UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Rule 14a-6(e)(2))
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[ ] Soliciting Material Pursuant to SECTION 240.14a-11(c) or
SECTION 240.14a-12
U.S. PHYSICAL THERAPY, INC.
------------------------------------------------
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(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER
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U.S. PHYSICAL THERAPY, INC.
NOTICE OF 2004 ANNUAL MEETING OF STOCKHOLDERS
DATE: Tuesday, May 25, 2004
TIME: 9:00 a.m. (CDT)
PLACE: 1300 West Sam Houston Parkway South, Suite 300, Houston,
Texas 77042
MATTERS TO BE VOTED ON:
1. To elect eight directors for a one-year term,
2. To consider and vote upon the Company's 2003 Stock Incentive Plan which
would allow the Company to issue up to 900,000 shares of the Company's common
stock in equity-based compensation awards; and
3. To consider any other matters that may properly come before the meeting
or any adjournments.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE ELECTION OF THE
EIGHT NOMINEES FOR DIRECTOR AND THE ADOPTION OF THE COMPANY'S 2003 STOCK
INCENTIVE PLAN.
Your Board of Directors has set March 29, 2004, as the record date for the
Annual Meeting. Only holders of common stock of record on that date will be
entitled to notice of and to vote at the Annual Meeting or any adjournments. A
complete list of stockholders will be available for examination at the Annual
Meeting and at our offices at 1300 West Sam Houston Parkway South, Suite 300,
Houston, Texas 77042, for a period of ten days prior to the Annual Meeting.
You are cordially invited to join us at the Annual Meeting. However, to
insure your representation at the Annual Meeting, we request that you return
your signed proxy card at your earliest convenience, whether or not you plan to
attend the Annual Meeting. Your proxy will be returned to you if you are present
at the Annual Meeting and request us to return your proxy card.
By Order of the Board of Directors,
/s/ Roy W. Spradlin
ROY W. SPRADLIN
Chairman, President and Chief
Executive Officer
Houston, Texas
April 7, 2004
U.S. PHYSICAL THERAPY, INC.
1300 WEST SAM HOUSTON PARKWAY SOUTH, SUITE 300
HOUSTON, TEXAS 77042
(713) 297-7000
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 2004
---------------------
ANNUAL MEETING:
DATE: Tuesday, May 25, 2004
TIME: 9:00 a.m. (CDT)
PLACE: 1300 West Sam Houston Parkway South, Suite 300, Houston,
Texas 77042
AGENDA:
Two proposals, numbered as Items 1 and 2 on the proxy card, for the
election of our eight nominees for directors and adoption of the Company's 2003
Stock Incentive Plan which would permit the Company to issue up to 900,000
shares of the Company's common stock in equity-based compensation awards,
respectively.
WHO CAN VOTE:
All holders of record of our common stock at the close of business on March
29, 2004, are entitled to vote at the Annual Meeting. Holders of our common
stock are entitled to one vote per share.
PROXIES SOLICITED BY:
Your vote and proxy are being solicited by our Board of Directors for use
at the Annual Meeting. This Proxy Statement and the enclosed proxy card are
being mailed on behalf of our Board of Directors on or about April 7, 2004 to
all of our stockholders of record as of the close of business on March 29, 2004.
Your presence at the Annual Meeting will not automatically revoke your
proxy. You may, however, revoke your proxy at any time prior to its exercise by
delivering to us another proxy bearing a later date, by attending the Annual
Meeting and voting in person, or by filing a written notice of revocation with
Christina Osburn, our Corporate Secretary, at our principal executive offices,
1300 West Sam Houston Parkway South, Suite 300, Houston, Texas 77042. If you
receive multiple proxy cards, this indicates that your shares are held in more
than one account, such as two brokerage accounts, and are registered in
different names. You should vote each of the proxy cards to ensure that all of
your shares are voted.
PROXIES:
PROPERLY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED FOR THE ELECTION OF
OUR EIGHT NOMINEES AS DIRECTORS AND FOR THE ADOPTION OF THE COMPANY'S 2003 STOCK
INCENTIVE PLAN. If you "withhold" your vote for any of the nominees or the
adoption of the 2003 Incentive Plan, this will be counted as a vote AGAINST that
nominee or the plan. If any other matters are properly brought before the Annual
Meeting and you grant the discretion to vote on other matters, the persons named
in the proxy will vote your shares as directed by a majority of the Board of
Directors.
QUORUM:
Only shares of our common stock can be voted, with each share entitling its
owner to one vote on all matters. There is no cumulative voting in the election
of directors. The close of business on March 29, 2004 was fixed by the Board of
Directors as the record date for determination of stockholders entitled to vote
at the meeting. The number of shares of our common stock outstanding on that
date was 12,442,517. The presence, in person or by proxy, of at least a majority
of the shares is necessary to constitute a quorum at our Annual Meeting.
Abstentions will be treated as present for determining a quorum at the Annual
Meeting. If a broker holding your shares in "street" name indicates to us on a
proxy card that the broker lacks discretionary authority to vote your shares, we
will not consider your shares as present or entitled to vote for any purpose.
Directors are elected by a plurality of the votes cast at the Annual Meeting. A
majority of the shares present, in person or by proxy, and entitled to vote at
our Annual Meeting must be voted in favor of the 2003 Stock Incentive Plan in
order for that plan to be approved.
COST OF PROXY SOLICITATION:
We will bear the cost of soliciting proxies. Some of our directors,
officers and regular employees may solicit proxies personally or by telephone.
Proxy materials will also be furnished without cost to brokers and other
nominees to forward to the beneficial owners of shares held in their names.
QUESTIONS AND ADDITIONAL INFORMATION:
You may call our President, Roy Spradlin, our Chief Financial Officer,
Larry McAfee, or email us at investorrelations@usph.com if you have any
questions. A copy of our Annual Report for the year ended December 31, 2003
accompanies this Proxy Statement. WE HAVE FILED AN ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2003 (THE "FORM 10-K") WITH THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC"). YOU MAY OBTAIN A COPY OF THE FORM 10-K BY
DOWNLOADING IT FROM OUR WEBSITE AT WWW.USPH.COM, BY WRITING TO U.S. PHYSICAL
THERAPY, INC., 1300 WEST SAM HOUSTON PARKWAY SOUTH, SUITE 300, HOUSTON, TEXAS
77042, ATTENTION: CHRISTINA OSBURN, CORPORATE SECRETARY OR BY EMAILING US AT
INVESTORRELATIONS@USPH.COM.
PLEASE VOTE -- YOUR VOTE IS IMPORTANT
ITEM 1: ELECTION OF DIRECTORS
Eight directors will be elected at the Annual Meeting for one-year terms.
Eight of the nominees are standing for re-election. Our new director, Jerald L.
Pullins, was recommended to the Board of Directors by a non-management director.
The board of directors has determined that all of the nominees other than Roy W.
Spradlin and Mark J. Brookner, who are officers of the Company, are independent
under the Nasdaq Stock Market rules. The nominees for director are:
DIRECTOR
NOMINEES: AGE(A) SINCE POSITION(S) HELD
--------- ------ -------- ----------------
Roy W. Spradlin.................. 55 1994 Chairman of the Board, President
and Chief Executive Officer
Mark J. Brookner................. 59 1990 Vice Chairman of the Board
Daniel C. Arnold................. 74 1992 Director
Bruce D. Broussard............... 41 1999 Director
James B. Hoover.................. 49 1993 Director
Marlin W. Johnston............... 72 1992 Director
Albert L. Rosen.................. 80 1992 Director
Jerald L. Pullins................ 62 2003 Director
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The persons named on the proxy card will vote FOR all of the nominees for
director listed above unless you withhold authority to vote for one or more of
the nominees. Nominees are elected by a plurality vote of the votes cast at the
Annual Meeting. Abstentions and broker non-votes will not be treated as a vote
for or against any particular nominee and will not affect the outcome of the
election of directors.
All of our nominees have consented to serve as directors. Our Board has no
reason to believe that any of the nominees will be unable to act as a director.
However, if any director is unable to serve, the Board will designate a
substitute. If a substitute nominee is named, the persons named on the proxy
card will vote FOR the election of the substitute nominee.
DIRECTOR BIOGRAPHIES:
ROY W. SPRADLIN has served as our Chairman of the Board since May 2001 and
has been President since May 1994. Beginning in May 1994 Mr. Spradlin was
elected our Chief Operating Officer; in August 1995 he was named our Chief
Executive Officer.
MARK J. BROOKNER has served as our Vice Chairman of the Board since August
1998. Mr. Brookner served as our Chief Financial Officer from April 1992 to
August 1998 and as Secretary and Treasurer during portions of that period.
DANIEL C. ARNOLD is a private investor engaged primarily in managing his
personal investments. During the past five years, he had served on the Board of
Directors of both Parkway Properties, Inc., a real estate investment trust; and
Belco Oil & Gas Corp., an oil and gas exploration and production company. He has
also served as Chairman of the Board of Trustees of Baylor College of Medicine.
BRUCE D. BROUSSARD has been the Chief Financial Officer of U.S. Oncology,
Inc., a cancer-care services company since August 2000. From December 1997 to
August 2000, Mr. Broussard was the Chief Executive Officer of HarborDental
Properties, a dental development company specializing in free-standing upscale
dedicated dental buildings. Mr. Broussard served as the Chief Financial Officer
for Regency Health Services, Inc., a national chain of nursing homes and
provider of long-term health services, from 1996 to 1997 and as a Director and
Chief Financial Officer for Sun Health Care Group, a health care provider, from
1993 to 1996.
JAMES B. HOOVER is the founding managing member of Dauphin Capital
Partners, a health care venture capital firm established in 1998. Prior to 1998
for six years he served as a General Partner of Welsh, Carson, Anderson & Stowe,
a management buyout firm focused on the acquisition of health care and
information services companies. Mr. Hoover presently serves on the Board of
Directors of Quovadx, Inc., a global platform software and vertical solutions
company, and five privately held health care companies.
MARLIN W. JOHNSTON has been a management consultant with Tonn & Associates,
a management consulting firm, since September 1993. During 1992 and 1993, Mr.
Johnston served as a management consultant to the Texas Department of Health and
the Texas Department of Protective and Regulatory Services.
ALBERT L. ROSEN manages his personal investments and retired as President
and General Manager of the San Francisco Giants, a major league baseball team,
in December 1992.
JERALD L. PULLINS is President and Chief Executive Officer of Voyager
HealthCare, Inc a private enterprise involved in the acquisition, development
and operation of hospice and palliative care facilities. From August 1991 he was
employed by Service Corporation International in various capacities including:
President and Chief Operating Officer (1998-2002), Executive Vice
President-International Operations (1996-1998), and Senior Vice
President-Corporate Development (1991-1996). Prior to 1991, for seven years he
served as President and CEO of The Sentinel Group, Inc., a private company which
owned and operated funeral, cemetery, insurance and related businesses.
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ATTENDANCE AT BOARD MEETINGS AND BOARD COMMITTEES
The Board of Directors conducts its business through the meetings of its
Board and through activities of certain committees. All committees act for the
Company. The Board of Directors has determined that all of the directors, except
Messrs. Spradlin and Brookner, are "independent", as that term is currently used
in the Nasdaq Rules. Accordingly, the Board of Directors is comprised of a
majority of independent directors as required by the Nasdaq Rules.
During 2003 the Board of Directors met eight times, the Audit Committee met
twelve times, the Compensation Committee met five times and the Corporate
Compliance Committee met four times. All of the directors attended at least 75%
of the meetings of the Board of Directors and each Committee on which he served.
The Board has standing nominating, corporate compliance, compensation and
audit committees. The Nominating Committee was formed in February 2004. These
committees are constituted as follows:
NOMINATING COMMITTEE
The Nominating Committee consists of Messrs. Daniel C. Arnold, Bruce D.
Broussard, James B. Hoover, Marlin W. Johnston, Albert L. Rosen and Jerald L.
Pullins, all of whom are independent directors (as the term independent is
defined by Nasdaq Rules). The function of the Nominating Committee is to select,
screen and recommend to the Board nominees for election as directors, including
any nominees proposed by shareholders who have complied with the procedures
described below. The Nominating Committee also has ongoing responsibility for
Board performance, ensuring individual Board members' continuing commitment to
the Board and the Company's goals and objectives. Additional functions include
regularly assessing the appropriate size of the Board, and whether any vacancies
on the Board are expected due to retirement or otherwise. In the event that
vacancies are anticipated, or otherwise arise, the Nominating Committee will
consider various potential candidates for director. Candidates may come to the
attention of the Nominating Committee through current Board members,
shareholders, or other persons. The Nominating Committee has not paid fees to
any third party to identify, evaluate, or to assist in identifying or
evaluating, potential nominees, but is not prohibited from doing so, should it
be determined necessary in the future. The Nominating Committee is required to
meet twice a year. The Nominating Committee operates under a written charter, a
copy of which is available on the Company's website www.usph.com.
Nomination Criteria. In its consideration of Board candidates, the
Nominating Committee considers the following criteria: the candidate's general
understanding of health care sector, marketing, finance and other disciplines
relevant to the success of a large publicly-traded company; strategic business
contacts and regard or reputation in the community, business and civic affairs;
financial, regulatory and business experience; integrity, honesty and
reputation; age, diversity, size of the Board of Directors and regulatory
obligations. In the case of incumbent directors whose terms of office are set to
expire, the Nominating Committee reviews such directors' overall service to the
Company during their terms, including the number of meetings attended, level of
participation, quality of performance, and whether the director continues to
meet the independence standards set forth in the applicable SEC rules and
regulations and the Nasdaq Rules. In the case of new director candidates, the
questions of independence and financial expertise are important to determine
what roles can be performed by the candidate, and the Nominating Committee
determines whether the candidate meets the independence standards set forth in
the SEC rules and regulations and the Nasdaq Rules, and the level of the
candidate's financial expertise. Candidates are first interviewed by the
Nominating Committee, and if approved by the Nominating Committee, then they are
interviewed by all other members of the Board. The full Board approves the final
nomination(s) based on recommendations from the Nominating Committee. The
Chairman of the Board, acting on behalf of the full Board, will extend the
formal invitation to become a nominee of the Board of Directors. Qualified
candidates for membership on the Board will be considered without regard to
race, color, religion, sex, ancestry, national origin or disability.
Shareholder Nomination Procedures. The Nominating Committee will consider
director candidates recommended by the shareholders. Generally, in order for a
shareholder of the Company to make a nomination, he or she must give written
notice to the Company's Secretary so that it is received at least
4
120 calendar days prior to the first anniversary of the date the Company's proxy
statement is sent to the shareholders in connection with the previous year's
annual meeting of shareholders. If no annual meeting of shareholders was held in
the previous year (or if the date of the annual meeting of shareholders was
changed by more than 30 calendar days from the date of the previous year's
annual meeting), the notice must be received by the Company at least 150
calendar days prior to the date of the previous year's annual meeting. The
shareholder's notice must set forth as to each nominee: (i) the name, age,
business address and residence address of such nominee; (ii) the principal
occupation or employment of such nominee; (iii) the number of shares of our
Common Stock which are beneficially owned by such nominee; and (iv) any other
information relating to such nominee that may be required under federal
securities laws to be disclosed in solicitations of proxies for the election of
directors (including the written consent of the person being recommended as a
director candidate to being named in the proxy statement as a nominee and to
serve as a director if elected). The shareholder's notice must also set forth as
to the shareholder giving notice: (i) the name and address of such shareholder;
and (ii) the number of shares of our Common Stock which are beneficially owned
by such shareholder.
If the information supplied by the shareholder is deficient in any material
aspect or if the foregoing procedure is not followed, the chairman of the annual
meeting may determine that such shareholder's nomination should not be brought
before the meeting and that such nominee shall not be eligible for election as a
director of the Company. The Nominating Committee will not alter the manner in
which it evaluates candidates, including the minimum criteria set forth above,
based on whether the candidate was recommended by a shareholder or not.
CORPORATE COMPLIANCE COMMITTEE
The Corporate Compliance Committee members are Messrs. Johnston (chairman),
Pullins, Brookner and Broussard. The Corporate Compliance Committee reviews and
assesses the activities and findings of internal audits, reviews reports of
material noncompliance and reviews and approves corrective actions proposed by
management and reports to the Board of Directors the effectiveness of our
compliance program.
COMPENSATION COMMITTEE
The current members of the Compensation Committee are Messrs. Arnold
(Chair), Hoover and Rosen, all of whom are independent directors (as the term
independent is defined by the Nasdaq Rules). The primary function of the
Compensation Committee is to recommend to our Board the compensation to be paid
to the directors and our executive officers, including under our executive
compensation plans.
AUDIT COMMITTEE
The Audit Committee currently consists of Messrs. Johnston (Chair), Pullins
and Broussard. The Board of Directors has determined that Mr. Broussard is an
"audit committee financial expert." As more fully described in the Audit
Committee Charter attached to this proxy statement as Appendix A, the Audit
Committee is responsible for, among other things:
- overseeing our accounting and financial reporting processes, including
the quarterly reviews and annual audits of our financial statements by
the independent auditors;
- the appointment, independence, compensation, retention and oversight of
the work of the independent auditors;
- pre-approving audit and permitted non-audit services, and related fees
and terms of engagement, provided by the independent auditors; and
- reviewing with management and independent auditors issues relating to
disclosure controls and procedures and internal control over financial
reporting.
5
The Board has adopted a written Audit Committee Charter, as amended,
requiring the Audit Committee to consist of at least three members of the Board.
Each member of the Audit Committee is an "independent director" as that term is
defined by Nasdaq Stock Market Rule 4200(a)(15).
CODES OF CONDUCT
The Board has approved and the Company has adopted a Code of Business
Conduct and Ethics, applicable to all directors, officers and employees of the
Company. This Code is available on the Company's website, www.usph.com. The
Board, or a committee of independent members, is responsible for reviewing and
approving or rejecting all requested waivers to the Code, as such waivers may
apply to the Company's executive officers or directors. Any waivers of the code
for directors and executive officers will be disclosed in a Form 8-K filed with
the SEC, which will be available on the SEC's website at www.sec.gov.
The Board has approved and the Company has adopted an additional Code of
Ethics, applicable to its Chief Executive Officer and all senior financial
officers, relating to dealings with the Company's auditors and the preparation
of the Company's financial statements and other disclosures made to the public
under SEC rules and regulations. This Code is available on the Company's
website, www.usph.com. The Board, or a committee of independent members, is
responsible for reviewing and approving or rejecting all requested waiver to the
Code, as such waivers may apply to the Company's executive officers or
directors. Any waivers will be disclosed on the Company's website.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS AND ATTENDANCE AT ANNUAL MEETING.
The Board of Directors maintains an informal process for shareholders to
communicate with the Board of Directors. Shareholders wishing to communicate
with the Board of Directors should send any communication to Christina Osburn,
our Corporate Secretary, at our principal executive offices, 1300 West Sam
Houston Parkway South, Suite 300, Houston, Texas 77042. Any such communication
must state the number of shares beneficially owned by the shareholder making the
communication. The Corporate Secretary will forward such communication to the
full Board of Directors or to any individual director or directors to whom the
communication is directed unless the communication is unduly hostile,
threatening, illegal or similarly inappropriate, in which case the Corporate
Secretary has the authority to discard the communication or take appropriate
legal action regarding the communication.
Although the Company does not have a formal policy requiring them to do so,
all of the members of the Board of Directors are encouraged to attend the annual
meeting of shareholders. At the 2003 annual meeting, all of the directors of the
Company were in attendance.
COMPENSATION OF DIRECTORS
Each of our independent directors receives $6,000 per quarter for serving
as a member of the Board of Directors. Non-employee directors are paid $1,000
for each committee meeting attended in person and $500 for each meeting attended
telephonically. They are also reimbursed for their out-of-pocket travel and
related expenses incurred in attending Board and committee meetings. Directors
who are also our employees or consultants are not compensated separately for
serving on the Board. In August 2003, the six directors, Daniel C. Arnold, Bruce
D. Broussard, Jerald L. Pullins, James B. Hoover, Marlin W. Johnston and Albert
L. Rosen, each received ten-year non-qualified equity-based compensation grants
to purchase 10,000 shares of our common stock. The exercise price of these
equity awards, which will be granted under our proposed 2003 Stock Incentive
Plan, is $15.00 per share, the fair market value of our stock on the date of the
grant. The stock options granted to directors become exercisable in full one
year from the date of grant, unless acceleration of vesting occurs upon a change
of control. All options issued under the proposed 2003 Stock Incentive Plan
expire thirty days after the termination of the recipient's position with us.
Mark J. Brookner received $50,000 in compensation and benefits for serving
as a consultant and as Vice Chairman of the Board in 2003. Mr. Brookner's
consulting arrangement is described below in the section entitled "Employment
and Consulting Agreements."
6
STOCK OWNERSHIP
STOCK OWNED BY DIRECTORS, DIRECTOR NOMINEES AND OFFICERS
The following table shows the number and percentage of shares of common
stock beneficially owned by our directors and executive officers as of March 29,
2004. Each person has sole voting and investment power for the shares shown
below unless otherwise noted.
NUMBER PERCENT OF
NAME OF OF SHARES RIGHT TO COMMON STOCK
BENEFICIAL OWNER OWNED(1) ACQUIRE(2) OUTSTANDING
---------------- --------- ---------- ------------
Roy W. Spradlin.................................. 493,750 493,750 3.8%
Chairman of the Board,
President and Chief Executive Officer
Mark J. Brookner................................. 98,750 0 *
Vice Chairman of the Board
Daniel C. Arnold................................. 74,835 74,835 *
Director
Bruce D. Broussard............................... 10,835 10,835 *
Director
James B. Hoover.................................. 183,085 104,835 1.5%
Director
Marlin W. Johnston............................... 25,833 10,833 *
Director
Albert L. Rosen.................................. 106,335(3) 38,835 *
Director
Jerald L. Pullins................................ 30,000 30,000 *
Director
Lawrance W. McAfee............................... 0 0 n/a
Chief Financial Officer
Christopher J. Reading........................... 0 0 n/a
Chief Operating Officer
--------- ------- ---
All directors and Executive officers as a group
(10 persons)................................... 1,023,423 763,923 7.8%
========= ======= ===
---------------
* Less than 1%
(1) Includes shares subject to outstanding options that are currently
exercisable or exercisable through May 28, 2004.
(2) Number of shares of common stock (of the total beneficially owned) that can
be acquired through stock options exercisable through May 28, 2004.
(3) Includes 67,500 shares of our common stock held by the Rosen Family Trust.
Mr. Rosen serves as a trustee for the Rosen Family Trust.
7
STOCK HELD BY PRINCIPAL "BENEFICIAL HOLDERS"
The table shows the ownership of our shares of common stock by persons
known to us to be beneficially own more than 5% of our common stock. The
information is based on the most recent statements filed on Schedule 13D or 13G
with the SEC, submitted to us by those persons, or on other information
available to us.
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS BENEFICIAL COMMON STOCK
OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING
------------------- ---------- ------------
J. Livingston Kosberg....................................... 791,240(1) 6.4%
3040 Post Oak Blvd., Suite 700
Houston, TX 77056
Cannell Capital, LLC........................................ 1,400,000(2) 11.2%
150 California Street, Fifth Floor
San Francisco, CA 94111
Royce & Associates, LLC..................................... 615,400(3) 5.0%
1414 Avenue of the Americas
New York, NY 10019
FleetBoston Financial Corporation........................... 674,000(4) 5.4%
100 Federal Street
Boston, MA 02110
RS Investments Management Co., LLC.......................... 908,500(5) 7.3%
388 Market Street, Suite 200
San Francisco, CA 94111
Lotsoff Capital Management.................................. 820,111(6) 6.6%
20 North Clark Street, 34th Floor
Chicago, IL 60602
Wasatch Advisors, Inc. ..................................... 942,835(7) 7.6%
150 Social Hall Avenue, 4th Floor
Salt Lake City, UT 84111
William Harris Investors, Inc. ............................. 836,000(8) 6.7%
2 North LaSalle Street, Suite 400
Chicago, IL 60602
---------------
(1) The reported share amount includes 651,240 shares held by the Livingston
Kosberg Trust, 60,000 shares held by the Kosberg Foundation Charitable
Trust, 50,000 shares held by the Lewis Wilkenfeld Trust and 30,000 shares
held individually in Mr. Kosberg's name. Mr. Kosberg is the trustee and the
income beneficiary of the Livingston Kosberg Trust and the trustee of the
Kosberg Foundation Charitable Trust and the Lewis Wilkenfeld Trust. The
reported share amount excludes 2,340 shares held by Mr. Kosberg's wife for
which Mr. Kosberg disclaims beneficial ownership.
(2) Cannell Capital, LLC has shared voting and shared dispositive power over the
entire number of the shares; J. Carlo Cannell has shared voting and shared
dispositive power over the entire number of shares; The Anegada Fund Limited
has shared voting and dispositive power of 344,365 shares; Tonga Partners,
L.P. has sole voting and sole dispositive power of 517,951 shares; Pleiades
Investment Partners, L.P. has shared voting and shared dispositive power of
69,187 shares; The Cuttyhunk Fund Limited has shared voting and shared
dispositive power of 342,600 shares; GS Cannell Portfolio, LLC has shared
voting and shared dispositive power of 125,897 shares. Mr. Cannell is the
managing member of Cannell Capital, LLC and is the investment advisor of
each of the other named entities.
(3) Royce & Associates, LLC has sole voting and dispositive power over the
entire number of shares.
(4) FleetBoston Financial Corporation has shared dispositive power of 2,300
shares, sole dispositive power of 671,700 shares and sole voting power of
558,700 shares.
8
(5) RS Investments Management Co., LLC has shared voting and dispositive power
over the entire number of shares. RS Investment Management, L.P., has shared
voting and dispositive power over 589,200 shares.
(6) Lotsoff Capital Management has shared voting power of 569,067 shares and
sole dispositive power of 251,044 shares.
(7) Wasatch Advisors has sole voting and sole dispositive power over the entire
number of shares.
(8) William Harris Investor, Inc. has sole voting and dispositive power over the
entire number of shares.
EXECUTIVE OFFICERS
Information about Mr. Spradlin, our Chief Executive Officer, and Mark J.
Brookner, our Vice Chairman, is included under "Election of Directors."
Information about our other executive officers is shown below.
LAWRANCE W. MCAFEE, 49, has served as Chief Financial Officer since joining
the Company in September 2003. Mr. McAfee's prior experience includes having
served as Chief Financial Officer of three public companies and President of two
private companies. From September 2002 to April 2003 he served as President and
Chief Financial Officer of SAT Corporation, a software company. From September
1999 until March 2002, Mr. McAfee was Chief Financial Officer and later
President of CheMatch, an on-line chemicals exchange. From 1992 to 1999 he was
Chief Financial Officer of ITEQ, Inc., an engineered products and services
business.
CHRISTOPHER J. READING, 40, has served as Chief Operating Officer since
joining the Company in October 2003. From 1990 to 2003, Mr. Reading served in
various executive and management positions with HealthSouth Corporation. Most
recently, he was Senior Vice President of operations where he was responsible
for over 200 facilities located in 10 states. Mr. Reading is a licensed physical
therapist.
EXECUTIVE COMPENSATION
The following table shows the compensation we paid during 2003, 2002 and
2001 to Messrs. Spradlin, McAfee, Reading, Mullin and Brookner (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS(1)
ANNUAL COMPENSATION ------------
---------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION(S) YEAR SALARY BONUS COMPENSATION OPTIONS(2)
------------------------------ ------ -------- -------- ------------ ------------
Roy W. Spradlin......................... 2003 $325,000 $ 0 $ 0 50,000
Chairman, President and 2002 250,000 0 0 50,000
Chief Executive Officer 2001 250,000 125,000 0 112,500
Lawrance W. McAfee(3)................... 2003 $100,000 $ 12,500 $ 0 50,000
Chief Financial Officer
Christopher J. Reading(4)............... 2003 $ 41,667 $ 0 $28,945 50,000
Chief Operating Officer
J. Michael Mullin....................... 2003 $170,000 $ 0 $ 0 0
Vice President 2002 150,000 0 0 20,000
2001 150,000 40,000 0 60,000
Mark J. Brookner........................ 2003 $ 50,000 $ 0 $ 0 0
Vice Chairman 2002 65,625 0 0 0
2001 75,000 0 0 0
9
---------------
(1) None of the above individuals holds any shares of restricted stock of U.S.
Physical Therapy, Inc.
(2) Reflects shares of common stock underlying options granted, as adjusted for
stock splits, under our 1992 Stock Option Plan, inducement options and other
equity-based compensation grants related to the proposed 2003 Stock
Incentive Plan.
(3) Reflects compensation received from September 2, 2003 to December 31, 2003.
(4) Reflects compensation received from November 3, 2003 to December 31, 2003
and payment of Mr. Reading's moving expenses during 2003.
OPTION GRANTS
The following table contains information with respect to grants of stock
options and equity-based compensation grants to the Named Executive Officers
during the year ended December 31, 2003.
OPTION GRANTS IN 2003 FISCAL YEAR
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OF FOR OPTION TERM
OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION ---------------------------
NAME (#)(A) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- --------------- --------------- ----------- ---------- ----------- -------------
Roy W. Spradlin......... 50,000 17% $15.000 8/19/13 $471,671 $1,195,307
Lawrance W. McAfee...... 50,000 17% $14.320 11/18/13 $450,289 $1,141,120
Christopher J.
Reading............... 50,000 17% $14.320 11/18/13 $450,289 $1,141,120
---------------
(a) The non-qualified stock options, which expire in ten years, were granted as
inducement option grants for Messrs. McAfee and Reading and as other
equity-based compensation related to the proposed 2003 Stock Incentive Plan
for Mr. Spradlin and vest one-fifth on each of the first, second, third,
fourth and fifth anniversaries of the date of grant, unless accelerated
vesting occurs upon a change in control. Specifically, vesting will be
accelerated in the event a "change in control" occurs (defined generally as
the acquisition of 50% or more of our outstanding voting stock, a change in
a majority of the Board of Directors or a merger, consolidation or
acquisition of all or substantially all of our assets). The per share
option exercise price equals the fair market value of a share of our common
stock on the date of grant, as determined under the respective Inducement
Option grants and other equity-based compensation award grants related to
the proposed 2003 Stock Incentive Plan.
OPTION EXERCISES AND HOLDINGS
The following table sets forth the option exercises during fiscal year 2003
and the year-end value of all unexercised in-the-money options held by the Named
Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
VALUE OF SECURITIES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#)(A) AT FY-END ($)(A)(B)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
Roy W. Spradlin...... 100,000 $937,367 442,500 195,000 $4,672,517 $536,150
J. Michael Mullin.... 78,750 $964,765 28,000 108,250 7,920 731,458
Mark J. Brookner..... 75,000 $766,075 0 0 0 0
10
---------------
(a) Reflects the number of shares of our common stock underlying options
granted under the Executive Option Plan and the 1992 Stock Option Plan and
the exercise or base price of the options, as adjusted for stock splits.
(b) Market value of underlying securities at year-end of $15.73 per share minus
the exercise or base price of in-the-money options at year-end.
EMPLOYMENT AND CONSULTING AGREEMENTS
Mr. Spradlin entered into a second amended and restated employment
agreement with us on February 21, 2001. Under that agreement, Mr. Spradlin is
employed as President and Chief Executive Officer for a term through February
21, 2006. Effective January 1, 2003, Mr. Spradlin's base salary is $325,000 per
year. Additionally, Mr. Spradlin is eligible to receive cash bonuses payable at
the discretion of the Board of Directors and, if eligible, is entitled to
participate in any employee benefit plans adopted by us. Effective December 31,
2002, Mr. Spradlin's Employment Agreement was amended to add a provision that at
Mr. Spradlin's request and at his cost and expense, and assuming no breach by
him of his employment agreement, the Company shall make available, to the extent
it is reasonably available, on commercial terms primary health insurance
coverage for Mr. Spradlin and his family until the earlier of (i) the date of
his 75th birthday or (ii) the date on which there are no longer any persons
surviving who are entitled to such health insurance coverage.
Mr. Spradlin's employment agreement may be terminated by us prior to the
expiration of its term in the event (i) he becomes disabled for 90 consecutive
days or (ii) his employment is terminated for "cause" (as defined in the
agreement). If a "change in control'(as defined in the agreement) occurs, Mr.
Spradlin would be entitled to receive a lump sum equal to $500,000, and the term
of his employment agreement would be modified to end one year from the change in
control. In the event Mr. Spradlin's employment agreement is terminated without
"cause," or Mr. Spradlin resigns "for good cause" (as defined in the agreement),
Mr. Spradlin would be entitled to receive a lump sum termination payment equal
to his (i) base compensation for the remainder of the term of the employment
agreement, (ii) the greater of (a) Mr. Spradlin's bonus paid the last fiscal
year prior to termination or resignation or (b) the average of the bonuses paid
over the three fiscal years prior to termination or resignation and (iii) Mr.
Spradlin's accrued but unused vacation days. Under his employment agreement, in
the event of his death, Mr. Spradlin's heirs or beneficiaries would become
entitled to receive a payment equal to one year's annual salary. Mr. Spradlin's
employment agreement further contains a covenant not to compete or solicit
customers and employees during its term and for a two-year period following the
termination of his employment.
Mr. McAfee entered into an employment agreement with us on September 2,
2003. Under that agreement, Mr. McAfee is employed as Chief Financial Officer
for a term through September 1, 2006. After this date, he is considered an "at
will" employee. Effective September 2, 2003, Mr. McAfee's base salary is
$300,000 per year with a sign-on bonus of $12,500. Additionally, as an
inducement to accept employment, Mr. McAfee was granted 50,000 non-qualified
stock options to purchase Company common stock. He is eligible to receive cash
bonuses payable at the discretion of the Board of Directors and, if eligible, is
entitled to participate in any employee benefit plans adopted by us.
Mr. McAfee's employment agreement may be terminated by us prior to the
expiration of its term in the event his employment is terminated for "cause" (as
defined in the agreement). If a "change in control" occurs (as defined in the
agreement) and (a) Mr. McAfee does not continue as the Chief Financial Officer
of the Company after the change of control and for 6 months thereafter or (b) he
is required to change work locations by more than 30 miles, then he is entitled
to terminate his employment for "good reason" for a period of up to 90 days
following the event giving rise to his right to terminate. In the event Mr.
McAfee's employment agreement is terminated without "cause" or Mr. McAfee
terminates his employment for "good reason," he would be entitled to receive a
lump sum termination payment equal to his annual base compensation. If Mr.
McAfee is terminated after the initial term without "cause", he is entitled to
six months salary as a severance payment.
11
Mr. Reading entered into an employment agreement with us on September 22,
2003. Under that agreement, Mr. Reading is employed as Chief Operating Officer
for a term through November 2, 2006. After this date, he is considered an "at
will" employee. Effective November 3, 2003, Mr. Reading's base salary is
$250,000 per year. Additionally, as an inducement to accept employment, Mr.
Reading was granted 50,000 non-qualified stock options to purchase Company
common stock. He is eligible to receive cash bonuses payable in accordance with
his employment agreement or at the discretion of the Board of Directors and is
entitled to participate in any employee benefit plans adopted by us.
Mr. Reading's employment agreement may be terminated by us prior to the
expiration of its term in the event his employment is terminated for "cause" (as
defined in the agreement) occurs. If a "change in control'(as defined in the
agreement) occurs and (a) Mr. Reading does not continue as the Chief Operating
Officer of the Company after the change of control and for 6 months thereafter
or (b) he is required to change work locations by more than 30 miles, then he is
entitled to terminate his employment for "good reason" for a period of up to 90
days following the event giving rise to his right to terminate. In the event Mr.
Reading's employment agreement is terminated without "cause" or Mr. Reading
terminates his employment for "good reason," he would be entitled to receive a
lump sum termination payment equal to his annual base compensation. If Mr.
Reading is terminated after the initial term without "cause", he is entitled to
six months salary as a severance payment.
Mr. Mullin entered into an employment agreement with us on September 2,
2003. Under that agreement, Mr. Mullin is employed as Vice President -- Special
Projects for a term through September 30, 2004. After this date, his employment
terminates with no severance payment due or payable. If Mr. Mullin is terminated
by the Company without "cause" (as defined by the employment agreement) or
resigns within 30 days after being required to accept a material diminution in
title or duties and responsibilities, then the Company will continue to pay his
full salary through his termination date September 30, 2004.
Mr. Brookner entered into a five year consulting agreement effective
November 15, 2002, calling for compensation at an annual rate of $50,000 per
year; the agreement contains a provision that at Mr. Brookner's request and at
his cost and expense, the Company shall make available, to the extent it is
reasonably available, on commercial terms primary health insurance coverage for
Mr. Brookner and his family until the earlier of (i) the date of his 75th
birthday or (ii) the date on which there are no longer any persons surviving who
are entitled to such health insurance coverage.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Board and its Compensation Committee prepared the following report on
our policies with respect to the compensation of executive officers for 2003.
The Board makes all decisions on the compensation of our executive officers
(including stock options) based upon recommendations of the Compensation
Committee.
COMPENSATION OF EXECUTIVE OFFICERS
Our compensation policies are designed to enable us to attract, motivate
and retain experienced and qualified executives. We seek to provide competitive
compensation. Our policy has been to provide a significant component of an
executive officer's compensation through the grant of stock options. We believe
that grants of stock options to executives, as well as to employees generally,
help align the interests of these officers with the interests of our
stockholders.
The following describes in more specific terms the elements of compensation
of executive officers for 2003.
BASE SALARIES
Other than the base salary for our Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer which are set by an employment agreement
(see "Employment and Consulting Agreements"), base salaries of executives are
initially determined by evaluating the responsibilities of the position, the
experience and knowledge of the individual and the competitive marketplace for
executive talent. Base salaries for
12
executive officers are reviewed annually by our Compensation Committee and Board
based on, among other things, individual performance and responsibilities.
INCENTIVE COMPENSATION
Based on performance, incentive compensation opportunities are available to
a wide range of our employees. We believe that incentive compensation is
effective in reinforcing both the overall values of our company and our specific
operating goals.
Incentive compensation programs are designed to focus employees' attention
on our key performance goals, to identify the expected levels of performance and
to reward individuals who meet or exceed our expectations. The aggregate amounts
available for incentive awards are determined by our overall financial
performance. The actual awards paid to individual recipients are formulated by
management and approved by the Compensation Committee.
STOCK OPTION AWARDS
Our 1992 Stock Option Plan, as amended (the "1992 Option Plan") and the
Executive Stock Option Plan (the "Executive Option Plan") were approved by our
Board and stockholders to align employee and outside directors' interests with
stockholders' interests, to provide incentives to our key employees by
encouraging their ownership of common stock and to aid us in attracting and
retaining key employees, upon whose efforts our success and future growth
depends. While a number of options are outstanding under the 1992 Option Plan,
no future options will be granted under the plan as it expired in April 2002.
During 2002 and 2003, the Company erroneously granted to directors and key
employees options to purchase 308,000 shares of common stock under the 1992
Option Plan after the plan expired. Because the Company intends to honor the
original terms of these equity-based compensation grants, the Company recognized
compensation cost in 2003 related to these grants. The Company intends to
replace the grants with options to purchase common stock under the proposed 2003
Incentive Plan, if approved. The final measurement date for determining
compensation costs can not occur before the plan is approved by the
shareholders. While a number of options are outstanding under the Executive
Option Plan, no options were granted under the plan during 2003 or will be
granted under the plan in the future.
Options are granted at the discretion of the Compensation Committee.
Individual grant sizes are determined based on organizational and individual
performance. At the discretion of the Compensation Committee, and based on the
recommendation of management, options may also be used as an incentive for
candidates recruited to fill key positions.
During 2003, we granted options and stock-based compensation awards
covering a total of 299,675 shares of our common stock to 79 directors, officers
and employees. This includes options granted under the 1999 Employee Stock
Option Plan, stock-based compensation grants related to the proposed 2003 Stock
Incentive Plan and options granted to individuals to induce employment. No
options have been granted to the Named Executive Officers or directors under the
1999 Employee Stock Option Plan. The per share exercise price of all options
granted in 2003 equaled the fair market value of a share of our common stock on
the date of grant.
Stock option grants made to executive officers in 2003 reflect significant
individual performance and contributions relating to our operations and an
incentive to an executive to join us.
OTHER
Defined Contribution Plan. The Company maintains a qualified retirement
plan pursuant to Internal Revenue Code Section 401(k) (the "401(k) Plan")
covering substantially all employees subject to certain minimum service
requirements. The 401(k) Plan allows employees to make voluntary contributions
and provides for discretionary matching contributions by the Company. The assets
of the 401(k) Plan are held in trust for participants and are distributed upon
the retirement, disability, death or other termination of
13
employment of the participant. The Board, in its discretion, determines the
amount of any Company contributions. We did not make any contributions during
2003.
Life Insurance. The Company maintains, at its expense, for the benefit of
each of its full-time employees life insurance policies in the amount of one
times the employee's annual salary, up to $200,000.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Under his employment agreements with us (see "Employment and Consulting
Agreements"), Mr. Spradlin received a salary of $325,000 in 2003, $250,000 in
2002, and $250,000 in 2001. He also received bonuses totaling $125,000 in 2001.
Although Mr. Spradlin participated in our 401(k) Plan from 2001 through 2003, we
did not make any matching contributions to the plan during these years. In
addition to cash compensation, during 2003 and 2002, Mr. Spradlin was ascribed
an equity-based compensation grant of 50,000 shares to purchase shares of our
common stock related to the proposed 2003 Stock Incentive Plan and during 2001,
granted 112,500 options to purchase shares of our common stock under the 1992
Option Plan.
In determining the appropriate compensation for Mr. Spradlin, the
Compensation Committee evaluates our overall performance under Mr. Spradlin's
leadership, as well as his individual contributions to key strategic, financial
and development objectives. The Compensation Committee does not utilize any
specific quantitative factors or formulas in reviewing his performance or
compensation.
COMPENSATION DEDUCTIBILITY POLICY
Under Section 162(m) of the Internal Revenue Code of 1986 (the "Code") and
applicable Treasury regulations, no deduction is allowed for annual compensation
in excess of $1 million paid by a publicly traded corporation to its chief
executive officer and the four other most highly compensated officers. Under
those provisions, however, there is no limitation on the deductibility of
"qualified performance-based compensation."
In general, our policy is to maximize the extent of tax deductibility of
executive compensation under the provisions of Section 162(m) so long as doing
so is compatible with the most appropriate methods and approaches for the design
and delivery of compensation to our executive officers.
Respectfully submitted,
Compensation Committee
Daniel C. Arnold, Chairman
James B. Hoover
Albert L. Rosen
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and officers to file with the SEC initial reports of ownership of our equity
securities and to file subsequent reports when there are changes in their
ownership. We believe that during 2003 all Section 16(a) filing requirements
applicable to our directors and officers were complied with on a timely basis.
ITEM 2: ADOPTION OF 2003 STOCK INCENTIVE PLAN
The Company stock option plans are the 1992 Stock Option Plan, as amended
(the "1992 Option Plan"), the Executive Stock Option Plan (the "Executive Option
Plan"), the 1999 Employee Stock Option Plan (the "1999 Option Plan") and the
2003 Stock Incentive Plan (the "2003 Incentive Plan"), which is subject to
approval by shareholders at the May 2004 shareholder's meeting. A total of
870,708 shares of common stock (subject to adjustment for changes in
capitalization) are currently reserved for issuance upon the exercise of stock
options granted under the 1992 Option Plan to key employees, officers and
directors of the Company or
14
any of its affiliates. To date, a total of 870,708 options have been granted and
are outstanding, 2,184,053 options have been granted and exercised and no
options remain available for future grants under the 1992 Option Plan as the
plan expired in April 2002. A total of 90,000 shares of Company common stock
(subject to adjustment for changes in capitalization) are currently reserved for
issuance upon the exercise of stock options granted under the Executive Option
Plan to officers of the Company or any of its affiliates. To date, 90,000
options have been granted and are outstanding, 165,000 options have been
exercised and no additional options will be granted under the Executive Option
Plan. A total of 265,155 shares of common stock (subject to adjustment for
changes in capitalization) are currently reserved for issuance upon the exercise
of stock options granted under the 1999 Option Plan to employees of the Company
or any of its affiliates. To date, 58,934 options have been granted and are
outstanding, 34,845 options have been exercised and 206,221 options remain
available for future grant under the 1999 Option Plan. The purposes of the 1992
Option Plan, Executive Option Plan and 1999 Option Plan are to provide an
incentive for eligible individuals to remain in the employ or service of the
Company or its affiliates, to extend to them the opportunity to acquire a
proprietary interest in the Company so that they will apply their best efforts
for the benefit of the Company and to aid the Company in attracting able persons
to serve the Company and its affiliates.
REQUIRED VOTE
The approval by the affirmative vote of a majority of the shares present,
in person or by proxy, and entitled to vote at the Annual Meeting is required to
adopt the 2003 Stock Incentive Plan which allows the Company rights to issue up
to 900,000 shares of the Company's common stock for equity-based compensation
awards. THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE 2003 STOCK INCENTIVE
PLAN.
DESCRIPTION OF THE 2003 STOCK INCENTIVE PLAN
The principal provisions of the 2003 Stock Incentive Plan ("2003 Incentive
Plan") are summarized below. Such summary does not, however, purport to be
complete and is qualified in its entirety by the terms of the 2003 Incentive
Plan. A copy of the 2003 Incentive Plan is included as Appendix B to this proxy
statement.
The 2003 Incentive Plan provides for the grant of options that are intended
to qualify as non-qualified options as well as "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
Purchased Stock, Bonus Stock, Stock Appreciation Rights, Phantom Stock or Other
Stock or Performance-Based Awards. The 2003 Incentive Plan is administered by
the Compensation Committee, which is appointed by the Board of Directors. The
Compensation Committee, with input from executive management, selects the
employees, consultants and non-employee directors ("Participants") of the
Company and its affiliates to whom options are granted. The approximate number
of persons who would be eligible to be so selected is 50. The current members of
the Compensation Committee are Messrs. Daniel C. Arnold (chairman), James B.
Hoover and Albert L. Rosen.
The Board may amend, suspend or terminate the 2003 Incentive Plan;
provided, however, no amendment, suspension or termination of the 2003 Incentive
Plan may (a) increase the maximum number of shares of Common Stock which may be
issued under the 2003 Incentive Plan without shareholder approval; (b) extend
the term of the 2003 Incentive Plan; (c) to the extent applicable, decrease the
authority of the Compensation Committee in contravention of Rule 16b-3 under the
1934 Act, as amended; or (d) without the consent of the holder of an Award
terminate such award or adversely affect such person's rights with respect to
such award in any material respect; provided further, however, that any
amendment which would constitute a "material revision" of the 2003 Incentive
Plan (as that term is used in the rules of NASDAQ) or any such amendment that
requires shareholder approval under the Code shall be subject to shareholder
approval.
The maximum aggregate number of shares of Common Stock (including, but not
limited to, Non-Qualified Options, Incentive Options, Restricted Stock, or Other
Stock-Based Awards paid out in shares of Common Stock) that may be granted or
that may vest, as applicable, in any calendar year pursuant to any
15
award held by any individual executive officer shall be 100,000 shares. The
maximum aggregate cash payout (including Other Stock-Based Awards paid out in
cash) with respect to Incentive Awards granted in any calendar year which may be
made to any executive officer shall be Five Hundred Thousand Dollars ($500,000).
The term or Restricted Period of each Award that is an Option, Stock
Appreciation Right, Phantom Stock or Restricted Stock shall be for such period
as may be determined by the Compensation Committee; provided that in no event
shall the term of any such Award exceed a period of ten years (or such shorter
terms as may be required in respect of an Stock Incentive Option under Section
422 of the Code). Any issuance of Common Stock pursuant to the exercise of an
Option or payment of any other Award under the 2003 Incentive Plan shall not be
made until appropriate arrangements satisfactory to the Company have been made
for the payment of any tax amounts (federal, state, local or other) that may be
required to be withheld or paid by the Company.
The following table sets forth the benefits that will be received by or
allocated to each of the following persons or groups under the proposed 2003
Incentive Plan, to the extent that such benefits are determinable:
NEW PLAN BENEFITS
NUMBER OF
DOLLAR SHARES SUBJECT
NAME AND POSITION VALUE ($)(1) TO STOCK OPTIONS
----------------- ------------ ----------------
Roy W. Spradlin, Chairman, President and CEO.............. 100,000
Lawrance W. McAfee, CFO................................... --
Christopher J. Reading, Chief Operating Officer........... --
Mark J. Brookner, Vice Chairman........................... --
J. Michael Mullin......................................... 20,000
Current Executive Officers as a group(2)................ 100,000
Daniel C. Arnold.......................................... 17,500
Bruce D. Broussard........................................ 17,500
James B. Hoover........................................... 17,500
Marlin W. Johnston........................................ 17,500
Albert L. Rosen........................................... 17,500
Jerald L. Pullins......................................... 10,000
Non-Executive Directors as a group...................... 97,500
Non-Executive officers and employees as a group........... 80,500
---------------
(1) The closing price of our common stock on the Nasdaq Stock Market on April 1,
2004 was $13.90.
(2) Does not include J. Michael Mullin who is no longer an executive officer.
Non-qualified Options. Non-qualified stock options granted under the 2003
Incentive Plan may be granted to employees, consultants or non-employee
directors of the Company or a corporate subsidiary and at a per share exercise
price of not less than the fair market value of a share of Company common stock
on the date of grant. The exercise prices of non-qualified options granted under
the 2003 Incentive Plan are determined by the Compensation Committee upon each
grant (but may not be less than the par value of a share of the Company's common
stock). The Compensation Committee determines which eligible individuals receive
options and how many are issued. No non-qualified option may be granted more
than 10 years after the effective date of the 2003 Incentive Plan. Payment for
shares purchased under the 2003 Incentive Plan may be made either in cash or
cash equivalents or by tendering to the Company shares of common stock owned by
the person for more than six months having an aggregate fair market value equal
to or less than the total option price plus cash for any difference, as
determined in the discretion of the Compensation Committee. Non-qualified Option
grants shall not be exercisable more than six months after the Optionee ceases
Employment for any reason other than death or Disability, or more than one year
after the Optionee ceases employment due to death or disability.
16
Incentive Options. Incentive Options are subject to the terms above under
the caption "Non-qualified Options". Additionally, Incentive Options (those
intended to qualify for special tax treatment under the Code) granted under the
2003 Incentive Plan may be granted only to employees of the Company or a
corporate subsidiary and at a per share exercise price of not less than 100% of
the fair market value per share of Company's common stock on the date of grant.
Notwithstanding any contrary provision in the 2003 Incentive Plan, to the extent
that the aggregate FMV (determined as of the time the Incentive Option is
granted) of the shares of Common Stock with respect to which Incentive Options
are exercisable for the first time by any Optionee during any single calendar
year (under the 2003 Incentive Plan and any other stock option plans of the
Company and its Subsidiaries or Parent) exceeds the sum of $100,000, such
Incentive Option shall be treated as a Non-Qualified Stock Option to the extent
in excess of the $100,000 limit, and not an Incentive Option, but all other
terms and provisions of such Option shall remain unchanged. No person may be
granted an Incentive Option if, at the time of the grant, such person owns,
directly or indirectly, more than 10% of the total combined voting power of the
Company or of any affiliate unless the option price is at least 110% of the fair
market value of the common stock on the date of grant of the option and the
exercise period of such incentive option is by its terms limited to five years
from the option grant date. No Incentive Option shall be exercisable more than
ninety days months after the Optionee ceases to be an Employee for any reason
other than death or Disability, or more than one year after the Optionee ceases
to be an Employee due to death or Disability.
Purchased Stock. The Compensation Committee shall have the authority to
sell shares of Common Stock to such Employees, Consultants and Non-Employee
Directors of the Company or its Parent or Subsidiaries as may be selected by it,
on such terms and conditions as it may establish. Each issuance of Common Stock
under the 2003 Incentive Plan shall be evidenced by an agreement. The price per
share of common stock to be purchased by a participant shall be determined in
the sole discretion of the Compensation Committee, and may be less than, but
shall not greater than the FMV Per Share at the time of purchase. Payment of the
purchase price of Purchased Stock under the 2003 Incentive Plan shall be made in
full in cash.
Bonus Stock. The Compensation Committee may grant shares of Bonus Stock to
Employees, Consultants or Non-Employee Directors. Bonus Stock shall be shares of
Common Stock that are not subject to a restricted period.
Stock Appreciation Rights. The Compensation Committee is authorized to
grant Stock Appreciation Rights to Employees, Consultants or Non-Employee
Directors. A Stock Appreciation Right shall confer on the Participant to whom it
is granted a right to receive, upon exercise, the excess of the FMV per share on
the date of exercise over the grant price of the Stock Appreciation Right as
determined by the Compensation Committee. A Stock Appreciation Right granted in
connection with an option shall entitle a participant, upon exercise, to
surrender that option or any portion thereof, to the extent unexercised, and to
receive payment of an amount computed pursuant to the preceding sentence. That
option shall then cease to be exercisable to the extent surrendered. A Stock
Appreciation Right granted in connection with an option shall be exercisable
only at such time or times and only to the extent that the related option is
exercisable and shall not be transferable (other than by will or the laws of
descent and distribution) except to the extent that the related option is
transferable. A Stock Appreciation Right granted independent of an option shall
be exercisable as determined by the Compensation Committee and set forth in the
Award Agreement governing the Stock Appreciation Right. The Compensation
Committee shall determine at the date of grant the time or times at which and
the circumstances under which a Stock Appreciation Right may be exercised in
whole or in part (including based on achievement of performance goals and/or
future service requirements), the method of exercise, whether or not a Stock
Appreciation Right shall be in tandem or in combination with any other Award,
and any other terms and conditions of any Stock Appreciation Right as provided
in the Award Agreement.
Phantom Stock. The Compensation Committee is authorized to grant Phantom
Stock Awards to Participants, which are rights to receive cash equal to the Fair
Market Value of a specified number of shares of Common Stock at the end of a
specified deferral period. Satisfaction of a Phantom Stock Award occurs upon
expiration of the deferral period specified for such Phantom Stock Award
Agreement by the Compensation
17
Committee or, if permitted by the Compensation Committee, as elected by the
Participant. In addition, Phantom Stock Awards are subject to such restrictions
as the Compensation Committee may impose. These restrictions may lapse at the
expiration of the deferral period or at earlier specified times (including based
on achievement of performance goals and/or future service requirements),
separately or in combination, installments or otherwise, as the Compensation
Committee determines in the award Agreement. Except as otherwise determined by
the Compensation Committee or as set forth in any Award, employment or other
agreement pertaining to a Phantom Stock Award, upon termination of Employment or
services during the applicable deferral period or portion thereof to which
forfeiture conditions apply, all Phantom Stock Awards that are at that time
subject to deferral (other than a deferral at the election of the Participant)
shall be forfeited; provided that the Compensation Committee may provide, by
rule or regulation or in any Award agreement, or may determine in any individual
case, that restrictions or forfeiture conditions relating to Phantom Stock
Awards shall be waived in whole or in part in the event of terminations
resulting from specified causes, and the Compensation Committee may in other
cases waive in whole or in part the forfeiture of Phantom Stock Awards. To the
extent the Committee determines that any award granted shall constitute
Performance-Based Compensation for purposes of Section 162(m) of the Code, the
grant or settlement of the award shall, in the Compensation Committee's
discretion, be subject to the achievement of performance goals.
Restricted Stock. Participants are eligible for grants of Restricted
Stock. Restricted Stock is subject to such restrictions on transfer by the
Participant and repurchase by the Company as the Compensation Committee, in its
sole discretion, shall determine. Prior to the lapse of such restrictions the
Participant shall not be permitted to transfer such shares. The Company shall
have the right to repurchase or recover such shares for the amount of cash paid,
if any, if the Participant shall terminate employment from or services to the
Company prior to the lapse of such restrictions or the Restricted Stock is
forfeited by the Participant pursuant to the terms of the Award. Unless the
Award specifically provides otherwise, all Restricted Stock not otherwise vested
shall vest upon termination of an Employee or Consultant or removal of a
Non-Employee Director without Cause; termination, resignation or removal of an
Employee, Consultant or Non-Employee Director for any reason within one year
from the effective date of a Change of Control; or death or Disability of the
Participant. Each certificate representing Restricted Stock awarded under the
2003 Incentive Plan shall be registered in the name of the Participant and,
during the Restricted Period, shall be left in deposit with the Company and a
stock power endorsed in blank. The grantee of Restricted Stock shall have all
the rights of a stockholder with respect to such shares including the right to
vote and the right to receive dividends or other distributions paid or made with
respect to such shares.
Performance Awards. The Compensation Committee may grant Performance
Awards based on performance criteria measured over a period of not less than one
year and not more than five years as determined by the Compensation Committee in
its sole discretion ("Performance Period"). Each grant of a Performance Award
shall be evidenced by an Agreement in such amount and terms as determined by the
Compensation Committee. The Compensation Committee may use such business
criteria and other measures of performance as it may deem appropriate in
establishing any performance conditions, and may exercise its discretion to
increase the amounts payable under any Award subject to performance conditions
except as limited by the 2003 Incentive Plan in the case of a Performance Award
granted to an executive officer.
Other Stock Or Performance Based Awards. The Compensation Committee is
authorized to grant Other Stock or Performance-Based Awards, which shall consist
of a right which is not an award described above and is denominated or payable
in, valued in whole or in part by reference to, or otherwise based on or related
to, shares of Common Stock (including, without limitation, securities
convertible into shares of Common Stock) or cash. The Compensation Committee
shall determine the terms and conditions of any such Other Stock or
Performance-Based Award.
FEDERAL INCOME TAX IMPLICATIONS OF THE 2003 INCENTIVE PLAN
The following is a brief description of the federal income tax consequences
generally arising with respect to awards under the 2003 Incentive Plan.
18
The grant of an option will create no tax consequences for the participant
or the Company. A participant will not recognize taxable income upon exercising
an Incentive Option (except that the alternative minimum tax may apply). Upon
exercising an option other than an Incentive Option, the participant must
generally recognize ordinary income equal to the difference between the exercise
price and fair market value of the freely transferable and non-forfeitable
shares acquired on the date of exercise.
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with an
option. The Company generally is not entitled to a tax deduction relating to
amounts that represent a capital gain to a participant. Accordingly, the Company
will not be entitled to any tax deduction with respect to an Incentive Option if
the participant holds the shares for the Incentive Option holding periods prior
to disposition of the shares.
With respect to awards granted under the 2003 Incentive Plan that result in
the payment or issuance of cash or shares or other property that is either not
restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of shares or other property received. Thus,
deferral of the time of payment or issuance will generally result in the
deferral of the time the participant will be liable for income taxes with
respect to such payment or issuance. The Company generally will be entitled to a
deduction in an amount equal to the ordinary income recognized by the
participant.
With respect to awards involving the issuance of shares or other property
that is restricted as to transferability and subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the fair market value of the shares or other property received at the first time
the shares or other property becomes transferable or is not subject to a
substantial risk of forfeiture, whichever occurs earlier. A participant may
elect to be taxed at the time of receipt of shares or other property rather than
upon lapse of restrictions on transferability or substantial risk of forfeiture,
but if the participant subsequently forfeits such shares or property, the
participant would not be entitled to any tax deduction, including as a capital
loss, for the value of the shares or property on which he previously paid tax.
The participant must file such election with the Internal Revenue Service within
30 days of the receipt of the shares or other property. The Company generally
will be entitled to a deduction in an amount equal to the ordinary income
recognized by the participant.
Awards that are granted, accelerated or enhanced upon the occurrence of a
change in control may give rise, in whole or in part, to excess parachute
payments within the meaning of Code Section 280G and, to such extent, will be
non-deductible by the Company and subject to a 20% excise tax by the
participant. The foregoing summary of the federal income tax consequences in
respect of the 2003 Incentive Plan is for general information only. Interested
parties should consult their own advisors as to specific tax consequences,
including the application and effect of foreign, state and local tax laws.
During 2002 and 2003, the Company erroneously granted options to purchase
278,000 shares of common stock under the 1992 Option Plan after the plan
expired. Because the Company intends to honor the original terms of these
equity-based compensation grants, the Company recognized compensation cost in
2003. The Company intends to replace the grants with options to purchase common
stock under the proposed 2003 Incentive Plan. The final measurement date for
determining compensation costs can not occur before the plan is approved by the
shareholders.
The Board of Directors adopted the Company's 2003 Incentive Plan in
December 2003 when it was determined the Company's 1992 Stock Option Plan (the
"1992 Option Plan") had expired in April 2002. The 2003 Incentive Plan will
permit the Company to grant to Participants of the Company, incentive and non-
qualified options, purchased stock, bonus stock, stock appreciation rights,
phantom stock and other stock or performance-based awards. The 2003 Incentive
Plan allows the Company rights to issue up to 900,000 shares of the Company's
common stock for these equity-based compensation awards.
The Board of Directors believes the 2003 Incentive Plan is necessary to
promote the interest of the Company and its stockholders by encouraging
employees, consultants and non-employee directors of the Company to acquire or
increase their equity interest in the Company, thereby giving them an added
incentive
19
to work toward the continued growth and success of the Company. The Board of
Directors also contemplates that through the 2003 Incentive Plan, the Company
will be better able to compete for the services of the individuals needed for
the continued growth and success of the Company.
The following tables summarize information about the Company's stock
options outstanding as of December 31, 2003.
OUTSTANDING WEIGHTED AVERAGE AVAILABLE
OPTIONS EXERCISE PRICE EXERCISABLE EXERCISE PRICE FOR GRANT
----------- ---------------- ----------- -------------- ---------
1992 Plan(1)................... 870,708 $ 2.81-$16.34 613,823 $ 3.00-$16.34 --
Executive Plan(2).............. 90,000 $ 4.96-$ 4.96 90,000 $ 4.96-$ 4.96 --
1999 Plan(2)................... 58,934 $ 2.81-$16.34 16,676 $ 2.81-$16.34 206,221
Inducements(2)................. 155,000 $12.75-$14.75 2,000 $14.75-$14.75 --
--------- ------------- ------- ------------- -------
1,174,642 $ 2.81-$16.34 722,499 $ 2.81-$16.34 206,221
========= ============= ======= ============= =======
---------------
(1) The 1992 Plan was approved by shareholders.
(2) The Executive Plan, 1999 Plan and Inducement grants were previously approved
by the Board of Directors.
20
FIVE YEAR PERFORMANCE GRAPH
The following performance graph compares the cumulative total stockholder
return of our common stock to The Nasdaq Stock Market United States Index and
The Nasdaq Stock Market Healthcare Index for the period from December 31, 1998
through December 31, 2003. The graph assumes that $100 was invested in each of
our common stock and the companies listed on The Nasdaq Stock Market United
States Index and The Nasdaq Stock Market Healthcare Index on December 31, 1998
and that any dividends were reinvested.
COMPARISON OF FIVE YEARS CUMULATIVE TOTAL RETURN
FOR THE YEAR ENDED DECEMBER 31, 2003
(FIVE YEAR PERFORMANCE GRAPH)
--------------------------------------------------------------------------------
12/98 12/99 12/00 12/01 12/02 12/03
--------------------------------------------------------------------------------
U.S. Physical
Therapy, Inc. 100 99 279 577 399 563
The Nasdaq Stock
Market United
States Index 100 186 112 89 61 92
The Nasdaq Stock
Market Healthcare
Index 100 80 110 119 103 157
INDEPENDENT PUBLIC ACCOUNTANTS
Our Board of Directors appointed KPMG LLP as our independent auditors
beginning September 27, 1999.
Representatives of KPMG LLP are expected to be present at the Annual
Meeting. Those representatives will be given an opportunity to make a statement
if they desire to do so and will be available to respond to appropriate
questions.
AUDIT FEES
Audit Fees. Aggregate fees for professional services rendered by KPMG LLP
in connection with the audits of our financial statements and reports for the
fiscal years ended December 31, 2003 and 2002 were $169,000 and $115,200,
respectively.
Audit-Related Fees. Aggregate fees for assurance and related services
pertaining to our corporate office lease, certain insurance plans, an S-8
registration statement and certain employee compensation plans rendered by KPMG
LLP in connection with the audits of our financial statements and reports for
the fiscal years ended December 31, 2003 and 2002 were $28,300 and $3,850,
respectively.
Tax Fees. During 2002 and 2003, no fees for professional taxes services
were paid to KPMG LLP.
21
All Other Fees. In addition to the fees described above, fees attendance
at our 2002 annual shareholders meeting held in New York, New York and certain
compensation consultation by KPMG LLP for the fiscal year ended December 31,
2002, were $6,500. No additional services were rendered for the fiscal year
ended December 31, 2003.
The Audit Committee is authorized to delegate to one or more of its members
the authority to pre-approve any audit and permitted non-audit services provided
by the independent auditors, and related fees and other terms of engagement on
these matters, provided that each pre-approval decision is presented to the full
audit committee at its next scheduled meeting. In 2002 and 2003, 100% of the
audit-related services were pre-approved pursuant to these pre-approval
procedures. In 2004 and beyond, tax services will be pre-approved by the Audit
Committee in accordance with the Audit Committee charter.
REPORT OF THE AUDIT COMMITTEE
The following Audit Committee Report is provided in accordance with the
rules and regulations of the Securities and Exchange Commission (the "SEC").
Pursuant to such rules and regulations, this report does not constitute
"soliciting materials" and should not be deemed filed with or incorporated by
reference into any other Company filings with the SEC under the Securities Act
of 1933 or the Securities Exchange Act of 1934 or subject to the liabilities of
Section 18 of the Exchange Act, except to the extent the Company specifically
incorporates such information by reference.
The Board of Directors has appointed an Audit Committee consisting of
Messrs. Johnston, Broussard and Pullins, all of whom are financially literate
and independent (as those terms are defined by Nasdaq Rules and SEC Rule
10A-3(c)). The Board of Directors has determined Mr. Broussard to be the "audit
committee financial expert" (as that term is defined in pertinent regulations).
Under the Sarbanes-Oxley Act, the Audit Committee is directly responsible
for the selection, appointment, retention, compensation and oversight of the
Company's independent accountants, including the pre-approval of both audit and
non-audit services (including fees and other terms), and the resolution of
disagreements between management and the auditors regarding financial reporting,
accounting, internal controls, auditing or other matters.
In carrying out its role, the Audit Committee (i) makes such examinations
as are necessary to monitor the Company's financial reporting, its external
audits and its process for compliance with laws and regulations, (ii) provides
to the Board of Directors the results of its examinations and recommendation
derived therefrom, (iii) proposes to the Board of Directors improvements in
internal accounting controls, (iv) reviews the results and scope of the annual
audit of the Company's financial statements conducted by the Company's
independent accountants, (v) reviews the scope of other services provided by the
Company's independent accountants, and (vi) provides to the Board of Directors
such additional information and materials as it may deem necessary to make the
Board aware of significant financial matters that require Board attention.
The Audit Committee also maintains a telephone "hotline" by which it can
directly receive, on an anonymous and confidential basis, complaints regarding
accounting, internal accounting controls and other auditing matters, including
any concerns regarding questionable accounting, auditing or other matters that
the Company's employees, and non-employees, may have. The Audit Committee has
been designated as the "qualified compliance committee" under applicable SEC
rules.
Management has the primary responsibility for the financial statements and
the reporting process, including the systems of internal controls, and for the
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America. The Company's independent
auditors are responsible for auditing the financial statements and expressing an
opinion on the conformity of those audited financials statements with accounting
principles generally accepted in the United States of America. The Audit
Committee monitors and reviews these processes, and reviews the Company's
periodic reports and quarterly earning releases before they are filed with the
SEC, but is not responsible for the preparation of the Company's financial
statements.
22
The Audit Committee is authorized to engage and determine funding for
independent counsel and other advisors it determines necessary to carry out its
duties.
In fulfilling its oversight responsibilities, the Audit Committee reviewed
and discussed the audited financial statements included in the Annual Report on
Form 10-K of the Company with management including a discussion of the quality,
not just the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements. However, members of the Audit Committee are not employees of the
Company and have relied, without independent verification, on management's
representation that the financial statements have been prepared with integrity
and objectivity and in conformity with accounting principles generally accepted
in the United States of America and on the representations of the independent
auditors included in their report on the Company's financial statements. The
Audit Committee also discussed with representatives of KPMG LLP, the Company's
independent auditors for fiscal 2003, the overall scope and plans for their
audit of the Company's financial statements for fiscal 2003. The Audit Committee
met with KPMG LLP, with and without Company management present, to discuss
whether any significant matters regarding internal controls over financial
reporting had come to the auditors' attention during the conduct of the audit,
and the overall quality of the Company's financial reporting.
Beginning in fiscal 2003, the Chairman of the Audit Committee met with the
Company's Chief Executive and Chief Financial Officers to discuss their review
of the Company's disclosure controls and procedures and internal controls in
connection with the filing of periodic reports with the SEC.
The Audit Committee reviewed and discussed with KPMG LLP, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with accounting principles generally accepted in the United
States of America, their judgments as to the quality, not just the
acceptability, of the Company's financial statements, changes in accounting
policies, sensitive accounting estimates, accounting principles and such other
matters as are required to be discussed with the Audit Committee under auditing
standards generally accepted in the United States of America, including the
matters required to be discussed by SAS 61 (Communication with Audit
Committees), as amended.
The Company has received the written disclosures and the letter from KPMG
LLP required by the Independence Standards Board Standard No. 1 and the Audit
Committee has discussed with KPMG LLP, their independence. The Audit Committee
considered, among other things, whether the services KPMG LLP provided to the
Company beyond their audit of the Company's financial statements was compatible
with maintaining KPMG LLP's independence. The Audit Committee also considered
the amount of fees KPMG LLP received for audit and non-audit services.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2003 for filing with the SEC.
The Audit Committee is governed by a written charter, adopted by the Board
of Directors of the Company. The charter was recently updated as appropriate in
light of SEC regulations and Nasdaq Rules implementing the Sarbanes-Oxley Act.
Respectfully submitted,
The Audit Committee
Marlin W. Johnston, Chairman
Bruce D. Broussard
Jerald L. Pullins
23
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS TO BE
PRESENTED AT THE 2005 ANNUAL MEETING OF STOCKHOLDERS
Any proposal intended to be presented by any stockholder for action at the
2005 Annual Meeting of Stockholders must be received by us on or before January
25, 2005 in order for the proposal to be considered for inclusion in the proxy
statement and form of proxy relating to the 2005 Annual Meeting. If the date of
next year's annual meeting is changed by more than 30 days from May 25, 2005,
the deadline will be a reasonable time before we print and mail our proxy
materials. However, we are not required to include in our proxy statement and
form of proxy for the 2005 Annual Meeting any stockholder proposal that does not
meet all of the requirements for inclusion established by the SEC in effect at
the time the proposal is received. In order for any stockholder proposal that is
not included in such proxy statement and form of proxy to be brought before the
2005 Annual Meeting, such proposal must be received by the Secretary of U.S.
Physical Therapy, Inc. at its principal executive offices at 1300 West Sam
Houston Parkway South, Suite 300, Houston, Texas 77042 by March 10, 2005. If a
timely proposal is received, the Board may exercise any discretion authority
granted by the proxies to be solicited on behalf of the Board in connection with
the 2005 Annual Meeting of stockholders.
OTHER MATTERS
As of the date of this Proxy Statement, our Board of Directors does not
know of any other matters to be presented for action by stockholders at the 2004
Annual Meeting. If, however, any other matters not now known are properly
brought before the meeting, the persons named in the accompanying proxy will
vote the proxy as directed by a majority of the Board of Directors.
By Order of the Board of Directors,
/s/ Roy W. Spradlin
ROY W. SPRADLIN
Chairman, President and Chief
Executive Officer
Houston, Texas
April 7, 2004
24
APPENDIX A
U.S. PHYSICAL THERAPY, INC.
CHARTER OF AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
ORIGINAL CHARTERED: JUNE 14, 2001
ORGANIZATION AND OPERATION
The Board of Directors of U.S. Physical Therapy, Inc. (the "Company") has
authorized and established an Audit Committee ("Audit Committee"), to be
comprised of at least three directors who are independent of management and the
Company. Members of the Audit Committee shall be considered independent if they
meet the independence requirements of the National Association of Securities
Dealers, Inc.'s Marketplace Rules, Section l0A of the Securities Exchange Act of
1934 (the "Exchange Act") and the rules and regulations of the Securities and
Exchange Commission (the "Commission"). All Audit Committee members must be
financially literate, and at least one member must have accounting or related
financial management expertise. Audit Committee members shall not simultaneously
serve on the audit committees of more than two other public companies.
The members of the Audit Committee shall be appointed annually by a
majority vote of the entire Board of Directors, and each shall serve until his
or her successor is duly elected and qualified or until such member's earlier
resignation or removal. Any member of the Audit Committee may be removed, with
or without cause, by a majority vote of the Board of Directors, at any special
or regular meeting.
If a Chair for the Audit Committee is not elected by the Board of
Directors, the members of the Audit Committee shall designate a Chair by
majority vote. The Chair shall preside at all sessions of the Audit Committee
and set the agenda for each Audit Committee meeting. The Chairman of the Board
of Directors or the Chair of the Committee may call a meeting of the Audit
Committee. The Audit Committee shall cause to be made and retain complete and
accurate minutes of its meetings.
Formal action to be taken by the Audit Committee shall be by unanimous
written consent or by the affirmative vote of a majority of the Audit Committee
members present (in person or by conference telephone) at a meeting at which a
quorum is present. A quorum shall consist of at least one-half of the members of
the Audit Committee. Any non-management member of the Board of Directors may, at
his or her option, attend a meeting of the Audit Committee but shall not be
counted in determining the presence of a quorum and shall not be entitled to
vote.
In fulfilling its responsibilities, the Audit Committee shall be entitled
to delegate any or all of its responsibilities to one or more subcommittees of
the Audit Committee.
MEETINGS
The Audit Committee shall hold meetings as deemed necessary or desirable by
the Chair of the Audit Committee. In addition to such meetings of the Audit
Committee as may be required to perform the functions described under
"Responsibilities and Duties" below, the Audit Committee shall meet at least
four times per year on a quarterly basis. The Audit Committee shall meet in
separate executive sessions during each of its four regularly scheduled meetings
with Company management, the senior internal auditing executive and the
Company's independent auditors to discuss any matters that the Audit Committee
(or any of these persons) requests to discuss privately; while the Audit
Committee is not required to provide a written report of such executive
sessions, it is required to inform management of any concerns or material issues
arising from such sessions.
A-1
RESPONSIBILITIES AND DUTIES
The Audit Committee shall provide assistance to the directors in fulfilling
their responsibility to the stockholders, potential stockholders, and investment
community relating to the corporate accounting and reporting practices of the
Company and oversight of (1) the quality and integrity of financial reports of
the Company, (2) the Company's compliance with legal and regulatory
requirements, (3) the independent auditors' qualifications and independence and
(4) the performance of the Company's internal audit function and independent
auditors. In so doing, it is the responsibility of the Audit Committee to
maintain free and open communication between the directors, the independent
auditors and the financial management of the Company.
In carrying out its responsibilities, the Audit Committee's policies and
procedures should remain flexible, in order to best react to changing conditions
and to ensure that the Company's corporate accounting and reporting practices
are in accordance with all requirements and of the highest quality. The Audit
Committee shall have the sole authority to appoint or replace the independent
auditors. The Audit Committee shall be directly responsible for the compensation
and oversight of the work of the independent auditors (including resolution of
disagreements between management and the independent auditors regarding
financial reporting) for the purpose of preparing or issuing an audit report or
related work. The independent auditors shall report directly to the Audit
Committee.
The Audit Committee shall preapprove all auditing services and permitted
non-audit services (including the fees and terms thereof) to be performed for
the Company by its independent auditors, subject to the de minimus exceptions
for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act,
which are approved by the Audit Committee prior to the completion of the audit.
The Audit Committee may delegate to subcommittees the authority to grant
preapprovals of audit and permitted non-audit services, provided that decisions
of such subcommittee to grant preapprovals shall be presented to the full Audit
Committee at its next scheduled meeting.
The Audit Committee shall have the authority, to the extent it deems
necessary or appropriate, to retain independent legal, accounting or other
advisors. The Company shall provide for appropriate funding, as determined by
the Audit Committee, for payment of compensation to the independent auditors for
the purpose of rendering or issuing an audit report and to any legal, accounting
or other advisors retained by the Audit Committee.
In carrying out these responsibilities and duties, the Audit Committee
will:
A. Meet with the independent auditors and financial management of the
Company to review the scope of the proposed audit and timely quarterly
reviews for the current year and the procedures to be utilized, the
adequacy of the independent auditor's compensation, and at the conclusion
thereof review such audit or review, including any comments or
recommendations of the independent auditors.
B. Review with the independent auditors and financial and accounting
personnel, the adequacy and effectiveness of the accounting and financial
controls of the Company, and elicit any recommendations for the improvement
of such internal controls or particular areas where new or more detailed
controls or procedures are desirable.
C. Receive and review reports from inside and outside legal counsel,
regulators and others regarding legal, regulatory and other matters that
may have a material effect on the financial statements or related Company
compliance policies.
D. Inquire of management and the independent auditors about significant
risks or exposures and assess the steps management has taken to minimize
such risks to the Company.
E. Discuss with management the Company's earnings press releases,
including the use of "pro forma" or "adjusted" non-GAAP information, as
well as financial information and earnings guidance provided to analysts,
rating agencies or the public. Such discussion may be done generally
(consisting of discussing the types of information to be disclosed and the
types of presentations to be made).
A-2
F. Review the quarterly financial statements with financial management
and the independent auditors prior to the filing of the Form 10-Q and prior
to any press release of results, to determine that the independent auditors
do not take exception to the disclosure and content of the financial
statements, and discuss any other matters required to be communicated to
the Audit Committee by the auditors. The Chair of the Audit Committee may
represent the full Audit Committee for purposes of this review.
G. Review and discuss quarterly reports from the independent auditors
on: (1) all critical accounting policies and practices to be used, (2) all
alternative treatments of financial information within generally accepted
accounting principles that have been discussed with management,
ramifications of the use of such alternative disclosures and treatments,
and the treatment preferred by the independent auditors, and (3) other
material written communications between the independent auditors and
management, such as any management letter or schedule of unadjusted
differences.
H. Review the financial statements to be contained in the annual report
to stockholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and content
of the financial statements to be presented to the stockholders. Review
with financial management and the independent auditors the results of their
timely analysis of significant financial reporting issues and practices,
including changes in, or adoptions of, accounting principles and disclosure
practices, and discuss any other matters required to be communicated to the
Audit Committee by the auditors, including, specifically, any reports
concerning the Company's internal controls. Review with financial
management and the independent auditors their judgments about the quality,
and not merely acceptability, of accounting principles and the clarity of
the financial disclosure practices used or proposed to be used, and
particularly, the degree of aggressiveness or conservatism of the
organization's accounting principles and underlying estimates, and other
significant decisions made in preparing the financial statements.
I. Review disclosures made to the Audit Committee by the Company's Chief
Executive Officer and Chief Financial Officer during their certification
process for the Form 10-K and Form 10-Q with a view toward identifying and
remedying any significant deficiencies in the design or operation of
internal controls or material weaknesses therein and any fraud involving
management or other employees who have a significant role in the Company's
internal controls.
J. Provide sufficient opportunity for the independent auditors and the
internal auditor to meet with the members of the Audit Committee without
members of management present. Among the items to be discussed in these
meetings are the independent auditors' evaluation of the Company's
financial, accounting, and internal auditing personnel, and the cooperation
that the independent auditors received during the course of audit.
K. Discuss with the independent auditors any audit problems or
difficulties and management's response. As appropriate, and at the Audit
Committee's discretion, it may discuss with the national office of the
independent auditors issues on which they were consulted by the Company's
audit team and matters of audit quality and consistency.
L. Report the results of the annual audit to the Board of Directors. If
requested by the Board, invite the independent auditors to attend the full
Board of Directors meeting to assist in reporting the results of the annual
audit or to answer other directors' questions (alternatively, the other
directors, particularly the other independent directors, may be invited to
attend the Audit Committee meeting during which the results of the annual
audit are reviewed).
M. Review and evaluate the lead partner of the independent auditor team.
Ensure the rotation of the lead (or coordinating) audit partner having
primary responsibility for the audit and the audit partner responsible for
reviewing the audit as required by law.
N. Obtain and review a report from the independent auditors at least
annually regarding (1) the independent auditors' internal quality-control
procedures; (2) any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities within the
preceding five years respecting one or more
A-3
independent audits carried out by the firm; and (3) any steps taken to deal
with any such issues. Evaluate the qualifications and performance of the
independent auditors, including considering whether the auditors' quality
controls are adequate. The Audit Committee shall present its conclusions
with respect to the independent auditors to the Board.
O. On an annual basis, obtain from the independent auditors a written
communication delineating all their relationships and professional services
as required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees. In addition, review with the independent
auditors the nature and scope of any disclosed relationships or
professional services, consider whether the provision of permitted
non-audit services, if any, is compatible with maintaining the auditors'
independence, and take, or recommend that the Board of Directors take,
appropriate action to ensure the continuing independence of the auditors.
P. Recommend to the Board policies for the Company's hiring of employees
or former employees of the independent auditor who participated in any
capacity in the audit of the Company.
Q. Obtain assurances from the independent auditors that provisions of
Section 10A(b) of the Exchange Act do not require any manner of report or
remedial action.
R. Obtain reports from management, the Company's senior internal
auditing executive and the independent auditors that the Company and its
subsidiaries are in conformity with applicable legal requirements. Review
reports and disclosures of insider and affiliated party transactions.
Advise the Board with respect to the Company's policies and procedures
regarding compliance with applicable laws and regulations.
S. Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and the confidential, anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters.
T. Review the significant reports to management prepared by the internal
auditing department and management's responses.
U. Discuss with the independent auditors and management the internal
audit department responsibilities, budget and staffing and any recommended
changes in the planned scope of the internal audit.
V. Prepare a report of the Audit Committee to be included in the
Company's proxy statement for its annual meeting of stockholders,
disclosing whether (1) the Committee had reviewed and discussed with
management and the independent auditors, as well as discussed within the
Committee (without management or the independent auditors present), the
financial statements and the quality of accounting principles and
significant judgments affecting the financial statements; (2) the Committee
discussed with the auditors the independence of the auditors; and (3) based
upon the Committee's review and discussions with management and the
independent auditors, the Committee had recommended to the Board of
Directors that the audited financials be included in the Company's annual
report on Form 10-K.
W. Include a copy of this Charter in the annual report to stockholders
or the proxy statement at least triennially or the year after any
significant amendment to the Charter, and, if approved by the Board of
Directors, post of copy of this Charter on the Company's website.
X. Regularly submit the minutes of all meetings of the Audit Committee
to, or discuss the matters discussed at each Committee meeting with, the
Board of Directors.
Y. Investigate any matter brought to its attention within the scope of
its duties, with the power to retain outside counsel for this purpose if,
in its judgment, appropriate.
Z. Obtain the full Board of Directors' approval of any amendments to
this Charter and review and reassess this Charter as conditions dictate but
at least annually.
A-4
AA. Annually review the Committee's performance of its responsibilities
and duties and review, reassess the adequacy of this Charter and recommend
to the Board of Directors any improvements to this Charter that the Audit
Committee considers appropriate.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements and disclosures
are complete and accurate and are in accordance with generally accepted
accounting principles and applicable rules and regulations. These are the
responsibilities of management and the independent auditors.
A-5
APPENDIX B
U.S. PHYSICAL THERAPY, INC.
2003 STOCK INCENTIVE PLAN
DECEMBER 15, 2003
U.S. PHYSICAL THERAPY, INC.
2003 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
ARTICLE I
INTRODUCTION................................................ B-1
1.1 Purpose..................................................... B-1
1.2 Shares Subject to the Plan.................................. B-1
1.3 Administration of the Plan.................................. B-2
1.4 Amendment and Discontinuance of the Plan.................... B-2
1.5 Granting of Awards to Participants.......................... B-2
1.6 Term of Plan................................................ B-2
1.7 Leave of Absence............................................ B-2
1.8 Definitions................................................. B-2
ARTICLE II
NONQUALIFIED STOCK OPTIONS.................................. B-6
2.1 Grants...................................................... B-6
2.2 Calculation of Exercise Price............................... B-6
2.3 Terms and Conditions of Options............................. B-6
2.4 Amendment................................................... B-8
2.5 Acceleration of Vesting..................................... B-8
2.6 Other Provisions............................................ B-8
ARTICLE III
INCENTIVE OPTIONS........................................... B-8
3.1 Eligibility................................................. B-9
3.2 Exercise Price.............................................. B-9
3.3 Dollar Limitation........................................... B-9
3.4 10% Stockholder............................................. B-9
3.5 Options Not Transferable.................................... B-9
3.6 Reload Options.............................................. B-9
3.7 Compliance with 422......................................... B-9
3.8 Limitations on Exercise..................................... B-9
ARTICLE IV
PURCHASED STOCK............................................. B-9
4.1 Eligible Persons............................................ B-9
4.2 Purchase Price.............................................. B-9
4.3 Payment of Purchase Price................................... B-9
ARTICLE V
BONUS STOCK................................................. B-10
ARTICLE VI
STOCK APPRECIATION RIGHTS AND PHANTOM STOCK................. B-10
6.1 Stock Appreciation Rights................................... B-10
6.2 Phantom Stock Awards........................................ B-10
B-i
ARTICLE VII
RESTRICTED STOCK............................................ B-11
7.1 Eligible Persons............................................ B-11
7.2 Restricted Period and Vesting............................... B-11
ARTICLE VIII
PERFORMANCE AWARDS.......................................... B-11
8.1 Performance Awards.......................................... B-11
8.2 Performance Goals........................................... B-12
ARTICLE IX
OTHER STOCK OR PERFORMANCE BASED AWARDS..................... B-13
ARTICLE X
CERTAIN PROVISIONS APPLICABLE TO ALL AWARDS................. B-13
10.1 General..................................................... B-13
10.2 Stand-Alone, Additional, Tandem, and Substitute Awards...... B-13
10.3 Term of Awards.............................................. B-13
10.4 Form and Timing of Payment under Awards; Deferrals.......... B-14
10.5 Vested and Unvested Awards.................................. B-14
10.6 Requirements of Law......................................... B-14
10.7 Rule 16b-3 Securities Law Compliance and Compliance with
Company Policies............................................ B-14
10.8 Disqualification and Forfeiture............................. B-15
ARTICLE XI
WITHHOLDING FOR TAXES....................................... B-15
ARTICLE XII
MISCELLANEOUS............................................... B-15
12.1 No Rights to Awards......................................... B-15
12.2 No Right to Employment or Continued Services................ B-15
12.3 Governing Law............................................... B-15
12.4 Severability................................................ B-15
12.5 Shareholder Agreements...................................... B-15
12.6 Indemnification of Committee................................ B-16
12.7 Designation of Beneficiary by Participant................... B-16
12.8 Successors.................................................. B-16
12.9 Gender, Tense and Headings.................................. B-16
12.10 Miscellaneous............................................... B-16
12.11 No Guarantee of Tax Consequences............................ B-16
B-ii
ARTICLE I
INTRODUCTION
1.1 Purpose. The U.S. Physical Therapy, Inc. 2003 Stock Incentive Plan
(the "Plan") is intended to promote the interests of U.S. Physical Therapy,
Inc., a Nevada corporation, (the "Company") and its stockholders by encouraging
Employees, Consultants and Non-Employee Directors of the Company or its Parent
and Subsidiaries (as defined below) to acquire or increase their equity
interests in the Company, thereby giving them an added incentive to work toward
the continued growth and success of the Company. The Board of Directors of the
Company (the "Board") also contemplates that through the Plan, the Company and
its Parent and Subsidiaries will be better able to compete for the services of
the individuals needed for the continued growth and success of the Company.
1.2 Shares Subject to the Plan. The aggregate number of shares of Common
Stock, $.01 par value per share, of the Company ("Common Stock") that may be
issued under the Plan for Awards that are granted wholly or partially or by
reference to Common Stock (including Options and Incentive Options that may be
exercised for or settled in Common Stock) shall not exceed 900,000; of this
amount 900,000 shares of Common Stock reserved under this Plan shall be
available for any one of the types of Awards available under the Plan including
Non-Qualified Options, Incentive Options, Purchased Stock, Bonus Stock, Stock
Appreciation Rights, Phantom Stock or Other Stock or Performance-Based Awards.
Notwithstanding the above, however, in the event that at any time after the
Effective Date the outstanding shares of Common Stock are changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, combination of shares or the
like, the aggregate number and class of securities available under the Plan
shall be ratably adjusted by the Committee (as defined below), whose
determination shall be final and binding upon the Company and all other
interested persons. In the event the number of shares to be delivered upon the
exercise or payment of any Award granted under the Plan is reduced or not issued
for any reason whatsoever or in the event any Award granted under the Plan can
no longer under any circumstances be exercised or paid, including but not
limited to, Awards that are terminated, forfeited or expired, the number of
shares no longer subject to such Award shall thereupon be released from such
Award and shall thereafter be available under the Plan for the grant of
additional Awards. Shares issued pursuant to the Plan (i) may be treasury
shares, authorized but unissued shares or, if applicable, shares acquired in the
open market and (ii) shall be fully paid and nonassessable.
During such period that the Company is a Publicly Held Corporation, then
unless and until the Committee determines that a particular Award granted to a
Covered Employee is not intended to comply with the performance-based exception,
the following rules shall apply to grants of Awards to Covered Employees:
(a) Subject to only the adjustment as provided in the second sentence of
the first paragraph of this Section 1.2, the maximum aggregate number of
shares of Common Stock (including, but not limited to, Non-Qualified
Options, Incentive Options, Restricted Stock, or Other Stock-Based Awards
paid out in shares of Common Stock) that may be granted or that may vest,
as applicable, in any calendar year pursuant to any Award held by any
individual Covered Employee shall be 100,000 shares.
(b) The maximum aggregate cash payout (including Other Stock-Based
Awards paid out in cash) with respect to Incentive Awards granted in any
calendar year which may be made to any Covered Employee shall be Five
Hundred Thousand Dollars ($500,000).
(c) With respect to any Option granted to a Covered Employee that is
canceled or repriced, the number of shares subject to such Option shall
continue to count against the maximum number of shares of Common Stock that
may be the subject of Options granted to such Covered Employee hereunder
and, in this regard, such maximum number shall be determined in accordance
with Section 162(m) of the Code.
(d) The limitations of subsections (a), (b) and (c) above shall be
construed and administered so as to comply with the Performance-Based
Exception.
B-1
1.3 Administration of the Plan. The Plan shall be administered by the
Committee. Subject to the provisions of the Plan, the Committee shall interpret
the Plan and all Awards under the Plan, shall make such rules as it deems
necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan and
shall correct any defect or supply any omission or reconcile any inconsistency
in the Plan or in any Award under the Plan in the manner and to the extent that
the Committee deems desirable to effectuate the Plan. Any action taken or
determination made by the Committee pursuant to this and the other paragraphs of
the Plan shall be conclusive on all parties. The act or determination of a
majority of the Committee shall be deemed to be the act or determination of the
Committee.
1.4 Amendment and Discontinuance of the Plan. The Board may amend,
suspend or terminate the Plan; provided, however, no amendment, suspension or
termination of the Plan may (a) except as provided in Section 1.2, increase the
maximum number of shares of Common Stock which may be issued under the Plan
pursuant to Section 1.2 without shareholder approval; (b) extend the term of the
Plan; (c) to the extent applicable, decrease the authority of the Committee in
contravention of Rule 16b-3 under the 1934 Act, as amended; or (d) without the
consent of the holder of an Award terminate such Award or adversely affect such
person's rights with respect to such Award in any material respect; provided
further, however, that any amendment which would constitute a "material
revision" of the Plan (as that term is used in the rules of NASDAQ) or any such
amendment that requires shareholder approval under the Code shall be subject to
shareholder approval.
1.5 Granting of Awards to Participants. The Committee shall have the
authority to grant, prior to the expiration date of the Plan, Awards to such
Employees, Consultants and Non-Employee Directors as may be selected by it on
the terms and conditions hereinafter set forth in the Plan. In selecting the
persons to receive Awards, including the type and size of the Award, the
Committee may consider any factors that it may deem relevant.
1.6 Term of Plan. The Plan shall be effective as of the 15th day of
December, 2003 ("Effective Date") subject to subsequent approval by shareholders
of the Company on or before the 14th day of November, 2004. The provisions of
the Plan are applicable to all Awards granted on or after the Effective Date. If
not sooner terminated under the provisions of Section 1.4, the Plan shall
terminate upon, and no further Awards shall be made, after the tenth (10th)
anniversary of the Effective Date.
1.7 Leave of Absence. If an employee is on military, sick leave or other
bona fide leave of absence, such person shall be considered an "Employee" for
purposes of an outstanding Award during the period of such leave provided it
does not exceed 90 days, or, if longer, so long as the person's right to
reemployment is guaranteed either by statute or by contract. If the period of
leave exceeds 90 days, the employment relationship shall be deemed to have
terminated on the 91st day of such leave, unless the person's right to
reemployment is guaranteed by statute or contract.
1.8 Definitions. As used in the Plan, the following terms shall have the
meanings set forth below:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Affiliate" means (i) any entity in which the Company, directly or
indirectly, owns 10% or more of the combined voting power, as determined by
the Committee, (ii) any Parent of the Company, (iii) any "subsidiary
corporation" of any such Parent corporation (as defined in section 424(f)
of the Code) of the Company and (iv) any trades or businesses, whether or
not incorporated which are members of a controlled group or are under
common control (as defined in Sections 414(b) or (c) of the Code) with the
Company.
"Agreement" means the written agreement entered into between the Company
and the Participant setting forth the terms and conditions pursuant to
which an Award is granted under the Plan.
B-2
"Awards" means, collectively, Options, Purchased Stock, Bonus Stock,
Stock Appreciation Rights, Phantom Stock, Restricted Stock, Performance
Awards, or Other Stock or Performance-Based Awards awarded to a Participant
subject to this plan and the Agreement.
"Board" shall mean the Board of Directors of the Company.
"Bonus Stock" is defined in Article V below.
"Cause" for termination of any Participant who is a party to an
agreement of employment with or renders services to the Company shall mean
termination for "Cause" as such term is defined in such agreement, the
relevant portions of which are incorporated herein by reference. If such
agreement does not define "Cause" or if a Participant is not a party to
such an agreement or if the Agreement does not provide otherwise, "Cause"
means (i) the willful commission by a Participant of a criminal or other
act that causes or is likely to cause substantial economic damage to the
Company or an Affiliate or substantial injury to the business reputation of
the Company or Affiliate; (ii) the commission by a Participant of an act of
fraud in the performance of such Participant's duties on behalf of the
Company or an Affiliate; or (iii) the continuing willful failure of a
Participant to perform the duties of such Participant to the Company or an
Affiliate (other than such failure resulting from the Participant's
incapacity due to physical or mental illness) after written notice thereof
(specifying the particulars thereof in reasonable detail) and a reasonable
opportunity to be heard and cure such failure are given to the Participant
by the Committee. For purposes of the Plan, no act, or failure to act, on
the Participant's part shall be considered "willful" unless done or omitted
to be done by the Participant not in good faith and without reasonable
belief that the Participant's action or omission was in the best interest
of the Company or an Affiliate, as the case may be.
"Change of Control" shall be deemed to have occurred upon any of the
following events:
(i) any "person" (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and as modified
in Section 13(d) and 14(d) of the Exchange Act) other than (A) the
Company or any of its subsidiaries, (B) any employee benefit plan of the
Company or any of its subsidiaries, (C) or any Affiliate, (D) a company
owned, directly or indirectly, by stockholders of the Company in
substantially the same proportions as their ownership of the Company, or
(E) an underwriter temporarily holding securities pursuant to an
offering of such securities (a "Person"), becomes the "beneficial owner"
(as defined in Rule 13d-3 of the Exchange Act), directly or indirectly,
of securities of the Company representing 30% or more of the shares of
voting stock of the Company then outstanding; provided, however, that an
initial public offering of Common Stock shall not constitute a Change of
Control;
(ii) the consummation of any merger, organization, business
combination or consolidation of the Company or one of its subsidiaries
with or into any other company, other than a merger, reorganization,
business combination or consolidation which would result in the holders
of the voting securities of the Company outstanding immediately prior
thereto holding securities which represent immediately after such
merger, reorganization, business combination or consolidation more than
50% of the combined voting power of the voting securities of the Company
or the surviving company or the parent of such surviving company;
(iii) the consummation of a sale or disposition by the Company of all
or substantially all of the Company's assets, other than a sale or
disposition if the holders of the voting securities of the Company
outstanding immediately prior thereto hold securities immediately
thereafter which represent more than 50% of the combined voting power of
the voting securities of the acquiror, or parent of the acquiror, of
such assets, or the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company;
(iv) individuals who, as of the Effective Date, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the Effective Date whose election by the Board,
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board
B-3
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an election
contest with respect to the election or removal of directors or other
solicitation of proxies or consents by or on behalf of a person other
than the Board; or
(v) notwithstanding anything herein to the contrary, any other event
that a majority of the Board, in its sole discretion, shall determine
constitutes a Change in Control hereunder.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations thereunder.
"Committee" means the compensation committee appointed by the Board to
administer the Plan or, if none, the Board; provided however, that with
respect to any Award granted to a Covered Employee which is intended to be
Performance-Based Compensation, the Committee shall consist solely of two
or more members who fulfill the "non-employee director" requirements of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and the
"outside directors" as described in Section 162(m)(4)(c)(i) of the Code and
the regulations thereunder. In either case, the Committee may be the
compensation committee of the Board or any subcommittee of the compensation
committee of the Board, provided that the members of the Committee satisfy
the requirements of the previous provisions of these paragraphs.
"Consultant" means an independent agent, consultant, attorney, an
individual who has agreed to become an Employee within the next six (6)
months, or any other individual who is not an "outside director" or
Employee of the Company (or any Parent or Subsidiary) and who (i), in the
opinion of the Committee, is in a position to contribute to the growth or
financial success of the Company (or any Parent or Subsidiary), (ii) is a
natural person and (iii) provides bona fide services to the Company (or any
Parent or Subsidiary), which services are not in connection with the offer
or sale of securities in a capital raising transaction, and do not directly
or indirectly promote or maintain a market for the Company's securities.
"Covered Employee" means a named executive officer who is one of the
group of covered employees, as defined in Section 162(m) of the Code and
Treasury Regulation sec. 1.162-27(c) (or its successor), during such period
that the Company is a Publicly Held Corporation.
"Disability" means an inability to perform the Participant's material
services for the Company for a period of 90 consecutive days or a total of
180 days, during any 365-day period, in either case as a result of
incapacity due to mental or physical illness, which is determined to be
total and permanent. A determination of Disability shall be made by a
physician satisfactory to both the Participant (or his guardian) and the
Company, provided that if the Participant (or his guardian and the Company
do not agree on a physician, the Participant and the Company shall each
select a physician and these two together shall select a third physician,
whose determination as to Disability shall be binding on all parties.
Eligibility for the payment of disability benefits under any policy for
long-term disability benefits provided to the Participant by the Company or
a Parent or Subsidiary shall be deemed a disability of the Participant for
the purposes of this Plan.
"Employee" means any employee of the Company (or any Parent or
Subsidiary) within the meaning of Section 3401(c) of the Code who, in the
opinion of the Committee, is in a position to contribute to the growth,
development and financial success of the Company (or any Parent or
Subsidiary), including, without limitation, officers who are members of the
Board.
"Employment" includes any period in which a Participant is an Employee
or a paid Consultant to the Company or the Parent or a Subsidiary.
"Fair Market Value or FMV Per Share". The Fair Market Value or FMV Per
Share of the Common Stock shall be the closing price on the principal
exchange or over-the-counter market on which such shares are trading, if
any, or as reported on any composite index which includes such principal
exchange, for the date of the determination, or if no trade of the Common
Stock shall have been reported
B-4
for such date, the closing sales price quoted on such exchange for the most
recent trade prior to the determination date. If shares of the Common Stock
are not listed or admitted to trading on any exchange, over-the-counter
market or any similar organization as of the determination date, the FMV
Per Share shall be determined by the Committee in good faith using any fair
and reasonable means selected in its discretion and shall be final and
binding.
"Incentive Option" means any option that satisfies the requirements of
Code Section 422 and is granted pursuant to Article III of the Plan.
"Insider" shall mean an individual who is, on the relevant date, an
officer, director or ten percent (10%) beneficial owner of any class of the
Company's equity securities that is registered pursuant to Section 12 of
the Exchange Act, all as defined under Section 16 of the Exchange Act.
"Non-Employee Director" means persons who are members of the Board but
who are neither Employees nor Consultants of the Company or any Parent or
Subsidiary.
"Non-Qualified Option" shall mean an option not intended to satisfy the
requirements of Code Section 422 and which is granted pursuant to Article
II of the Plan.
"Option" means an option to acquire Common Stock granted pursuant to the
provisions of the Plan, and refers to either an Incentive Stock Option or a
Non-Qualified Stock Option, or both, as applicable.
"Option Expiration Date" means the date determined by Committee which
shall not be more than ten years after the date of grant of an Option.
"Optionee" means a Participant who has received or will receive an
Option.
"Other Stock-Based Award" means an award granted pursuant to Article IX
of the Plan that is not otherwise specifically provided for, the value of
which is based in whole or in part upon the value of a share of Common
Stock.
"Outstanding Company Common Stock" means, as of any date of
determination, the then outstanding shares of Common Stock of the Company.
"Outstanding Company Voting Securities" means, as of any date of
determination, the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally on the election of the
Board of Directors of the Company.
"Parent" means any corporation (whether now or hereafter existing) which
constitutes a "parent" of the Company, as defined in Section 424(e) of the
Code.
"Participant" means any Non-Employee Director, Employee or Consultant
granted an Award under the Plan.
"Performance Award" means an Award granted pursuant to Article VIII of
the Plan, which, if earned, shall be payable in shares of Common Stock,
cash or any combination thereof as determined by the Committee.
"Performance-Based Compensation" means the performance-based exception
from the tax deductibility limitations of Section 162(m) of the Code, as
prescribed in Code sec. 162(m) and Treasury Regulation sec. 1.162-27(e) (or
its successor), which is applicable during such period that the Company is
a Publicly Held Corporation.
"Publicly Held Corporation" means a corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act.
"Purchased Stock" means a right to purchase Common Stock granted
pursuant to Article IV of the Plan.
"Phantom Shares" means an Award of the right to receive shares of Common
Stock issued at the end of a Restricted Period which is granted pursuant to
Article VI of the Plan.
B-5
"Reload Option" in accordance with Section 2.3(i) and at the discretion
of the Committee, means an Optionee may be granted under an Agreement,
replacement Options under the Plan that permit the Optionee to purchase an
additional number of shares of Common Stock equal to the number of
previously owned shares surrendered by the Optionee to pay for all or a
portion of an Option price upon exercise of his Options. The terms and
conditions of such replacement Options shall be set forth in the Incentive
Agreement. .
"Restricted Period" shall mean the period established by the Committee
with respect to an Award during which the Award either remains subject to
forfeiture or is not exercisable by the Participant.
"Restricted Stock" shall mean any share of Common Stock, prior to the
lapse of restrictions thereon, granted under Article VII of the Plan.
"Stock Appreciation Rights" means an Award granted pursuant to Article
VI of the Plan.
"Subsidiary" means any corporation (whether now or hereafter existing)
which constitutes a "subsidiary" of the Company, as defined in Section
424(f) of the Code.
ARTICLE II
NONQUALIFIED STOCK OPTIONS
2.1 Grants. The Committee may grant Options to purchase the Common Stock
to any Employee, Consultant or Non-Employee Director according to the terms set
forth below.
2.2 Calculation of Exercise Price. The exercise price to be paid for each
share of Common Stock deliverable upon exercise of each Option granted under
this Article II shall not be less than the FMV Per Share on the date of grant of
such Option. The exercise price for each Option granted under Article II shall
be specified in the Agreement as determined by the Committee but shall be
subject to adjustment as provided in Section 2.3(g).
2.3 Terms and Conditions of Options.
(a) Written Agreement. Each grant of an Option shall be evidenced by a
written Agreement. Among its other provisions, each Agreement shall set forth
the extent to which the Optionee shall have the right to exercise the Option
following termination of the Optionee's Employment. Such provisions shall be
determined in the discretion of the Committee, shall be included in the
Optionee's Agreement and need not be uniform among all Options granted pursuant
to the Plan.
(b) Number of Shares. Each Option shall specify the number of shares of
Common Stock to which it pertains.
(c) Option Period and Conditions and Limitations on Exercise. No Option
shall be exercisable later than the Option Expiration Date. To the extent not
prohibited by other provisions of the Plan, each Option shall be exercisable at
such time or times as the Committee in its discretion may determine at the time
such Option is granted.
(d) Manner of Exercise. In order to exercise an Option, the person or
persons entitled to exercise it shall deliver to the Company payment in full for
the shares being purchased, together with any required withholding taxes. The
payment of the exercise price for each Option shall either be (i) in cash or by
check payable and acceptable to the Company, (ii) with the consent of the
Committee, by tendering to the Company shares of Common Stock owned by the
person for more than six months having an aggregate Fair Market Value as of the
date of exercise that is not greater than the full exercise price for the shares
with respect to which the Option is being exercised and by paying any remaining
amount of the exercise price as provided in (i) above, or (iii) subject to such
instructions as the Committee may specify, at the person's written request the
Company may deliver certificates for the shares of Common Stock for which the
Option is being exercised to a broker for sale on behalf of the person, provided
that the person has irrevocably instructed such broker to remit directly to the
Company on the person's behalf the full amount of the exercise
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price from the proceeds of such sale. In the event that the person elects to
make payment as allowed under clause (ii) above, the Committee may, upon
confirming that the optionee owns the number of additional shares being
tendered, authorize the issuance of a new certificate for the number of shares
being acquired pursuant to the exercise of the Option less the number of shares
being tendered upon the exercise and return to the person (or not require
surrender of) the certificate for the shares being tendered upon the exercise.
If the Committee so requires, such person or persons shall also deliver a
written representation that all shares being purchased are being acquired for
investment and not with a view to, or for resale in connection with, any
distribution of such shares.
(e) Alternative Payment for Stock. Subject to the consent of the Committee
and at the election of the Participant, payment of the exercise price or
withholding may be made, in whole or in part, with shares of Common Stock with
respect to which the Option is being exercised. If payment is to be made in such
manner, then the Participant shall deliver to the Company a notice of exercise
as to the number of shares of Common Stock to be issued to Participant as well
as the number of shares of Common Stock to be retained by the Company in
payment. In such case, the notice of exercise shall include (A) a statement (i)
directing the Company to retain the number of shares from the exercise of the
Options the Fair Market Value (as of the date of delivery of such notice) of
which is equal to the portion of the exercise price and/or withholding with
respect to which the Participant intends to make payment, and (ii) confirming
the aggregate number of shares to be delivered to the Participant; and (B) such
additional payment in cash pursuant to the provision of clause (d) or shares
pursuant to the provisions of the first paragraph of this clause (c) as shall be
necessary, when added to the consideration paid with shares subject to the
Option, to pay the exercise price in full for all such shares. If the Company is
required to withhold on account of any federal, state or local tax imposed as a
result of an exercise of an Option with previously issued stock or by retention
of optioned shares under this Section, the Common Stock surrendered or retained
shall include an additional number of shares whose Fair Market Value equals the
amount thus required to be withheld at the applicable minimum statutory rate.
(f) Options not Transferable. Except as provided below, no Non-qualified
Option granted hereunder shall be transferable other than by (i) will or by the
laws of descent and distribution or (ii) pursuant to a domestic relations order
and, during the lifetime of the Participant to whom any such Option is granted,
and it shall be exercisable only by the Participant (or his guardian). Any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of, or to
subject to execution, attachment or similar process, any Option granted
hereunder, or any right thereunder, contrary to the provisions hereof, shall be
void and ineffective, shall give no right to the purported transferee, and
shall, at the sole discretion of the Committee, result in forfeiture of the
Option with respect to the shares involved in such attempt. With respect to a
specific Non-qualified Option, the Participant (or his guardian) may transfer,
for estate planning purposes, all or part of such Option to one or more
immediate family members or related family trusts or partnerships or similar
entities.
(g) Adjustment of Options. In the event that at any time after the
Effective Date the outstanding shares of Common Stock are changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of merger, consolidation, recapitalization, reclassification,
stock split, stock dividend, combination of shares or the like, the Committee
shall make an appropriate and equitable adjustment in the number and kind of
shares as to which all outstanding Options granted, or portions thereof then
unexercised, shall be exercisable, to the end that after such event the shares
subject to the Plan and each Participant's proportionate interest shall be
maintained as before the occurrence of such event. Such adjustment in an
outstanding Option shall be made without change in the total price applicable to
the Option or the unexercised portion of the Option (except for any change in
the aggregate price resulting from rounding-off of share quantities or prices)
and with any necessary corresponding adjustment in exercise price per share. Any
such adjustment made by the Committee shall be final and binding upon all
Participants, the Company, and all other interested persons.
(h) Listing and Registration of Shares. Each Option shall be subject to
the requirement that if at any time the Committee determines, in its discretion,
that the listing, registration, or qualification of the shares subject to such
Option under any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection
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with, the issue or purchase of shares thereunder, such Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained and the same shall have
been free of any conditions not acceptable to the Committee.
(i) Reload Options. A Non-qualified Option Agreement may, in the
discretion of the Committee, include a Reload Option right which shall entitle
the Participant, upon (i) the exercise of such original Non-qualified Option
prior to the Participant's termination of service and (ii) payment of the
appropriate exercise price in shares of Common Stock that have been owned by
such Participant for at least six months prior to the date of exercise, to
receive a new Non-qualified Option (the "Reload Option") to purchase, at the FMV
Per Share on the date of the exercise of the original Non-qualified Option, the
number of shares of Common Stock equal to the number of whole shares delivered
by the Participant in payment of the exercise price of the original
Non-qualified Option. Such Reload Option shall be subject to the same terms and
conditions, including expiration date, and shall be exercisable at the same time
or times as the original Non-qualified Option with respect to which it is
granted.
2.4 Amendment. The Committee may, with the consent of the person or
persons entitled to exercise any outstanding Option, amend such Option. The
Committee may at any time or from time to time, in its discretion, in the case
of any Option which is not then immediately exercisable in full, accelerate the
time or times at which such Option may be exercised to any earlier time or
times. The Committee, in its absolute discretion, may grant to holders of
outstanding Options, in exchange for the surrender and cancellation of such
Options, new Options having exercise prices lower (or higher) than the exercise
price provided in the Options so surrendered and canceled and containing such
other terms and conditions as the Committee may deem appropriate.
2.5 Acceleration of Vesting. If a Participant's Agreement so specifies,
any Option granted hereunder which is not otherwise vested shall, as stated in
said Participant's Agreement, become 100% vested upon (i) termination of an
Employee's or Consultant's Employment or removal of a Non-Employee Director
without Cause; (ii) termination, removal or resignation of an Employee,
Consultant or Non-Employee Director from Employment for any reason within one
(1) year from the effective date of the Change of Control; or (iii) death or
Disability of the Participant.
2.6 Other Provisions.
(a) The person or persons entitled to exercise, or who have exercised, an
Option shall not be entitled to any rights as a stockholder of the Company with
respect to any shares subject to such Option until he shall have become the
holder of record of such shares.
(b) No Option granted hereunder shall be construed as limiting any right
which the Company or any Parent or Subsidiary may have to terminate at any time,
with or without Cause or otherwise, the Employment of any person to whom such
Option has been granted.
(c) Notwithstanding any provision of the Plan or the terms of any Option,
the Company shall not be required to issue any shares hereunder if such issuance
would, in the judgment of the Committee, constitute a violation of any state or
federal law or of the rules or regulations of any governmental regulatory body.
(d) No Option shall be exercisable more than six (6) months after the
Optionee ceases Employment for any reason other than death or Disability, or
more than one (1) year after the Optionee ceases Employment due to death or
Disability.
ARTICLE III
INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Article III, all the provisions of
Article II shall be applicable to Incentive Options. Options which are
specifically designated as Non-Qualified Options shall NOT be subject to the
terms of this Section III.
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3.1 Eligibility. Incentive Options may only be granted to Employees.
3.2 Exercise Price. The exercise price per Share shall not be less than
one hundred percent (100%) of the FMV Per Share on the option grant date.
3.3 Dollar Limitation. Notwithstanding any contrary provision in the
Plan, to the extent that the aggregate FMV (determined as of the time the
Incentive Stock Option is granted) of the shares of Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by any Optionee
during any single calendar year (under the Plan and any other stock option plans
of the Company and its Subsidiaries or Parent) exceeds the sum of $100,000, such
Incentive Stock Option shall be treated as a Non-Qualified Stock Option to the
extent in excess of the $100,000 limit, and not an Incentive Stock Option, but
all other terms and provisions of such Option shall remain unchanged. This
paragraph shall be applied by taking Incentive Stock Options into account in the
order in which they were granted and shall be construed in accordance with
Section 422(d) of the Code. In the absence of such regulations or other
authority, or if such regulations or other authority require or permit a
designation of the Options which shall cease to constitute Incentive Stock
Options, then such Incentive Stock Options, only to the extent of such excess,
shall automatically be deemed to be Non-Qualified Stock Options but all other
terms and conditions of such Incentive Stock Options, and the corresponding
Agreement, shall remain unchanged.
3.4 10% Stockholder. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the FMV Per Share on the option
grant date and the option term shall not exceed five (5) years measured from the
option grant date.
3.5 Options Not Transferable. No Incentive Option granted hereunder shall
be transferable other than by will or by the laws of descent and distribution
and shall be exercisable during the Optionee's lifetime only by such Optionee.
3.6 Reload Options. No Reload Options shall be granted with respect to
any Incentive Options.
3.7 Compliance with 422. All Options that are intended to be Incentive
Stock Options shall be designated as such in the Option grant and in all
respects shall be issued in compliance with Code Section 422.
3.8 Limitations on Exercise. No Incentive Option shall be exercisable
more than ninety (90) days months after the Optionee ceases to be an Employee
for any reason other than death or Disability, or more than one (1) year after
the Optionee ceases to be an Employee due to death or Disability.
ARTICLE IV
PURCHASED STOCK
4.1 Eligible Persons. The Committee shall have the authority to sell
shares of Common Stock to such Employees, Consultants and Non-Employee Directors
of the Company or its Parent or Subsidiaries as may be selected by it, on such
terms and conditions as it may establish, subject to the further provisions of
this Article IV. Each issuance of Common Stock under this Plan shall be
evidenced by an agreement, which shall be subject to applicable provisions of
this Plan and to such other provisions not inconsistent with this Plan as the
Committee may approve for the particular sale transaction.
4.2 Purchase Price. The price per share of Common Stock to be purchased
by a Participant under this Plan shall be determined in the sole discretion of
the Committee, and may be less than, but shall not greater than the FMV Per
Share at the time of purchase.
4.3 Payment of Purchase Price. Payment of the purchase price of Purchased
Stock under this Plan shall be made in full in cash.
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ARTICLE V
BONUS STOCK
The Committee may, from time to time and subject to the provisions of the
Plan, grant shares of Bonus Stock to Employees, Consultants or Non-Employee
Directors. Bonus Stock shall be shares of Common Stock that are not subject to a
Restricted Period under Article VII.
ARTICLE VI
STOCK APPRECIATION RIGHTS AND PHANTOM STOCK
6.1 Stock Appreciation Rights. The Committee is authorized to grant Stock
Appreciation Rights to Employees, Consultants or Non-Employee Directors on the
following terms and conditions.
(a) Right to Payment. A Stock Appreciation Right shall confer on the
Participant to whom it is granted a right to receive, upon exercise thereof, the
excess of (A) the FMV Per Share on the date of exercise over (B) the grant price
of the Stock Appreciation Right as determined by the Committee.
(b) Rights Related to Options. A Stock Appreciation Right granted in
connection with an Option shall entitle a Participant, upon exercise thereof, to
surrender that Option or any portion thereof, to the extent unexercised, and to
receive payment of an amount computed pursuant to Subsection 6.1(a) hereof. That
Option shall then cease to be exercisable to the extent surrendered. A Stock
Appreciation Right granted in connection with an Option shall be exercisable
only at such time or times and only to the extent that the related Option is
exercisable and shall not be transferable (other than by will or the laws of
descent and distribution) except to the extent that the related Option is
transferable.
(c) Right Without Option. A Stock Appreciation Right granted independent
of an Option shall be exercisable as determined by the Committee and set forth
in the Award Agreement governing the Stock Appreciation Right.
(d) Terms. The Committee shall determine at the date of grant the time or
times at which and the circumstances under which a Stock Appreciation Right may
be exercised in whole or in part (including based on achievement of performance
goals and/or future service requirements), the method of exercise, whether or
not a Stock Appreciation Right shall be in tandem or in combination with any
other Award, and any other terms and conditions of any Stock Appreciation Right
as provided in the Award Agreement.
6.2 Phantom Stock Awards. The Committee is authorized to grant Phantom
Stock Awards to Participants, which are rights to receive cash equal to the Fair
Market Value of specified number of shares of Common Stock at the end of a
specified deferral period, subject to the following terms and conditions:
(a) Award and Restrictions. Satisfaction of a Phantom Stock Award shall
occur upon expiration of the deferral period specified for such Phantom Stock
Award Agreement by the Committee or, if permitted by the Committee, as elected
by the Participant. In addition, Phantom Stock Awards shall be subject to such
restrictions (which may include a risk of forfeiture), if any, as the Committee
may impose, which restrictions may lapse at the expiration of the deferral
period or at earlier specified times (including based on achievement of
performance goals and/or future service requirements), separately or in
combination, installments or otherwise, as the Committee may determine in the
Award Agreement.
(b) Forfeiture. Except as otherwise determined by the Committee or as may
be set forth in any Award, employment or other agreement pertaining to a Phantom
Stock Award, upon termination of Employment or services during the applicable
deferral period or portion thereof to which forfeiture conditions apply, all
Phantom Stock Awards that are at that time subject to deferral (other than a
deferral at the election of the Participant) shall be forfeited; provided that
the Committee may provide, by rule or regulation or in any Award agreement, or
may determine in any individual case, that restrictions or forfeiture conditions
relating to Phantom Stock Awards shall be waived in whole or in part in the
event of terminations resulting from
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specified causes, and the Committee may in other cases waive in whole or in part
the forfeiture of Phantom Stock Awards.
(c) Performance Goals. To the extent the Committee determines that any
Award granted pursuant to this Article VI shall constitute Performance-Based
Compensation for purposes of Section 162(m) of the Code, the grant or settlement
of the Award shall, in the Committee's discretion, be subject to the achievement
of performance goals determined and applied in a manner consistent with Section
8.2.
ARTICLE VII
RESTRICTED STOCK
7.1 Eligible Persons. All Employees, Consultants and Non-Employee
Directors shall, subject to the direction of the Committee, be eligible for
grants of Restricted Stock.
7.2 Restricted Period and Vesting.
(a) The Restricted Stock shall be subject to such restrictions on transfer
by the Participant and repurchase by the Company as the Committee, in its sole
discretion, shall determine. Prior to the lapse of such restrictions the
Participant shall not be permitted to transfer such shares. The Company shall
have the right to repurchase or recover such shares for the amount of cash paid
therefor, if any, if (i) the Participant shall terminate Employment from or
services to the Company prior to the lapse of such restrictions, subject to
section 7.2(b) below; or (ii) the Restricted Stock is forfeited by the
Participant pursuant to the terms of the Award.
(b) Notwithstanding the foregoing, unless the Award specifically provides
otherwise, all Restricted Stock not otherwise vested shall vest upon (i)
termination of an Employee or Consultant or removal of a Non-Employee Director
without Cause; (ii) termination, resignation or removal of an Employee,
Consultant or Non-Employee Director for any reason within one (1) year from the
effective date of a Change of Control; or (iii) death or Disability of the
Participant.
(c) Each certificate representing Restricted Stock awarded under the Plan
shall be registered in the name of the Participant and, during the Restricted
Period, shall be left in deposit with the Company and a stock power endorsed in
blank. The grantee of Restricted Stock shall have all the rights of a
stockholder with respect to such shares including the right to vote and the
right to receive dividends or other distributions paid or made with respect to
such shares. Any certificate or certificates representing shares of Restricted
Stock shall bear a legend similar to the following:
The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture and restrictions against
transfer) contained in the U.S. Physical Therapy, Inc. 2003
Incentive Plan and an Award Agreement entered into between the
registered owner of such shares and U.S. Physical Therapy, Inc.
A copy of the Plan and the Award Agreement are on file in the
corporate offices of U.S. Physical Therapy, Inc.
ARTICLE VIII
PERFORMANCE AWARDS
8.1 Performance Awards. The Committee may grant Performance Awards based
on performance criteria measured over a period of not less than one year and not
more than five years as determined by the Committee in its sole discretion
("Performance Period"). Each grant of a Performance Award shall be evidenced by
an Agreement in such amount and terms as determined by the Committee. The
Committee may use such business criteria and other measures of performance as it
may deem appropriate in establishing any performance conditions, and may
exercise its discretion to increase the amounts payable under any Award subject
to performance conditions except as limited under Section 8.2 in the case of a
Performance Award granted to a Covered Employee.
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8.2 Performance Goals. The grant and/or settlement of a Performance Award
shall be contingent upon terms set forth in this Section 8.2.
(a) General. The performance goals for Performance Awards shall consist of
one or more business criteria and a targeted level or levels of performance with
respect to each of such criteria, as specified by the Committee. In the case of
any Award granted to a Covered Employee, performance goals shall be designed to
be objective and shall otherwise meet the requirements of Section 162(m) of the
Code and regulations thereunder (including Treasury Regulations sec. 1.162-27
and successor regulations thereto), including the requirement that the level or
levels of performance targeted by the Committee are such that the achievement of
performance goals is "substantially uncertain" at the time of grant. The
Committee may determine that such Performance Awards shall be granted and/or
settled upon achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to the grant and/or settlement
of such Performance Awards. Performance goals may differ among Performance
Awards granted to any one Participant or for Performance Awards granted to
different Participants.
(b) Business Criteria. One or more of the following business criteria for
the Company, on a consolidated basis, and/or for specified subsidiaries,
divisions or business or geographical units of the Company (except with respect
to the total stockholder return and earnings per share criteria), shall be used
by the Committee in establishing performance goals for Performance Awards
granted to a Participant: (i) earnings per share; (ii) increase in revenues;
(iii) increase in cash flow; (iv) increase in cash flow return; (v) return on
net assets; (vi) return on assets; (vii) return on investment; (viii) return on
equity; (ix) economic value added; (x) gross margin; (xi) net income; (xii)
pretax earnings; (xiii) pretax earnings before interest, depreciation and
amortization; (xiv) pretax operating earnings after interest expense and before
incentives, service fees, and extraordinary or special items; (xv) operating
income; (xvi) total stockholder return; (xvii) debt reduction; and (xviii) any
of the above goals determined on the absolute or relative basis or as compared
to the performance of a published or special index deemed applicable by the
Committee including, but not limited to, the Standard & Poor's 500 Stock Index
or a group of comparable companies.
(c) Performance Period; Timing for Establishing Performance
Goals. Achievement of performance goals in respect of Performance Awards shall
be measured over a Performance Period of not less than one year and not more
than five years, as specified by the Committee. Performance goals in the case of
any Award granted to a Participant shall be established not later than 90 days
after the beginning of any Performance Period applicable to such Performance
Awards, or at such other date as may be required or permitted for
Performance-Based Compensation under Section 162(m) of the Code.
(d) Settlement of Performance Awards; Other Terms. After the end of each
Performance Period, the Committee shall determine the amount, if any, of
Performance Awards payable to each Participant based upon achievement of
business criteria over a Performance Period. No Performance Award shall be
payable unless the pre-established performance goals have been achieved. The
Committee may not exercise discretion to increase any such amount payable in
respect of a Performance Award designed to comply with Section 162(m) of the
Code. The Committee shall specify the circumstances in which such Performance
Awards shall be paid or forfeited in the event of termination of Employment by
the Participant prior to the end of a performance period or settlement of
Performance Awards.
(e) Written Determinations. All determinations by the Committee as to the
establishment of performance goals, the amount of any Performance Award, and the
achievement of performance goals relating to Performance Awards and any other
terms material to the Performance Award shall be made in writing in the case of
any Award granted to a Participant. The Committee may not delegate any
responsibility relating to such Performance Awards.
(f) Status of Performance Awards under Section 162(m) of the Code. It is
the intent of the Company that Performance Awards granted to persons who are
designated by the Committee as likely to be Covered Employees within the meaning
of Section 162(m) of the Code and regulations thereunder (including Treasury
Regulations sec. 1.162-27 and successor regulations thereto) shall, if so
designated by the Committee, constitute Performance-Based Compensation within
the meaning of Section 162(m) of the Code
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and regulations thereunder. Accordingly, the terms of this Section 8.2 shall be
interpreted in a manner consistent with Section 162(m) of the Code and
regulations thereunder. The foregoing notwithstanding, because the Committee
cannot determine with certainty whether a given Participant will be a Covered
Employee with respect to a fiscal year that has not yet been completed, the term
Covered Employee as used herein shall mean only a person designated by the
Committee, at the time of grant of a Performance Award, who is likely to be a
Covered Employee with respect to that fiscal year. If any provision of the Plan
as in effect on the date of adoption or any agreements relating to Performance
Awards that are designated as intended to comply with Section 162(m) of the Code
does not comply or is inconsistent with the requirements of Section 162(m) of
the Code or regulations thereunder, such provision shall be construed or deemed
amended to the extent necessary to conform to such requirements.
ARTICLE IX
OTHER STOCK OR PERFORMANCE BASED AWARDS
The Committee is hereby authorized to grant to Employees, Non-Employee
Directors and Consultants of the Company or its Parent or Subsidiaries, Other
Stock or Performance-Based Awards, which shall consist of a right which (i) is
not an Award described in any other Article and (ii) is denominated or payable
in, valued in whole or in part by reference to, or otherwise based on or related
to, shares of Common Stock (including, without limitation, securities
convertible into shares of Common Stock) or cash as are deemed by the Committee
to be consistent with the purposes of the Plan. Subject to the terms of the
Plan, the Committee shall determine the terms and conditions of any such Other
Stock or Performance-Based Award. A Performance-Based Award under this Article
shall meet the requirements of Article 8.
ARTICLE X
CERTAIN PROVISIONS APPLICABLE TO ALL AWARDS
10.1 General. Awards may be granted on the terms and conditions set forth
herein. In addition, the Committee may impose on any Award or the exercise
thereof, such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of Employment by the
Participant and terms permitting a Participant to make elections relating to his
or her Award. The Committee shall retain full power and discretion to accelerate
or waive, at any time, any term or condition of an Award that is not mandatory
under the Plan; provided, however, that the Committee shall not have a
discretion to accelerate or waive any term or condition of an Award that is
intended to qualify as Performance-Based Compensation for purposes of Section
162(m) of the Code if such discretion would cause the Award not to so qualify.
Except in cases in which the Committee is authorized to require other forms of
consideration under the Plan, or to the extent other forms of consideration must
be paid to satisfy the requirements of the Nevada General Corporation Law, no
consideration other than services may be required for the grant of any Award.
10.2 Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company, any
Parent or Subsidiary, or any business entity to be acquired by the Company or
Parent or Subsidiaries, or any other right of a Participant to receive payment
from the Company or any Parent or Subsidiary. Such additional, tandem and
substitute or exchange Awards may be granted at any time. If an Award is granted
in substitution or exchange for another Award, the Committee shall require the
surrender of such other Award in consideration for the grant of the new Award.
In addition, Awards may be granted in lieu of cash compensation, including in
lieu of cash amounts payable under other plans of the Company or any Parent or
Subsidiary.
10.3 Term of Awards. The term or Restricted Period of each Award that is
an Option, Stock Appreciation Right, Phantom Stock or Restricted Stock shall be
for such period as may be determined by the
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Committee; provided that in no event shall the term of any such Award exceed a
period of ten years (or such shorter terms as may be required in respect of an
Incentive Stock Option under Section 422 of the Code).
10.4 Form and Timing of Payment under Awards; Deferrals. Subject to the
terms of the Plan and any applicable Award agreement, payments to be made upon
the exercise of an Option or other Award or settlement of an Award may be made
in a single payment or transfer, in installments, or on a deferred basis. The
settlement of any Award may, subject to any limitations set forth in the Award
agreement, be accelerated and cash paid in lieu of shares in connection with
such settlement, in the discretion of the Committee or upon occurrence of one or
more specified events. In the discretion of the Committee, Awards granted
pursuant to Article VI or VIII of the Plan may be payable in shares to the
extent permitted by the terms of the applicable Award agreement. Installment or
deferred payments may be required by the Committee (subject to Section 1.4 of
the Plan, including the consent provisions thereof in the case of any deferral
of an outstanding Award not provided for in the original Award agreement) or
permitted at the election of the Participant on terms and conditions established
by the Committee. Payments may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred payments
or the grant or crediting of amounts in respect of installment or deferred
payments denominated in shares. Any deferral shall only be allowed as is
provided in a separate deferred compensation plan adopted by the Company. The
Plan shall not constitute any "employee benefit plan" for purposes of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended.
10.5 Vested and Unvested Awards. After the satisfaction of all of the
terms and conditions set by the Committee with respect to an Award of (i)
Restricted Stock, a certificate, without the legend set forth in Section 7.2(a),
for the number of shares that are no longer subject to such restrictions, terms
and conditions shall be delivered to the Employee, (ii) Phantom Stock, to the
extent not paid in cash, a certificate for the number of shares equal to the
number of shares of Phantom Stock earned, and (iii) Stock Appreciation Rights or
Performance Awards, cash and/or a certificate for the number of shares equal in
value to the number of Stock Appreciation Rights or amount of Performance Awards
vested shall be delivered to the person. Upon termination, resignation or
removal of a Participant under circumstances that do not cause such Participant
to become fully vested, any remaining unvested Options, shares of Restricted
Stock, Phantom Stock, Stock Appreciation Rights or Performance Awards, as the
case may be, shall either be forfeited back to the Company or, if appropriate
under the terms of the Award, shall continue to be subject to the restrictions,
terms and conditions set by the Committee with respect to such Award.
10.6 Requirements of Law. The granting of Awards and the issuance of
shares of Common Stock under the Plan shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required. The Committee may refuse to
issue or transfer any shares or other consideration under an Award if, acting in
its sole discretion, it determines that the issuance or transfer of such shares
or such other consideration might violate any applicable law. Certificates
evidencing shares of Common Stock delivered under this Plan (to the extent that
such shares are so evidenced) may be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the rules and
regulations of the Securities and Exchange Commission, any securities exchange
or transaction reporting system upon which the Common Stock is then listed or to
which it is admitted for quotation, and any applicable federal or state
securities law, if applicable. The Committee may cause a legend or legends to be
placed upon such certificates (if any) to make appropriate reference to such
restrictions.
10.7 Rule 16b-3 Securities Law Compliance and Compliance with Company
Policies. WITH RESPECT TO INSIDERS TO THE EXTENT APPLICABLE, TRANSACTIONS UNDER
THE PLAN ARE INTENDED TO COMPLY WITH ALL APPLICABLE CONDITIONS OF RULE 16B-3
UNDER THE 1934 ACT. WITH RESPECT TO ALL PARTICIPANTS, TRANSACTIONS UNDER THE
PLAN ARE INTENDED TO COMPLY WITH SECURITIES REGULATION BTR AND THE COMPANY'S
INSIDER TRADING POLICIES AS REVISED FROM TIME TO TIME OR SUCH OTHER SIMILAR
COMPANY POLICIES, INCLUDING BUT NOT LIMITED TO, POLICIES RELATING TO BLACK OUT
PERIODS. ANY AMBIGUITIES OR INCONSISTENCIES IN THE CONSTRUCTION OF AN AWARD OR
THE PLAN SHALL BE INTERPRETED TO GIVE EFFECT TO SUCH INTENTION. HOWEVER, TO THE
EXTENT ANY PROVISION OF THE PLAN OR AGREEMENT OR ACTION BY THE COMMITTEE FAILS
TO SO COMPLY, IT SHALL BE DEEMED NULL AND VOID TO THE EXTENT PERMITTED BY LAW
AND DEEMED ADVISABLE BY THE COMMITTEE IN ITS DISCRETION.
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10.8 Disqualification and Forfeiture. Notwithstanding anything herein to
the contrary, any Awards hereunder shall terminate and be forfeited if the
Participant fails to consent to and authorize the disclosure of the information
for the determination of Disability or Cause including any information that is
protected health information under the Health Insurance Portability and
Accountability Act of 1996.
ARTICLE XI
WITHHOLDING FOR TAXES
Any issuance of Common Stock pursuant to the exercise of an Option or
payment of any other Award under the Plan shall not be made until appropriate
arrangements satisfactory to the Company have been made for the payment of any
tax amounts (federal, state, local or other) that may be required to be withheld
or paid by the Company with respect thereto. Such arrangements may, at the
discretion of the Committee, include allowing the person to tender to the
Company shares of Common Stock owned by the person, or to request the Company to
withhold shares of Common Stock being acquired pursuant to the Award, whether
through the exercise of an Option or as a distribution pursuant to the Award,
which have an aggregate FMV Per Share as of the date of such withholding that is
not greater than the sum of all tax amounts to be withheld with respect thereto,
together with payment of any remaining portion of such tax amounts in cash or by
check payable and acceptable to the Company.
Notwithstanding the foregoing, if on the date of an event giving rise to a
tax withholding obligation on the part of the Company the person is an officer
or individual subject to Rule 16b-3, such person may direct that such tax
withholding be effectuated by the Company withholding the necessary number of
shares of Common Stock (at the tax rate required by the Code) from such Award
payment or exercise.
ARTICLE XII
MISCELLANEOUS
12.1 No Rights to Awards. No Participant or other person shall have any
claim to be granted any Award, there is no obligation for uniformity of
treatment of Participants, or holders or beneficiaries of Awards and the terms
and conditions of Awards need not be the same with respect to each recipient.
12.2 No Right to Employment or Continued Services. The grant of an Award
shall not be construed as giving a Participant the right to be retained in the
employ or services of the Company or any Parent or Subsidiary. Further, no grant
of any Award shall be construed as limiting any right which the Company or any
Parent or Subsidiary may have to terminate at any time, with or without Cause,
the Employment or services of any Participant to whom such Award has been
granted.
12.3 Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with applicable federal law and the laws of the State of Nevada,
without regard to any principles of conflicts of law.
12.4 Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Participant or Award, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision shall
be construed or deemed amended to conform to the applicable laws, or if it
cannot be construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the Award, such
provision shall be stricken as to such jurisdiction, Participant or Award and
the remainder of the Plan and any such Award shall remain in full force and
effect.
12.5 Shareholder Agreements. The Committee may condition the grant,
exercise or payment of any Award upon such person entering into a stockholders'
agreement in such form as approved from time to time by the Board.
B-15
12.6 Indemnification of Committee. Each person who is or was a member of
the Committee, or of the Board, shall be indemnified by the Company against and
from any damage, loss, liability, cost and expense that may be imposed upon or
reasonably incurred by him in connection with or resulting from any claim,
action, suit, or proceeding to which he may be a party or in which he may be
involved by reason of any action taken or failure to act under the Plan
(including such indemnification for a person's own, sole, concurrent or joint
negligence or strict liability), except for any such act or omission
constituting willful misconduct or gross negligence. Such person shall be
indemnified by the Company for all amounts paid by him in settlement thereof,
with the Company's approval, or paid by him in satisfaction of any judgment in
any such action, suit, or proceeding against him, provided he shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's articles of incorporation
or bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
12.7 Designation of Beneficiary by Participant. EACH PARTICIPANT MAY,
FROM TIME TO TIME, NAME ANY BENEFICIARY OR BENEFICIARIES (WHO MAY BE NAMED
CONTINGENTLY OR SUCCESSIVELY) TO WHOM ANY BENEFIT UNDER THE PLAN IS TO BE PAID
IN CASE OF HIS DEATH BEFORE HE RECEIVES ANY OR ALL OF SUCH BENEFIT. EACH SUCH
DESIGNATION SHALL REVOKE ALL PRIOR DESIGNATIONS BY THE SAME PARTICIPANT, SHALL
BE IN A FORM PRESCRIBED BY THE COMMITTEE, AND WILL BE EFFECTIVE ONLY WHEN FILED
BY THE PARTICIPANT IN WRITING WITH THE COMMITTEE DURING THE PARTICIPANT'S
LIFETIME. IN THE ABSENCE OF ANY SUCH DESIGNATION, BENEFITS REMAINING UNPAID AT
THE PARTICIPANT'S DEATH SHALL BE PAID TO THE PARTICIPANT'S ESTATE.
12.8 Successors. All obligations of the Company under the Plan with
respect to Awards granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business and/or assets of the Company.
12.9 Gender, Tense and Headings. Whenever the context so requires, words
of the masculine gender used herein shall include the feminine and neuter, and
words used in the singular shall include the plural. Section headings as used
herein are inserted solely for convenience and reference and constitute no part
of the interpretation or construction of the Plan.
12.10 Miscellaneous.
(a) No Shares of Common Stock shall be issued hereunder unless counsel for
the Company is then reasonably satisfied that such issuance will be in
compliance with federal and state securities laws, if applicable.
(b) The expenses of the Plan shall be borne by the Company.
(c) By accepting any Incentive Award, each Participant and each person
claiming by or through him shall be deemed to have indicated his acceptance of
the Plan.
12.11 No Guarantee of Tax Consequences. Neither the Company nor the
Committee makes any commitment or guarantee that any federal, state or local tax
treatment will apply or be available to any person participating or eligible to
participate hereunder.
B-16
IN WITNESS WHEREOF, U.S. Physical Therapy, Inc. has caused this Plan to be
duly executed in its name and on its behalf by its duly authorized officer,
subject to shareholder approval at the 2004 Annual Meeting of Shareholders.
U.S. PHYSICAL THERAPY, INC.
B-17
U.S. PHYSICAL THERAPY, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- MAY 25, 2004
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I, the undersigned stockholder of U.S. Physical Therapy, Inc. hereby
appoint Roy W. Spradlin and Lawrance W. McAfee, and each of them, with full
power of substitution, as my proxies to cast all votes, as designated below,
which I am entitled to cast at the 2004 Annual Meeting of Stockholders to be
held on Tuesday, May 25, 2004, at 9:00 a.m. (CDT), at our offices at 1300 West
Sam Houston Parkway South, Suite 300, Houston, Texas 77042, and at any
adjournments, upon the following matters.
This proxy will be voted as directed by you. PROPERLY EXECUTED BUT UNMARKED
PROXIES WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED, FOR ADOPTION OF
THE COMPANY'S 2003 STOCK INCENTIVE PLAN AND AS DIRECTED BY A MAJORITY OF THE
BOARD OF DIRECTORS AS TO OTHER MATTERS.
The undersigned stockholder hereby acknowledges receipt of the Notice of
Annual Meeting and Proxy Statement, and hereby revokes any proxy or proxies
heretofore given. This proxy may be revoked at any time before its exercise.
(continued and to be signed and dated on reverse side)
(1) Election of eight directors for one-year terms. Nominees: Roy W. Spradlin,
Mark J. Brookner, Daniel C. Arnold, Bruce D. Broussard, James B. Hoover,
Marlin W. Johnston, Albert L. Rosen and Jerald L. Pullins.
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees listed.
contrary below)
[ ] WITHHOLD AUTHORITY TO VOTE -------------------------------- --------------------------------
FOR ANY INDIVIDUAL NOMINEES -------------------------------- --------------------------------
(PRINT NAME(S) IN SPACE(S) -------------------------------- --------------------------------
PROVIDED)
--------------------------------
(2) To approve the Company's 2003 Stock Incentive Plan which reserves for
issuance 900,000 shares of the Company common stock to be granted to
employees, consultants and non-employee directors of the Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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(3) As determined by a majority of our Board of Directors, the proxies are
authorized to vote upon other business as may properly come before the
meeting or any adjournments.
Please date and sign exactly as name
appears hereon and return in the enclosed
envelope.
Date: ------------------------------------
-----------------------------------------
Signature of Stockholder or Authorized
Representative (Only one signature is
required in the case of stock ownershipin
the name of two or more persons.)