitutes as designated by the Board of Directors.
Dated:
-------------------------- --------------------------------------
Signature of Stockholder
--------------------------------------
Signature of Co-Holder (if any)
Please sign exactly as your name appears hereon and date. Joint owners
should each sign. Trustees and fiduciaries should indicate the capacity in which
they are signing.
14