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
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
U.S. PHYSICAL THERAPY, INC.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(s)FILING PROXY STATEMENT IF OTHER
THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
U.S. PHYSICAL THERAPY, INC.
NOTICE OF 2005 ANNUAL MEETING OF STOCKHOLDERS
DATE: Wednesday, May 25, 2005
TIME: 9:00 a.m. (CT)
PLACE: 1300 West Sam Houston Parkway South, Suite 300, Houston,
Texas 77042
MATTERS TO BE ACTED ON:
1. Election of ten directors to serve until the next annual meeting of
stockholders.
2. Ratification of the appointment of Grant Thornton LLP as our
independent registered public accounting firm for 2005.
3. Consideration of 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
EACH OF THE TEN NOMINEES FOR DIRECTOR AND FOR THE RATIFICATION OF THE
APPOINTMENT OF GRANT THORNTON AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM.
Your Board of Directors has set April 15, 2005 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 card will be returned to you if you are
present at the Annual Meeting and request its return.
By Order of the Board of Directors,
/s/ JANNA KING
JANNA KING
Corporate Secretary
Houston, Texas
April 20, 2005
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, 2005
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ANNUAL MEETING:
DATE: Wednesday, May 25, 2005
TIME: 9:00 a.m. (CT)
PLACE: 1300 West Sam Houston Parkway South, Suite 300, Houston,
Texas 77042
AGENDA:
Election of ten director nominees.
Ratification of the appointment of Grant Thornton LLP as our independent
registered public accounting firm for 2005.
WHO CAN VOTE:
All holders of record of our common stock at the close of business on April
15, 2005 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 25, 2005 to
all of our stockholders of record as of the close of business on April 15, 2005.
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
Janna King, 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 TEN DIRECTOR NOMINEES AND FOR THE RATIFICATION OF THE APPOINTMENT OF GRANT
THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. If you
"withhold" your vote for any of the nominees, this will be counted as a vote
AGAINST that nominee. If any other matters are properly brought before the
Annual Meeting, 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. The close of business on April 15, 2005 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 the record date was 11,885,419. 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. There is no cumulative voting in
the election of directors and the directors will be elected by a plurality of
the votes cast at the Annual Meeting.
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 and Chief Executive Officer, Christopher J.
Reading, our Chief Financial Officer, Lawrance W. McAfee, or email us at
investorrelations@usph.com if you have any questions. A copy of our Annual
Report on Form 10-K for the year ended December 31, 2004 accompanies this Proxy
Statement. WE HAVE FILED AN ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2004 (THE "FORM 10-K") WITH THE SECURITIES AND EXCHANGE COMMISSION
(THE "SEC"). YOU MAY OBTAIN ADDITIONAL COPIES 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:
JANNA KING, CORPORATE SECRETARY OR BY EMAILING US AT INVESTORRELATIONS@USPH.COM.
PLEASE VOTE -- YOUR VOTE IS IMPORTANT
ITEM 1: ELECTION OF DIRECTORS
The accompanying proxy, unless marked to the contrary, will be voted in
favor of the election of Messrs. Daniel C. Arnold, Christopher J. Reading,
Lawrance W. McAfee, Mark J. Brookner, Bruce D. Broussard, Marlin W. Johnston, J.
Livingston Kosberg, Jerald L. Pullins, Albert L. Rosen and Clayton K. Trier.
These ten nominees are current directors standing for re-election and will be
elected at the Annual Meeting to serve until the next annual meeting of
stockholders. Mr. James B. Hoover, a current director of the Company, is not
standing for reelection and in connection with the election of directors at the
Annual Meeting, the Board of Directors intends to set the number of directors
constituting our full Board of Directors to ten.
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The board of directors has determined that Messrs. Arnold, Broussard,
Johnston, Pullins, Rosen and Trier are considered independent under the
applicable NASDAQ Listing Standards. Messrs. McAfee and Reading, who are
officers of the Company, and Messrs. Brookner and Kosberg, who are consultants
to the Company and former employees, are not considered independent under the
applicable NASDAQ Listing Standards. The nominees for director are:
DIRECTOR
NOMINEES: AGE SINCE POSITION(S) HELD
--------- --- -------- ----------------
Daniel C. Arnold.......................... 75 1992 Chairman of the Board
Christopher J. Reading*................... 41 2004 President, Chief Executive Officer
and Director
Lawrance W. McAfee*....................... 50 2004 Executive Vice President, Chief
Financial Officer and Director
Mark J. Brookner.......................... 60 1990 Vice Chairman of the Board and
Director
Bruce D. Broussard........................ 42 1999 Director
Marlin W. Johnston........................ 73 1992 Director
J. Livingston Kosberg**................... 68 2004 Director
Jerald L. Pullins......................... 63 2003 Director
Albert L. Rosen........................... 81 1992 Director
Clayton K. Trier***....................... 53 2005 Director
---------------
* Mr. Reading and Mr. McAfee were appointed to the Board of Directors
effective November 1, 2004.
** Mr. Kosberg rejoined the Board of Directors on July 6, 2004 and served as
interim CEO from July 6, 2004 until November 1, 2004.
*** Mr. Trier was appointed to the Board of Directors effective February 23,
2005.
DIRECTOR BIOGRAPHIES:
DANIEL C. ARNOLD was named our Chairman of the Board on July 6, 2004. Mr.
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 listed on the
New York Stock Exchange, and Belco Oil & Gas Corp., a public oil and gas
exploration and production company. He has also served as Chairman of the Board
of Trustees of Baylor College of Medicine. Currently, Mr. Arnold only serves on
our Board of Directors.
CHRISTOPHER J. READING was promoted to our President and Chief Executive
Officer and elected to our Board of Directors effective November 1, 2004. Prior
to November 2004, Mr. Reading served as our Chief Operating Officer since
joining us in October 2003. From 1990 to 2003, Mr. Reading served in various
executive and management positions with HealthSouth Corporation where most
recently he was Senior Vice President of operations responsible for over 200
facilities located in 10 states. Mr. Reading is a licensed physical therapist.
LAWRANCE W. MCAFEE was promoted to Executive Vice President and elected to
our Board of Directors effective November 1, 2004. Mr. McAfee also serves as our
Chief Financial Officer, a position he has held since joining us in September
2003. Mr. McAfee's 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.com, Inc., an
on-line chemicals exchange.
MARK J. BROOKNER has served as our Vice Chairman of the Board since August
1998. Mr. Brookner is currently a private investor. He served as our Chief
Financial Officer from April 1992 to August 1998 and as our Secretary and
Treasurer during portions of that period.
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BRUCE D. BROUSSARD has served on our Board since 1999. Mr. Broussard has
been the Chief Financial Officer of U.S. Oncology, Inc., a cancer-care services
company formerly listed on The Nasdaq Stock Market, 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 formerly listed on the
New York Stock Exchange, 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.
MARLIN W. JOHNSTON has served on our Board since 1992. Mr. 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.
J. LIVINGSTON KOSBERG rejoined our Board of Directors on July 6, 2004 and
served as our interim Chief Executive Officer from July 6, 2004 through October
31, 2004. Mr. Kosberg previously served as our Chief Executive Officer from
April 1992 until August 1995 and as our Chairman of the Board from April 1992
until May 2001. Mr. Kosberg also serves as a director of Affiliated Computer
Services, Inc., a Fortune 500 and S&P 500 company listed on the New York Stock
Exchange that provides business process and technology outsourcing solutions to
commercial and government clients. Mr. Kosberg has been involved in a variety of
industries, including healthcare, finance and construction and currently serves
as an advisor to several investment funds.
JERALD L. PULLINS has served on our Board since 2003. Mr. 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 until 2002, he was employed by
Service Corporation International, a provider of funeral and cemetery services
listed on the New York Stock Exchange, 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 Chief Executive Officer of The Sentinel Group, Inc., a
private company which owned and operated funeral, cemetery, insurance and
related businesses.
ALBERT L. ROSEN has served on our Board since 1992. Mr. 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.
CLAYTON K. TRIER joined our Board on February 23, 2005. Mr. Trier is a
private investor. He was the founder and former Chairman, Chief Executive
Officer and President of U.S. Delivery Systems Inc., which developed the first
national network providing same-day delivery service, from 1993 until 1997.
Before it was acquired in 1996, U.S. Delivery was listed for two years on the
New York Stock Exchange. Mr. Trier currently serves on the board of Creative
Master (Bermuda) Ltd, a public company listed on the Singapore Stock Exchange.
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 will be elected by a plurality 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. Continental Stock Transfer & Trust Co. will tabulate the
votes cast by proxy or in person at the Annual Meeting.
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
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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.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR THE ELECTION OF THE TEN NOMINEES FOR DIRECTOR
NAMED IN THE PROXY STATEMENT.
CORPORATE GOVERNANCE AND BOARD MATTERS
INDEPENDENCE OF DIRECTORS
After the upcoming Annual Meeting, the Board will consist of ten directors,
six of whom the Board has affirmatively determined have no relationship with the
Company or its subsidiaries which would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director and are
independent, as defined in the applicable NASDAQ Listing Standards. See Item 1.
Election of Directors.
ATTENDANCE AT BOARD MEETINGS AND BOARD COMMITTEES
The Board of Directors conducts its business through its meetings and
through meetings of certain committees of the Board of Directors. All committees
act for the Company. The Board of Directors is comprised of a majority of
independent directors as required by the applicable NASDAQ Listing Standards.
The Board has standing nominating, corporate compliance (sub-committee),
compensation and audit committees. During 2004, the Board of Directors met eight
times, the Nominating Committee met three times, the Corporate Compliance
Committee met five times, the Compensation Committee met five times and the
Audit Committee met fourteen times. Each of our directors attended at least 75%
of the meetings of the Board of Directors and each committee on which he served.
These committees are constituted as follows:
NOMINATING COMMITTEE
The Nominating Committee was formed in February 2004. During 2004, the
Nominating Committee consisted of Messrs. Arnold, Broussard, Hoover, Johnston,
Rosen and Pullins, all of whom are independent directors (as the term
independent is defined by the applicable NASDAQ Listing Standards). On February
23, 2005, Mr. Trier was added to the Nominating Committee. The function of the
Nominating Committee is to select, screen and recommend to the full Board
nominees for election as directors, including any nominees proposed by
stockholders who have complied with the procedures described below. The
Nominating Committee also has ongoing responsibility for Board performance,
ensuring individual Board member's 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, stockholders, or other
persons. The Nominating Committee may also hire third parties to identify,
evaluate, or to assist in identifying or evaluating, potential nominees should
it be determined necessary. The Nominating Committee is required to meet twice a
year and operates under a written charter, a copy of which is available on our
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 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
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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 applicable NASDAQ Listing Standards. 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 applicable NASDAQ Listing Standards, and
the level of the candidate's financial expertise. Candidates are first screened
by the Nominating Committee, and if approved by the Nominating Committee, then
they are screened 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.
Stockholder Nomination Procedures. The Nominating Committee will consider
director candidates recommended by the stockholders. Generally, for a
stockholder of the Company to make a nomination, he or she must give written
notice to our Corporate Secretary so that such notice is received at least 120
calendar days prior to the first anniversary of the date the Company's proxy
statement is sent to the stockholders in connection with the previous year's
annual meeting of stockholders. If no annual meeting of stockholders was held in
the previous year (or if the date of the annual meeting of stockholders 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
stockholder'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 stockholder's notice must also set forth as
to the stockholder giving notice: (i) the name and address of such stockholder;
and (ii) the number of shares of our Common Stock which are beneficially owned
by such stockholder.
If the information supplied by the stockholder is deficient in any material
aspect or if the foregoing procedure is not followed, the chairman of the annual
meeting may determine that such stockholder'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 or not the candidate was recommended by a stockholder.
CORPORATE COMPLIANCE SUB-COMMITTEE
The Corporate Compliance Committee is a sub-committee of the Audit
Committee, and consists of three independent directors ("Compliance Committee").
The three independent director members of this committee are Messrs. Johnston
(Chairman), Broussard and Pullins. The Compliance Committee has general
oversight of our Company's compliance with the legal and regulatory requirements
regarding healthcare operations. The Compliance Committee relies on the
expertise and knowledge of management, especially our Compliance Officer ("CO")
and other compliance, operations and legal personnel. The CO is in ongoing
contact with the Chairman of the Compliance Committee. The Compliance Committee
meets at least two times a year or more frequently as necessary to carry out its
responsibilities and reports periodically to the Board of Directors regarding
its actions and recommendations. The Corporate Compliance Committee reviews and
assesses the activities and findings of clinic internal audits, reviews reports
of material noncompliance and reviews and approves corrective actions proposed
by management.
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COMPENSATION COMMITTEE
The current members of the Compensation Committee are Messrs. Arnold
(Chairman), Hoover and Rosen, all of whom are independent directors (as the term
independent is defined by the applicable NASDAQ Listing Standards). The primary
function of the Compensation Committee is to recommend to our Board the
compensation to be paid to our directors and executive officers.
AUDIT COMMITTEE
The Audit Committee currently consists of Messrs. Johnston (Chairman),
Broussard, Pullins and Trier. Mr. Trier was elected to the Audit Committee
effective February 23, 2005. Our Board of Directors has determined that Mr.
Broussard is an "audit committee financial expert." Mr. Trier and Mr. Pullins
also meet the qualifications of "audit committee financial experts." As more
fully described in the Audit Committee Charter, which is attached to this proxy
statement as Appendix A and can be found on our website, www.usph.com, 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.
The Audit Committee Charter, as amended, requires that the Audit Committee
consist of at least three independent members of our Board. Each member of the
Audit Committee is an "independent director" as that term is defined by Nasdaq
Stock Market Rule 4200(a)(14).
CODES OF CONDUCT
Our Board has approved and we have adopted a Code of Business Conduct and
Ethics applicable to all of our directors. This code is available on our
website, www.usph.com. Our Board, or a committee of its independent members, is
responsible for reviewing and approving or rejecting all requested waivers to
this code, as such waivers may apply to our directors. Any waivers of this code
for directors 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.
Our Board has approved and we have adopted an additional Code of Business
Conduct and Ethics, applicable to our Chief Executive Officer and all senior
financial officers, relating to dealings with our auditors and the preparation
of our financial statements and other disclosures made to the public under SEC
rules and regulations. This code is available on our website, www.usph.com. The
Board, or a committee of its independent members, is responsible for reviewing
and approving or rejecting all requested waivers from and amendments to this
code. Any waivers from and amendments to 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.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS AND ATTENDANCE AT ANNUAL MEETING.
The Board of Directors maintains an informal process for stockholders to
communicate with the Board of Directors. Stockholders wishing to communicate
with the Board of Directors should send any communication to Janna King, 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 stockholder 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,
7
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 our Board of Directors are encouraged to attend our annual
meeting of stockholders. At the 2004 annual meeting, all of our directors were
in attendance.
COMPENSATION OF DIRECTORS
Each of our independent directors receives $6,000 per quarter for serving
as a member of our Board of Directors. Non-employee directors are paid $1,000
for each committee meeting attended in person and $500 for each meeting attended
telephonically. The chairman of each of the Audit Committee and Compliance
Committee is paid a $3,000 annual fee. 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 our Board.
On June 2, 2004, Messrs. Arnold, Broussard, Hoover, Johnston, Pullins and
Rosen each received ten-year non-qualified equity-based compensation grants to
purchase 10,000 shares of our common stock, which became exercisable on December
31, 2004. The exercise price of the equity awards granted on June 2, 2004 was
$12.51 per share, which was deemed to be the fair market value of our stock on
that date. On August 2, 2004, Mr. Kosberg, in compensation for his service as
interim Chief Executive Officer, received ten-year non-qualified equity-based
compensation grants to purchase 25,000 shares of our common stock with an
exercise price of $12.60 per share, which was deemed to be the fair market value
of our stock on that date and which became exercisable on December 31, 2004. On
October 20, 2004, Messrs. Arnold, Broussard, Hoover and Pullins each received
ten-year non-qualified equity based compensation grants to purchase 2,500 shares
of our common stock, which became exercisable immediately. On October 20, 2004,
Mr. Brookner also received a ten-year non-qualified equity based compensation
grant to purchase 20,000 shares of our common stock, which became exercisable on
December 31, 2004. The exercise price of the equity awards granted on October
20, 2004 was $14.17 per share, which was deemed to be the fair market value of
our stock on that date. All option grants described above were issued under our
2003 Stock Incentive Plan and expire six months after the termination of the
recipient's position with us.
On June 21, 2004, we granted replacement options under our 2003 Stock
Incentive Plan for options granted erroneously under the 1992 Plan after that
plan had expired. The replacement options were granted under our 2003 Stock
Incentive Plan honoring the original terms of the grants. The exercise prices
were deemed to be the fair market value of our stock on the original date of
grant. Messrs. Arnold, Broussard, Hoover, Johnston and Rosen were each granted
ten-year non-qualified equity-based compensation grants to purchase 7,500 shares
of our common stock with an exercise price of $18.04 per share and 10,000 shares
with an exercise price of $15.00 per share. Mr. Pullins was granted a ten-year
non-qualified equity based compensation grant to purchase 10,000 shares of our
common stock with an exercise price of $15.00 per share.
In 2004, Mr. Brookner received $50,000 in compensation and benefits for
serving as a consultant and as Vice Chairman of the Board and Mr. Kosberg
received $87,800 in compensation for serving as a consultant. Mr. Brookner and
Mr. Kosberg's consulting arrangements are described below in the section
entitled "Employment and Consulting Agreements."
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STOCK OWNERSHIP
STOCK OWNED BY DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The following table shows the number and percentage of shares of our common
stock beneficially owned by our directors and executive officers as of March 31,
2005. Each person has sole voting and investment power for the shares shown
below unless otherwise indicated.
NUMBER
NAME OF OF SHARES RIGHT TO PERCENT OF
BENEFICIAL OWNER OWNED(1) ACQUIRE(2) COMMON STOCK
---------------- ---------- ----------- ------------
Directors
Daniel C. Arnold................................ 119,002 99,002 *
Chairman of the Board
Christopher J. Reading.......................... 60,000 60,000 *
President, Chief Executive Officer and
Director
Lawrance W. McAfee.............................. 60,000 60,000 *
Executive Vice President, Chief Financial
Officer and Director
Mark J. Brookner................................ 110,750(3) 20,000 *
Vice Chairman of the Board and Director
Bruce D. Broussard.............................. 35,002 35,002 *
Director
James B. Hoover................................. 222,252(4) 129,002 1.9%
Director (not standing for reelection)
Marlin W. Johnston.............................. 47,500 32,500 *
Director
J. Livingston Kosberg........................... 266,710(5) 25,000 2.2%
Director
Jerald L. Pullins............................... 52,500 52,500 *
Director
Albert L. Rosen................................. 128,002(6) 60,502 1.1%
Director
Clayton K. Trier................................ 1,500 -- *
Director
Non-Director Executive Officers
Michael L. Lang................................. 1 -- *
Senior Vice President of Business Development
Glenn D. McDowell............................... 6,000 6,000 *
Chief Operating Officer
---------- ------- ---
All directors and executive officers as a group
(13 persons).................................. 1,109,219 579,508 9.0%
========== ======= ===
---------------
* Less than 1%
(1) Includes shares of common stock subject to outstanding options that are
currently exercisable or exercisable through May 30, 2005.
(2) Number of shares of common stock (of the total beneficially owned) that can
be acquired through stock options exercisable through May 30, 2005.
(3) Includes 25,000 shares of common stock owned directly by Mr. Brookner and
65,750 shares of common stock held in various trusts of which Mr. Brookner
is the trustee.
(4) Includes 57,500 shares of common stock owned directly by Mr. Hoover and
35,750 shares of common stock held in an IRA account for the benefit of Mr.
Hoover.
9
(5) Includes 210,000 shares of our common stock held by the Livingston Kosberg
Trust which Mr. Kosberg is the trustee and income beneficiary. Also includes
13,200 shares of common stock held directly by Mr. Kosberg, 15,000 shares of
common stock held in a trust in which Mr. Kosberg is the trustee and 3,510
shares of common stock held by Mr. Kosberg's spouse for which Mr. Kosberg
disclaims beneficial ownership.
(6) Includes 67,500 shares of common stock held by the Rosen Family Trust. Mr.
Rosen serves as a trustee for the Rosen Family Trust.
STOCK HELD BY PRINCIPAL "BENEFICIAL HOLDERS"
The table shows the ownership of our shares of common stock by persons
known to us to beneficially own more than 5% of our common stock. The
information is based on the most recent statements filed with the SEC on
Schedule 13D or 13G, 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
------------------- ------------- ------------
Wasatch Advisors, Inc..................................... 1,515,341(1) 12.7%
150 Social Hall Avenue
Salt Lake City, UT 84111
Royce & Associates, LLC................................... 1,491,900(2) 12.5%
1414 Avenue of the Americas
New York, NY 10019
Bank of America Corporation............................... 726,656(3) 6.1%
100 North Tryon Street, Floor 25
Bank of American Corporate Center
Charlotte, NC 28255
Wellington Management Company, LLP........................ 650,000(4) 5.5%
75 State St
Boston, MA 02109
William Harris Investors, Inc............................. 632,100(5) 5.3%
191 North Wacker Drive, Suite 1500
Chicago, IL 60606
Dalton, Greiner, Harman, Maher & Co....................... 599,767(6) 5.0%
565 Fifth Avenue, Suite 2101
New York , NY 10017-2413
---------------
(1) Wasatch Advisors, Inc. has sole voting and sole dispositive power over all
of the shares as disclosed in a Schedule 13G/A filed February 14, 2005.
(2) Royce & Associates, LLC has sole voting and dispositive power over all of
the shares as disclosed in a Schedule 13G/A filed February 3, 2005.
(3) Bank of America Corporation has shared voting power over 712,356 of the
shares and shared dispositive power over all of the shares. NB Holdings
Corporation has shared voting and dispositive power over 256 of the shares.
NationsBanc Montgomery Holdings Corporation has shared voting and
dispositive power over 256 of the shares. Banc of America Securities LLC has
sole voting and dispositive power over 256 of the shares. Fleet National
Bank has sole voting power over 139,100 of the shares, sole dispositive
power over 145,600 of the shares, shared voting power over 573,000 of the
shares and shared dispositive power over 580,800 of the shares. Columbia
Management Group, Inc. has shared voting power over 573,000 of the shares
and shared dispositive power over 578,400 of the shares. Columbia Management
Advisors, Inc. has sole voting power over 573,000 of the shares and sole
dispositive power over 578,400 of the shares. The address of the principal
business office for NationsBanc Montgomery Holdings Corporation, Banc of
America Securities LLC, Fleet National
10
Bank, Columbia Management Group, Inc. and Columbia Management Advisors, Inc.
is 100 North Tryon Street, Floor 25, Bank of America Corporate Center,
Charlotte, NC, 28255. Information presented is as disclosed in a Schedule
13G/A filed February 11, 2005.
(4) Wellington Management Company, LLP has shared voting power over 300,000 of
the shares and has shared dispositive power over all of the shares as
disclosed in a Schedule 13G filed February 14, 2005.
(5) William Harris Investors, Inc. has shared voting and sole dispositive power
over all of the shares as disclosed in a Schedule 13G/A filed February 15,
2005.
(6) Information based on data included on a Nasdaq website available to our
Company.
EXECUTIVE OFFICERS
The current executive officers of the Company are as follows:
NAME POSITION
---- --------
Christopher J. Reading................... President and Chief Executive Officer
Lawrance W. McAfee....................... Executive Vice President and Chief
Financial Officer
Glenn D. McDowell........................ Chief Operating Officer
Michael L. Lang.......................... Senior Vice President of Business
Development
For information concerning Messrs. Reading and McAfee see Election of
Directors.
GLENN D. MCDOWELL, 48, was promoted to Chief Operating Officer effective
January 24, 2005. Mr. McDowell has served as our Vice President of Operations
overseeing the west region since joining us in October 2003. From 1996 to 2003,
Mr. McDowell was employed by HealthSouth Corporation, a provider of outpatient
surgery, diagnostic imaging and rehabilitative healthcare services. His most
recent position with HealthSouth Corporation was Vice President of
Operations -- West Ambulatory Division where he oversaw the operations of more
than 165 outpatient rehabilitation and other facilities.
MICHAEL J. LANG, 45, rejoined us as Senior Vice President of Business
Development on August 30, 2004. From 1994 through 2002, Mr. Lang was employed by
us and upon his departure in 2002, he was Senior Vice President of Business
Development. From 2003, Mr. Lang has been founder and President of Orthotic &
Prosthetic Partners, Inc., a company that partners with orthostists and
prosthetists.
11
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued for
services rendered in all capacities on behalf of our Company during 2004, 2003
and 2002 to Messrs. Reading, McAfee, McDowell and Lang. The following also sets
forth the compensation paid or accrued for services rendered in all capacities
on behalf of the Company during 2004, 2003 and 2002 to Mr. Roy W. Spradlin, who
served as our Company CEO from August 1995 until July 6, 2004, and to Mr. J.
Livingston Kosberg, who served as Interim CEO from July 6, 2004 through October
31, 2004. (the "Named Executive Officers")
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION AWARDS(1) COMPENSATION
---------------------------------- ------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION(S) YEAR SALARY BONUS COMPENSATION OPTIONS #(2)
------------------------------ ------ -------- -------- ------------ ------------
Christopher J. Reading(3)............... 2004 $262,500 $100,000 -- 200,000
Chief Executive Officer............... 2003 41,667 -- $ 28,945 50,000
Lawrance W. McAfee(4)................... 2004 $304,167 $120,000 -- 200,000
Chief Financial Officer............... 2003 100,000 12,500 -- 50,000
Glenn D. McDowell(5).................... 2004 $140,000 $ 23,000 -- 5,000
Chief Operating Officer............... 2003 35,027 -- $ 9,522 5,000
Michael L. Lang(6)...................... 2004 $ 60,000 -- -- 45,000
Senior Vice President of.............. 2003 -- -- -- --
Business Development.................. 2002 70,972 -- $ 4,398 --
Roy W. Spradlin(7)...................... 2004 $184,250 -- $650,000 --
(former CEO).......................... 2003 325,000 -- -- 50,000
2002 250,000 -- -- 50,000
J. Livingston Kosberg(8)................ 2004 $ 87,800 -- -- 25,000
(interim CEO)......................... 2003 87,800 -- -- --
2002 94,062 -- -- --
---------------
(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 and 2003 Stock Incentive Plan
and inducement options.
(3) For 2003, reflects compensation received from November 3, 2003 through
December 31, 2003 and payment of Mr. Reading's moving expenses.
(4) For 2003, reflects compensation received from September 2, 2003 through
December 31, 2003.
(5) For 2003, reflects compensation received from October 1, 2003 through
December 31, 2003 and payment of Mr. McDowell's moving expenses. In
connection with his promotion to Chief Operating Officer, Mr. McDowell was
granted 45,000 stock options under the 2003 Stock Incentive Plan in
February, 2005.
(6) For 2004, reflects compensation received from August 30, 2004 through
December 31, 2004. For 2002, Mr. Lang was paid his unused benefit related to
personal time off of $4,398.
(7) For 2004, reflects compensation received from January 1, 2004 through July
6, 2004, his date of resignation, and a severance payment of $650,000.
(8) Mr. Kosberg was interim Chief Executive Officer from July 6, 2004 through
October 31, 2004. Annual compensation awards represent payments under his
consulting agreement for 2004, 2003 and 2002.
12
OPTION GRANTS
The following table contains information with respect to grants of stock
options and equity-based compensation grants to the Named Executive Officers
during the year ended December 31, 2004.
OPTION GRANTS IN 2004 FISCAL YEAR
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM
OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION ----------------------------
NAME (#)(A) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- --------------- --------------- ----------- ---------- ------------ ------------
Christopher J.
Reading............... 50,000 6% $12.510 6/2/2014 $ 393,374 $ 996,886
150,000 17% 13.540 10/5/2014 1,277,285 3,236,891
Lawrance W. McAfee...... 50,000 6% 12.510 6/2/2014 393,374 996,886
150,000 17% 13.540 10/5/2014 1,277,285 3,236,891
Glenn D. McDowell....... 5,000 1% 12.510 6/2/2014 39,337 99,689
Michael L. Lang......... 45,000 5% 12.620 9/1/2014 357,149 905,086
J. Livingston Kosberg... 25,000 3% 12.600 8/2/2014 198,102 502,029
---------------
(a) The non-qualified stock options, which expire in ten years, were granted
under the 2003 Stock Incentive Plan.
OPTION EXERCISES AND HOLDINGS
The following table sets forth the option exercises during fiscal year 2004
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
NUMBER OF SECURITIES VALUE OF 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
---- ------------ ------------ ----------- ------------- ----------- -------------
Christopher J. Reading... -- -- 60,000 190,000 $156,500 $326,000
Lawrance W. McAfee....... -- -- 60,000 190,000 156,500 326,000
Glenn D. McDowell........ -- -- 6,000 4,000 15,650 4,400
Michael L. Lang.......... -- -- -- 45,000 -- 126,000
Roy W. Spradlin.......... 406,250 $3,474,479 20,000 -- -- --
J. Livingston Kosberg.... -- -- 25,000 -- 70,500 --
---------------
(a) Reflects the number of shares of our common stock underlying options granted
under the 2003 Stock Incentive Plan and Inducement Options.
(b) Market value of underlying securities at year-end of $15.42 per share minus
the exercise or base price of in-the-money options at year-end.
EMPLOYMENT AND CONSULTING AGREEMENTS
In October 2004, each of Messrs. Reading and McAfee entered into new
employment agreements effective as of November 1, 2004 that superseded their
employment agreements that were effective in September 2003. Under their current
employment agreements, Mr. Reading is employed as President and Chief Executive
Officer and Mr. McAfee is employed as Executive Vice President and Chief
Financial Officer. Each employment agreement is for a three-year term, provided,
however, that effective on the first
13
and second anniversary of the effective date of the agreement, the term is
automatically extended for an additional year (up to a maximum term, with such
extensions, of five years) unless either party notifies the other on or before
such anniversary dates that such party has elected not to extend the term.
Effective November 1, 2004, each of Messrs. Reading and McAfee's base salary is
$325,000 per year, subject to adjustment. Additionally, Messrs. Reading and
McAfee were each granted non-qualified stock options to purchase 150,000 shares
of our common stock. They are eligible to receive cash bonuses payable in
accordance with their employment agreements or at the discretion of our Board of
Directors and are entitled to participate in any employee benefit plans adopted
by us.
Messrs. Reading and McAfee's employment agreements may be terminated by us
prior to the expiration of its term in the event their respective employment is
terminated for "cause" (as defined in the agreement). If a "change in
control"(as defined in the agreement) occurs and Mr. Reading does not continue
as the President and Chief Executive Officer of the Company after the change of
control, or Mr. McAfee does not continue as Executive Vice President and Chief
Financial Officer of the Company after the change of control, each of Messrs.
Reading and McAfee, as applicable, will be entitled to a change of control
benefit of $500,000. If the employment of Mr. Reading or Mr. McAfee is
terminated without "cause" or for "good reason," he would be entitled to receive
the compensation then in effect for the remainder of the term of the agreement
and the greater of (i) the bonus paid or payable to Mr. Reading or Mr. McAfee,
as applicable, with respect to the last fiscal year completed prior to the
termination or (ii) the average of the bonuses paid to Mr. Reading or Mr.
McAfee, as applicable, over the last three fiscal years of employment ending
with the last fiscal year prior to termination.
Mr. Kosberg entered into a five year consulting agreement with us
commencing on June 1, 2001, which provided for compensation at an annual rate of
$95,000 per year. This agreement was amended effective November 15, 2002 at
which time the annual rate was changed to $87,800 per year. Additionally, the
agreement also provides that at Mr. Kosberg's request and at his cost and
expense, the Company will make available, to the extent it is reasonably
available, primary health insurance coverage for Mr. Kosberg and his family on
commercial terms 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. Brookner entered into a five year consulting agreement with us
effective November 15, 2002, providing for compensation at an annual rate of
$50,000 per year. The agreement also provides that at Mr. Brookner's request and
at his cost and expense, the Company will make available, to the extent it is
reasonably available, primary health insurance coverage for Mr. Brookner and his
family on commercial terms 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
Our Board Compensation Committee prepared the following report on our
policies with respect to the compensation of executive officers for 2004. The
Board has delegated to the Compensation Committee the responsibility of making
all decisions on the compensation of our executive officers (including stock
options). The Compensation Committee consist solely of independent directors.
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. Historically, 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 and employees
with the interests of our stockholders.
The following describes in more specific terms the elements of compensation
of executive officers for 2004.
14
BASE SALARIES
Other than the base salary of our Chief Executive 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 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, other than to
executive officers, are formulated by management and approved by the
Compensation Committee. The Compensation Committee formulates and decides any
incentive awards for executives.
STOCK OPTION AWARDS
Our 2003 Stock Incentive Plan and 1992 Stock Option Plan, as amended (the
"1992 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 our
common stock and to aid us in attracting and retaining key employees, upon whose
efforts our success and future growth depends. In addition, we have our 1999
Stock Option Plan, which is used to grant options to non-executive employees.
While a number of options are outstanding under the 1992 Option Plan, no future
options will be granted under that plan as it expired in April 2002. During 2002
and 2003, the Company erroneously granted to directors and key employees options
to purchase 278,000 shares of our common stock under the 1992 Option Plan after
the plan expired. The Company recognized compensation cost related to these
grants. In 2004, the Company replaced those grants with options to purchase
common stock under the 2003 Stock Incentive Plan.
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 2004, we granted options and stock-based compensation awards
covering a total of 899,100 shares of our common stock (inclusive of the options
to purchase 278,000 shares described above) to 107 directors, officers and
employees. This includes options granted under the 1999 Employee Stock Option
Plan and the 2003 Stock Incentive Plan. No options have been granted to our
executive officers or directors under the 1999 Employee Stock Option Plan. The
per share exercise price of all options granted in 2004 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 2004 reflect significant
individual performance and contributions relating to our operations and an
incentive to a new Senior Vice President of Business Development 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
15
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 employment of the
participant. The Board, in its discretion, determines the amount of any Company
contributions. We did not make any contributions during 2004.
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. Reading received a salary of $262,500 in 2004 and $41,667 in
2003 (from November 3, 2003 through December 31, 2003). Mr. Reading joined our
Company in November 2003 as Chief Operating Officer and, effective November 1,
2004, was promoted to President and Chief Executive Officer. He also received a
bonus totaling $100,000 for 2004 which was paid in early 2005. Although Mr.
Reading participated in our 401(k) Plan in 2004, we did not make any matching
contributions to the plan during the year. In addition to cash compensation,
during 2004, Mr. Reading was granted equity-based compensation grants to
purchase a total of 200,000 shares of our common stock under our 2003 Stock
Incentive Plan and during 2003, he was granted 50,000 inducement options to
purchase shares of our common stock.
In determining the appropriate compensation for Mr. Reading, the
Compensation Committee evaluates our overall performance under Mr. Reading'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. In 2004, the Form 3 for Mr. Kosberg was not filed within the required
time period when he rejoined the Board of Directors and became acting Chief
Executive Officer on July 6, 2004. The Form 3 for Mr. Kosberg was filed in March
2005. We believe that during 2004 all other Section 16(a) filing requirements
applicable to our directors and officers were complied with on a timely basis.
16
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, 1999
through December 31, 2004. 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, 1999
and that any dividends were reinvested.
COMPARISON OF FIVE YEARS CUMULATIVE TOTAL RETURN
FOR THE YEAR ENDED DECEMBER 31, 2004
(FIVE YEAR PERFORMANCE GRAPH)
--------------------------------------------------------------------------------
12/99 12/00 12/01 12/02 12/03 12/04
--------------------------------------------------------------------------------
U.S. Physical
Therapy, Inc. 100 280 571 394 556 545
The Nasdaq Stock
Market United
States Index 100 60 48 33 49 54
The Nasdaq Stock
Market Healthcare
Index 100 137 148 128 196 246
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In conjunction with the termination of the employment of Mr. Roy Spradlin,
our former Chief Executive Officer, we paid him a $650,000 severance payment.
Mr. Spradlin had entered into a second amended and restated employment agreement
with us on February 21, 2001. Under that agreement, Mr. Spradlin was employed as
President and Chief Executive Officer for a term through February 21, 2006. In
accordance with his employment agreement, Mr. Spradlin was entitled to receive a
lump sum termination payment equal to his base compensation for the remainder of
the term of the employment agreement.
17
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about our common stock that may be
issued upon the exercise of options and rights under all of our existing equity
compensation plans as of December 31, 2004, including the 1992 Stock Option
Plan, 1999 Employee Stock Option Plan, Executive Option Plan and Inducement
option agreements.
NUMBER OF
SECURITIES
REMAINING AVAILABLE
NUMBER OF FOR FUTURE ISSUANCE
SECURITIES TO BE UNDER EQUITY
ISSUED UPON WEIGHTED AVERAGE COMPENSATION
EXERCISE OF EXERCISE PRICE OF PLANS, EXCLUDING
OUTSTANDING OUTSTANDING OPTIONS SECURITIES REFLECTED
PLAN CATEGORY OPTIONS AND RIGHTS AND RIGHTS IN 1(ST) COLUMN
------------- ------------------ ------------------- --------------------
Equity Compensation Plans Approved
by Stockholders(1).............. 952,633 $11.8470 164,000
Equity Compensation Plans Not
Approved by Stockholders(2)..... 238,894 $13.1577 177,886
--------- -------- -------
Total........................... 1,191,527 $12.1098 341,886
========= ======== =======
---------------
(1) The 1992 Stock Option Plan, as amended, expired in 2002, and no new option
grants can be awarded under that plan. The Executive Option Plan (the
"Executive Plan") permits us to grant to officers or our affiliates, options
to purchase shares of our common stock. No further grants of options will be
made under the Executive Plan. The 2003 Stock Incentive Plan permits us to
grant stock-based compensation to employees, consultants and outside
directors of the Company.
(2) The 1999 Employee Stock Option Plan permits us to grant to certain
non-officer employees non-qualified options to purchase shares of our common
stock. We granted inducement options to certain individuals in connection
with their offers of employment or initial affiliation with us. Each
inducement option was made pursuant to an option grant agreement.
ITEM 2: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors, upon recommendation of its Audit Committee, has
approved and recommends the appointment of Grant Thornton LLP as independent
registered public accounting firm to conduct the audit of our financial
statements for the year 2005 and to render other services as required and
approved by the Audit Committee. Grant Thornton LLP has acted as our independent
registered public accounting firm since August 27, 2004. Representatives of
Grant Thornton LLP will attend our Annual Meeting of Stockholders, will be
available to respond to questions by stockholders and will have an opportunity
to make a statement regarding our financial statements if they desire to do so.
If the stockholders fail to ratify the selection of Grant Thornton LLP, the
Audit Committee will consider whether or not to retain that firm. Even if the
stockholders ratify the selection, the Audit Committee, in its discretion, may
direct the appointment of a different independent firm at any time during the
year if it determines that such a change would be in the best interests of the
Company and our stockholders.
PROPERLY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED FOR APPROVAL OF THE
APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM. The approval of the appointment of Grant Thornton LLP will
require the affirmative vote of holders of a majority of votes cast on this
matter in person or by proxy. Accordingly, abstentions applicable to shares
present at the meeting will not be included in the tabulation of votes cast on
this matter.
18
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF
GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
INDEPENDENT PUBLIC ACCOUNTANTS
Effective August 27, 2004, Grant Thornton LLP was appointed as our new
independent public accountants for the fiscal year ending December 31, 2004.
Grant Thornton replaced KPMG, our previous independent auditors. The decision to
replace KPMG and to appoint Grant Thornton LLP was approved by the Audit
Committee with the concurrence of the Board of Directors.
KPMG's reports on our financial statements for the past two fiscal years
did not contain an adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with our 2002 and 2003 fiscal years and the period from
January 1, 2004 through August 23, 2004, there were no disagreements with KPMG
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of KPMG, would have caused it to make reference to the
subject matter of the disagreements in connection with its report; and there
were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
AUDIT AND NON-AUDIT FEES
The following table sets forth the fees billed for services performed by
Grant Thornton LLP for fiscal year 2004 and KPMG for fiscal year 2003:
2004 2003
-------- --------
Audit Fees.................................................. $424,100 $169,000
Audit-Related Fees.......................................... $ -- $ 28,300
Tax Fees.................................................... $ -- $ --
All Other Fees.............................................. $ -- $ --
-------- --------
Total....................................................... $424,100 $197,300
======== ========
Audit fees include fees for professional services rendered in connection
with the audit of our financial statements and reports for the fiscal year, and
for 2004 include fees to report on the opinion of our management regarding
internal controls.
Audit-related fees for 2003 include 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
in connection with the audits of our financial statements and reports for fiscal
2003.
The Audit Committee is authorized to delegate to one or more of its members
the authority to pre-approve any defined 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 2004 and
2003, 100% of the audit-related services were pre-approved pursuant to these
pre-approval procedures.
REPORT OF THE AUDIT COMMITTEE
The following Audit Committee Report is provided in accordance with the
rules and regulations of 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
19
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, Pullins and Trier, all of whom are financially
literate and independent (as that term is defined by Nasdaq Rules and SEC Rule
10A-3(b)). Mr. Trier was appointed to the Audit Committee effective February 23,
2005. The Board of Directors has determined Mr. Broussard to be the "audit
committee financial expert" (as that term is defined in pertinent regulations).
Messrs. Pullins and Trier also meet the requirements to the considered an "audit
committee financial expert."
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 recommendations
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
designated a "qualified compliance sub-committee" under applicable SEC rules.
Members of the Compliance Committee are Messrs. Johnston, Broussard and Pullins.
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.
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 Grant Thornton LLP, the
Company's independent auditors for fiscal 2004, the overall scope and plans for
their audit of the Company's financial statements for fiscal 2004. The Audit
Committee met with Grant
20
Thornton 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 and continuing in 2004, the Chairman of the Audit
Committee met with the Company's Chief Executive Officer and Chief Financial
Officer 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 Grant Thornton 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 Grant
Thornton LLP required by the Independence Standards Board Standard No. 1 and the
Audit Committee has discussed with Grant Thornton LLP, their independence. The
Audit Committee considered, among other things, whether the services Grant
Thornton LLP provided to the Company were compatible with maintaining Grant
Thornton LLP's independence. The Audit Committee also considered the amount of
fees Grant Thornton 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, 2004 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
and is included on our website, www.usph.com.
Respectfully submitted,
The Audit Committee
Marlin W. Johnston, Chairman
Bruce D. Broussard
Jerald L. Pullins
Clayton K. Trier
21
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
2006 Annual Meeting of Stockholders must be received by us on or before December
21, 2005 in order for the proposal to be considered for inclusion in the proxy
statement and form of proxy relating to the 2006 Annual Meeting. If the date of
next year's annual meeting is changed by more than 30 days from May 25, 2006,
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 2006 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
2006 Annual Meeting, such proposal must be received by the Corporate 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, 2006. 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 2006 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 2005
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/ JANNA KING
JANNA KING
Corporate Secretary
Houston, Texas
April 20, 2005
22
APPENDIX A
U.S. PHYSICAL THERAPY, INC.
CHARTER OF AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
CHARTERED: JUNE 14, 2001
CHARTER AMENDMENT DATE: OCTOBER 28, 2004
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 able
to read and understand financial statements, including the Company's balance
sheet, income statement and cash flow statement, and at least one member must
constitute an "audit committee financial expert" within the meaning of Item
401(h) of Regulation S-K. Audit Committee members shall not simultaneously serve
on the audit committees of more than two other public companies, nor shall have
they participated in the preparation of the financial statements of the Company
or its subsidiaries at any time during the past three years.
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.
THE CHAIR OF THE AUDIT COMMITTEE SHALL BE ELECTED BY THE BOARD OF
DIRECTORS. 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, including but not limited to the Compliance Sub-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
A-1
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.
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 doing so it is further
the responsibility of the Audit Committee to maintain free and open
communication with, and oversee the actions of, the Compliance Sub-Committee of
the Audit Committee, consistent with the Charter of said Compliance
Sub-Committee.
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 pre-approve 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
pre-approvals of audit and permitted non-audit services, provided that decisions
of such subcommittee to grant pre-approvals 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 (1) compensation to the independent auditors
for the purpose of rendering or issuing an audit report or performing other
audit, review or attest services, (2)compensation to any legal, accounting or
other advisors retained by the Audit Committee, and (3) ordinary administrative
expenses of the Audit Committee that are necessary or appropriate in carrying
out its duties.
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 the Compliance Sub-Committee of the
Audit Committee regarding legal, regulatory and compliance matters.
A-2
D. 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.
E. 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.
F. Discuss with management the Company's earnings press releases,
including the use of "pro forma" or "adjusted" non-GAAP financial measures
and other 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).
G. 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.
H. Review and discuss with and receive from the independent auditors
periodic reports 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.
I. 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.
J. 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.
K. 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.
L. 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.
A-3
M. 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).
N. 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.
O. 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 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.
P. 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.
Q. 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.
R. 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.
S. Obtain reports from management, the Compliance Sub-Committee, 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.
T. 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.
U. Review the significant reports to management prepared by the
internal auditing department and management's responses.
V. 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.
W. 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
A-4
had recommended to the Board of Directors that the audited financials be
included in the Company's annual report on Form 10-K.
X. Include a copy of this Charter in the annual report to stockholders
or the proxy statement on an annual basis, and, if approved by the Board of
Directors, post of copy of this Charter on the Company's website.
Y. 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.
Z. 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.
AA. 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.
BB. Annually review the Committee's (and its sub-committees)
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
(U.S. PHYSICAL THERAPY, INC. LOGO)
U.S. PHYSICAL THERAPY, INC.
o FOLD AND DETACH HERE AND READ THE REVERSE SIDE o
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PROXY PROXY
U.S. PHYSICAL THERAPY, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 2005
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I, the undersigned stockholder of U.S. Physical Therapy, Inc. (the
"Company"), hereby appoint Christopher J. Reading and Lawrance W. McAfee, and
each of them, with full power of substitution, as my true and lawful attorneys,
agents and proxies to cast all votes with respect to the Company's common stock,
which I am entitled to cast at the 2005 Annual Meeting of Stockholders to be
held on Wednesday, May 25, 2005, at 9:00 a.m. (CT), at the Company's offices at
1300 West Sam Houston Parkway South, Suite 300, Houston, Texas 77042, and at any
adjournments or postponements of such meetings, 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 FOR DIRECTOR
LISTED, FOR THE RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON, LLP AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2005 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 the 2004 Annual Report on Form 10K,
and hereby revokes any proxy or proxies heretofore given with respect to such
shares of the Company's common stock. This proxy may be revoked at any time
before its exercise.
(continued and to be signed and dated on reverse side)
o FOLD AND DETACH HERE AND READ THE REVERSE SIDE o
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FOR
all nominees
listed (except WITHHOLD
as marked to AUTHORITY
the contrary to vote for all
below) nominees listed.
1. ELECTION OF DIRECTORS [ ] [ ]
Election of ten directors to serve until the next
annual meeting of stockholders. Nominees: Daniel C.
Arnold, Christopher J. Reading, Lawrance W. McAfee,
Mark J. Brookner, Bruce D. Broussard, Marlin W.
Johnston, J. Livingston Kosberg, Jerald L. Pullins,
Albert L. Rosen and Clayton K. Trier.
WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEES
(PRINT NAME IN SPACE PROVIDED.)
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Please mark
your votes
like this [X]
FOR AGAINST ABSTAIN
2. Ratification of the appointment of Grant Thornton LLP as our [ ] [ ] [ ]
independent registered public accounting firm for 2005.
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.
Signature Signature Date
--------------------- --------------------- ----------
Please date and sign exactly as name appears hereon and return in the enclosed
envelope. Signature of Stockholder or Authorized Representative (Only one
signature is required in the case of stock ownership in the name of two or more
persons.)