<PAGE> 1
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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-11(c) or Section 240.14a-12
</TABLE>
US DIAGNOSTIC INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] 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:
<PAGE> 2
US DIAGNOSTIC INC.
777 SOUTH FLAGLER DRIVE, SUITE 1201 EAST
WEST PALM BEACH, FLORIDA 33401
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, JUNE 10, 1999
---------------------
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders of US
Diagnostic Inc., a Delaware corporation, will be held on Thursday, June 10,
1999, at 10:00 a.m. local time at the Sheraton West Palm Beach Hotel, 630
Clearwater Park Road, West Palm Beach, FL 33401. The meeting is called for the
following purposes:
1. To elect a board of five directors; and
2. To consider and take action upon such other matters as may properly come
before the meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement which is attached and made a part hereof.
The close of business on April 22, 1999 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
Annual Meeting and any adjournment or postponement thereof.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR
NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE URGED TO MARK,
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
POSTAGE-PREPAID ENVELOPE PROVIDED TO ENSURE YOUR REPRESENTATION AND THE PRESENCE
OF A QUORUM AT THE ANNUAL MEETING. IF YOU SEND IN YOUR PROXY CARD AND THEN
DECIDE TO ATTEND THE ANNUAL MEETING TO VOTE YOUR SHARES IN PERSON, YOU MAY STILL
DO SO. YOUR PROXY IS REVOCABLE IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN
THE PROXY STATEMENT.
By Order of the Board of Directors,
/s/ FRANCIS J. HARKINS, JR.
FRANCIS J. HARKINS, JR.
Secretary
West Palm Beach, Florida
April 30, 1999
<PAGE> 3
US DIAGNOSTIC INC.
777 SOUTH FLAGLER DRIVE, SUITE 1201 EAST
WEST PALM BEACH, FLORIDA 33401
(561) 832-0006
---------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF STOCKHOLDERS
To Be Held
June 10, 1999
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of US Diagnostic Inc., a Delaware corporation (the
"Company"), of proxies in the accompanying form for use in voting at the Annual
Meeting of Stockholders of the Company (the "Annual Meeting") to be held at the
Sheraton West Palm Beach Hotel, 630 Clearwater Park Road, West Palm Beach,
Florida 33401, on Thursday, June 10, 1999, at 10:00 a.m. local time, and for any
adjournment or postponement thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. The shares represented by
the proxies received, properly marked, dated, executed and not revoked will be
voted at the Annual Meeting.
It is anticipated that this Proxy Statement and the accompanying proxy card
will be mailed to stockholders on or about April 30, 1999. The Company's Annual
Report, including audited financial statements for the year ended December 31,
1998, is being mailed or delivered concurrently with this Proxy Statement. The
Annual Report is not to be regarded as proxy soliciting material.
REVOCABILITY OF PROXY
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is exercised by (i) delivering to the Company
(to the attention of Francis J. Harkins, Jr., Secretary of the Company) a
written notice of revocation or a duly executed proxy bearing a later date, or
(ii) attending the Annual Meeting and voting in person.
SOLICITATION AND VOTING PROCEDURES
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing and
mailing proxy materials for the Annual Meeting and reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Annual Meeting to beneficial owners of the
Company's common stock, par value $0.01 per share (the "Common Stock"). The
Company may conduct further solicitation personally, telephonically or by
facsimile through its officers, directors and regular employees, none of whom
will receive additional compensation for assisting with the solicitation. The
Company may retain a proxy solicitation firm to assist in the solicitation of
proxies and estimates that such services would cost approximately $5,000 (plus
reasonable out-of-pocket expenses).
The close of business on Thursday, April 22, 1999 has been fixed as the
record date (the "Record Date") for determining the holders of shares of Common
Stock of the Company entitled to notice of and to vote at the Annual Meeting. As
of the close of business on the Record Date, the Company had 22,734,233 shares
of Common Stock outstanding and entitled to vote at the Annual Meeting. The
presence at the Annual Meeting of a majority, or approximately 11,367,117 shares
of Common Stock, either in person or by proxy, will constitute a quorum for the
transaction of business at the Annual Meeting. Each outstanding share of Common
Stock on the Record Date is entitled to one vote on all matters.
An automated system administered by the Company's transfer agent will
tabulate votes cast by proxy, and an employee of the Company will tabulate votes
cast in person at the Annual Meeting. Abstentions and broker non-votes (shares
represented by a limited proxy but, as to a specific proposal, brokers are
prohibited
<PAGE> 4
from exercising discretionary authority) are each included in the determination
of the number of shares present and voting in determining the existence of a
quorum at the Annual Meeting, and each is tabulated separately. Election of
directors requires a plurality of the votes cast. Abstentions and broker
non-votes have no legal effect on the election of directors. As to all other
matters, in determining whether a proposal has been approved, abstentions are
counted as votes against the proposal and broker non-votes have no legal effect
on whether a matter is approved. If no specific instructions are given with
respect to matters to be acted upon at the Annual Meeting, shares of Common
Stock represented by a properly executed proxy will be voted (i) FOR the
election of the Board's nominees for directors listed in Proposal No. 1 and (ii)
in accordance with the best judgment of the persons acting under the proxy
concerning such other matters that are properly brought before the meeting or
any adjournment or postponements thereof.
Your vote is important. Accordingly, you are urged to sign and return the
accompanying proxy card whether or not you plan to attend the Annual Meeting. If
you do attend, you may vote by ballot at the Annual Meeting, thereby canceling
any proxy previously given.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation and By-Laws, as amended (the
"By-Laws"), provide that the number of directors shall be not more than nine
directors and shall be fixed from time to time by the Board of Directors. The
Board of Directors is currently fixed at five members. Directors are elected by
the Company's stockholders at each annual meeting or, in the case of a vacancy,
are appointed by the directors then in office, to serve until the next annual
meeting or until their successors are elected and qualified.
The nominees for election as directors at the Annual Meeting are Messrs. C.
Keith Hartley, David McIntosh, Michael A. O'Hanlon, Joseph A. Paul and Dr.
Kenneth R. Jennings. All of the nominees are currently members of the Board of
Directors of the Company. The Board of Directors recommends that all of the
nominees be elected as directors of the Company, and it is intended that the
accompanying proxy will be voted for the election of the five nominees as
directors, unless the proxy contains contrary instructions.
The Company has no reason to believe that any of the nominees will not be a
candidate or will be unable to serve as a director. However, in the event that
any of the nominees should become unable or unwilling to serve as a director,
the persons named in the proxy have advised that they will vote for the election
of such person or persons as shall be nominated by the Board of Directors.
The By-Laws set forth procedures by which stockholders of the Company who
are stockholders of record as of the Record Date entitled to vote in the
election of directors may nominate persons for election to the Board of
Directors. Such nominations shall be considered timely, in the case of an annual
meeting, if received by the Company not less than 90 days nor more than 120 days
prior to the meeting; provided, however, that in the event that less than 70
days' notice of the date of the meeting is given to stockholders, notice by the
stockholder to be timely must be received not later than the close of business
on the 10th day following the day on which public notice of the meeting was
made, which was April 17, 1999 for the Annual Meeting. The stockholder's
nomination must include: (a) all information required to be disclosed in the
solicitation of a proxy pursuant to Regulation 14A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including the nominee's written
consent to serve as a director if elected); (b) the nominating stockholder's
name and address as they appear on the Company's books; and (c) the number of
shares of Common Stock of the Company beneficially owned by such nominating
stockholder.
NOMINEES
The following sets forth the names and ages of the five nominees for
election to the Board of Directors, their respective principal occupations or
employment histories and the period during which each has served as a director
of the Company.
C. Keith Hartley -- age 56 -- has been a member of the Board of Directors
of the Company since September 1996 and served as Co-Chairman of the Board from
December 1, 1997 to July 1998. Since
2
<PAGE> 5
August 1995, Mr. Hartley also has been Managing Partner, Corporate Finance, of
Forum Capital Markets LLC, an investment banking firm. From May 1991 to August
1995, Mr. Hartley was an independent financial consultant, and from February
1990 to May 1991, he was a Managing Director of Peers & Co., a merchant banking
firm. From 1973 to 1989, Mr. Hartley was a Managing Director of Drexel Burnham
Lambert Incorporated. Mr. Hartley also is a director of Comdisco, Inc. and
Swisher International Group, Inc.
Kenneth R. Jennings, Ph.D. -- age 44 -- has been a member of the Board of
Directors of the Company since October 1998. Since February 1999, Dr. Jennings
has served as Vice Chairman of Jay Alix & Associates, a management consulting
firm. From 1993 to October 1998, Dr. Jennings was a partner with Andersen
Consulting where his area of focus was the health care management industry,
specifically the development of high performance health care organizations. He
also directed the firm's health care merger and acquisition practice. He is one
of the authors of the book, "Changing Health Care -- Creating Tomorrow's Winning
Health Enterprise Today," and his writings on health care have been published
frequently in numerous journals. Dr. Jennings also is a director of Lumenol, a
medical products and molecular diagnostics company.
David McIntosh -- age 52 -- has been a member of the Board of Directors of
the Company since October 1998. Since June 1998, Mr. McIntosh has been the Chief
Executive Officer of Barricade International, Inc., a developer and distributor
of a fire-blocking gel. From 1984 through April 1998, Mr. McIntosh was the Chief
Executive Officer of Gunster, Yoakley, Valdes-Fauli and Stewart, P.A., a
prominent Florida-based international law firm. Prior to 1984, Mr. McIntosh was
a partner with Coopers & Lybrand, a public accounting firm. He is a director,
officer and active member of numerous local, state and national foundations,
committees, task forces, associations and charitable organizations. Mr. McIntosh
also is a director of Florida Banks, Inc., which operates a community banking
system in Florida through its wholly-owned banking subsidiary, Florida Bank,
N.A.
Michael A. O'Hanlon -- age 52 -- has served as a director of the Company
since January 1998. Since November 1995, Mr. O'Hanlon has served as the
President and Chief Executive Officer of DVI, Inc. ("DVI"), the largest
independent financier to the health care market in the United States. Mr.
O'Hanlon was President and Chief Operating Officer of DVI from September 1994 to
November 1995, and previously served as Executive Vice President of DVI. For
nine years prior to joining DVI, Mr. O'Hanlon served as President and Chief
Executive Officer of Concord Leasing, Inc., a provider of medical, aircraft,
shipping, industrial and medical imaging equipment financing. Mr. O'Hanlon also
is a director of DVI.
Joseph A. Paul -- age 41 -- has been a member of the Company's Board of
Directors and its President since July 1, 1996, its Chief Operating Officer from
July 1, 1996 through October 31, 1997, its interim Chief Executive Officer
effective February 1, 1997 and became the Company's Chief Executive Officer in
March 1997. From May 1994 to June 30, 1996, he was President of MediTek Health
Corporation ("MediTek"), a corporation acquired by the Company from HEICO
Corporation ("HEICO") in July 1996. Mr. Paul joined HEICO in 1991 as a Vice
President and was responsible for forming MediTek. From 1981 until June 1997,
Mr. Paul was a Vice President of Ambassador Square, Inc., a real estate
development and management company, and from 1988 until June 1997, served as a
Vice President of Columbia Ventures, Inc., a private investment company. Mr.
Paul is a member of the American Institute of Certified Public Accountants and
the Florida Institute of Certified Public Accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
NOMINEES NAMED ABOVE.
3
<PAGE> 6
BOARD OF DIRECTORS
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held 10 meetings during the year
ended December 31, 1998. During 1998, each director attended at least 75% of the
meetings of the Board of Directors and any committee on which such director
served. The Board currently has three committees: the Audit Committee, the
Compensation Committee and the Executive Committee.
From December 1997 until October 20, 1998, the Audit Committee consisted of
two non-employee directors, Mr. Hartley and Dr. L.E. Richey, a former director.
The Audit Committee formally met once in 1998. Since October 20, 1998, the Audit
Committee has consisted of three non-employee directors, Messrs. Hartley,
McIntosh and O'Hanlon. The Audit Committee, among other things, oversees and
reviews the effectiveness of the Company's financial and accounting functions,
organization and operations. The Audit Committee is also authorized by the Board
of Directors to review, with the Company's independent accountants, the annual
financial statements of the Company; to review the work of, and approve
non-audit services performed by, such independent accountants; and to make
annual recommendations to the Board of Directors for the appointment of
independent public accountants for the ensuing year.
From November 1997 until October 20, 1998, the Compensation Committee
consisted of two non-employee directors, Mr. Hartley and Dr. Richey. The
Compensation Committee formally met twice in 1998. Since October 20, 1998, the
Compensation Committee has consisted of two non-employee directors, Dr. Jennings
and Dr. Gordon C. Rausser, a director of the Company until the date of the
Annual Meeting. The Compensation Committee reviews and recommends to the Board
of Directors the compensation and benefits of all officers of the Company,
reviews general policy matters relating to compensation and benefits of
employees of the Company, administers the U.S. Diagnostic Inc. 1995 Long-Term
Incentive Plan, as amended (the "1995 Plan") and the issuance of stock options
to the Company's officers, employees and consultants and authorizes grants of
options to directors who are not employees of the Company.
From December 1997 until October 20, 1998, the Executive Committee of the
Board of Directors consisted of Messrs. Hartley and Paul and Drs. Richey and
Rausser. The Executive Committee did not meet in 1998 . Since October 20, 1998,
the Executive Committee has consisted of all of the directors of the Company.
The Executive Committee exercises the powers and authority of the Board of
Directors in the management and affairs of the Company between meetings of the
Board of Directors, to the extent permitted by law.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In June 1996, the Company acquired U.S. Imaging, Inc. ("U.S. Imaging") in a
merger transaction pursuant to which U.S. Imaging merged into a wholly-owned
subsidiary of the Company. The merger consideration paid to the former sole
stockholder of U.S. Imaging, the Reese General Trust (the "Reese Trust"), was
$7,000,000 in cash and 1,671,000 shares of Common Stock, of which 671,000 shares
were placed in escrow. The Reese Trust subsequently transferred the shares to
Lighthouse Capital Insurance Company. Dr. Richey, a director and Chairman of the
Board of the Company until his resignation on February 12, 1999, and a member of
the Compensation Committee until October 20, 1998, does not have beneficial
ownership of these shares. The shares held in escrow were to be released to
Lighthouse if U.S. Imaging in 1997 and 1998 achieved certain financial results.
Of the shares held in escrow, 400,000 shares were released in 1997 and the
balance was released in 1998. Dr. Richey was the President of U.S. Imaging at
the time of the merger. Dr. Richey became a director of the Company in June 1997
and was not a director or an employee of the Company at the time that the
Company acquired U.S. Imaging. On February 12, 1999, the Company sold U.S.
Imaging to United Radiology Associates, Inc., a company with which Dr. Richey
was affiliated, for $11,650,000, including a secured promissory note payable to
the Company in the aggregate principal amount of $1,850,000, which was
personally guaranteed by Dr. Richey.
4
<PAGE> 7
COMPENSATION OF DIRECTORS
Directors who are not officers or employees of the Company receive a
payment of $1,000 for each meeting of the Board that they attend and receive
$500 for each committee meeting they attend. Board members are also reimbursed
for their reasonable expenses incurred in serving as a director of the Company.
In November 1997, the Board of Directors adopted a policy of granting
options to purchase shares of the Company's Common Stock to directors who are
not employees or principal stockholders of, or referring physicians to, the
Company ("Director Options"). Director Options to purchase 10,000 shares of
Common Stock are granted to each such director (i) on the date such director is
first elected or appointed to the Board of Directors and (ii) each year
thereafter on the day of the first meeting of the Board of Directors immediately
following the Annual Meeting of Stockholders (so long as the director's term as
a director continues after such annual meeting). Director Options have a term of
five years, vest as determined by the Board of Directors and have an exercise
price equal to the fair market value of the Common Stock on the date immediately
preceding the date of the option grant. See "Stock Option Cancellation and
Reissuance."
Dr. Rausser is paid $25,000 per calendar quarter pursuant to the terms of a
Consulting Agreement with the Company dated January 1, 1995, as amended. See
"Certain Relationships and Related Transactions."
5
<PAGE> 8
EXECUTIVE OFFICERS
The following sets forth certain information with respect to the current
executive officers of the Company (other than Mr. Paul):
Francis J. Harkins, Jr. -- age 49 -- joined the Company in December 1997 as
Executive Vice President, General Counsel and Corporate Secretary. Prior to
joining the Company, Mr. Harkins served as Assistant General Counsel from 1993
to 1996, as Corporate Secretary from 1995 to 1997 and as Vice President and
Associate General Counsel from 1996 to 1997, of Peoples Telephone Company, Inc.,
one of the largest independent operators of public pay telephones in the United
States.
Leon F. Maraist -- age 56 -- has served as Executive Vice President and
Chief Operating Officer of the Company since November 1997. From 1993 to 1997,
Mr. Maraist served as Vice President of NMC Diagnostic Services, Inc. ("NMC"),
which provides mobile imaging diagnostics in physicians' offices and diagnostics
in fixed sites. His responsibilities with NMC included marketing, sales, finance
and operations. From 1992 to 1994, Mr. Maraist directed operations of the $1
billion nationwide dialysis division of NMC.
J. Wayne Moor -- age 47 -- has been Chief Financial Officer of the Company
since June 1997 and is an Executive Vice President. From October 1994 until June
1997, Mr. Moor was an independent accounting consultant, and he served in that
capacity for the Company from February 1997 until June 1997. From 1989 to
October 1994, he was Executive Vice President in charge of commercial real
estate and business lending at Cartaret Savings and AmeriFirst Banks.
EXECUTIVE COMPENSATION
The following table sets forth, for the years ended December 31, 1998, 1997
and 1996, the compensation paid or accrued by the Company to its current Chief
Executive Officer, its three most highly compensated executive officers as
December 31, 1998 and two other officers who were executive officers of the
Company until October 20, 1998 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ -----------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND COMPENSATION AWARD(S) OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) ($)(2) (#)(3) ($)
------------------ ---- --------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph A. Paul(4) 1998 235,000 100,000 12,000 -- 375,001 6,010(5)
Chief Executive Officer, 1997 222,346 50,000 15,240 -- 200,000 7,450(5)
President and Director 1996 98,485 25,000 6,000 573,125 300,000 45,555(6)
Leon F. Maraist(7) 1998 200,000 50,000 9,000 -- 75,000 65,173(7)
Executive Vice President, 1997 26,154 -- 1,177 -- 80,000 --
Chief Operating Officer 1996 -- -- -- -- -- --
J. Wayne Moor(8) 1998 155,354 50,000 7,154 -- 75,000 622(8)
Executive Vice President, Chief 1997 76,154 -- 3,486 -- 50,000 46,110(8)
Financial Officer 1996 -- -- -- -- -- --
Francis J. Harkins, Jr.(9) 1998 135,000 20,000 6,000 -- 50,000 2,090(5)
Executive Vice President, General 1997 4,154 -- 185 -- 25,000 --
Counsel and Corporate Secretary 1996 -- -- -- -- -- --
David Cohen 1998 151,250 211,063 14,240 -- 125,000 8,600(5)
Executive Vice President, 1997 137,500 180,181 14,240 -- -- 3,000(5)
West Coast Region 1996 125,000 165,247 14,240 -- 50,000 1,615(5)
Alan M. Winakor(10) 1998 205,685 63,333 13,000 -- 50,000 8,680(5)
Executive Vice President, 1997 204,000 50,000 -- -- -- 6,620(5)
Northeast Region 1996 45,508 16,667 -- -- 100,000 942(5)
</TABLE>
- -------------------------
(1) Represents car allowance.
(2) The number of shares of restricted stock outstanding at December 31, 1998
totaled 84,400 shares. The aggregate value of the restricted stock was
$71,234 at December 31, 1998 based upon the closing market price of the
Company's Common Stock on that date. The total number of shares of
outstanding
6
<PAGE> 9
restricted stock included in the Summary Compensation Table that have
vested, or will vest, in whole or in part, within three years after date of
grant is 20,000 shares, all of which have vested. Dividends will be paid on
restricted stock to the extent paid on Common Stock.
(3) In 1996, the Company granted 100,000 options and 50,000 options to Messrs.
Paul and Cohen, respectively, with an exercise price that was below the
market price of the underlying Common Stock. The exercise price of the
options was $7.125, and the market price of the underlying Common Stock on
the date of the option grant was $12.875 per share. See "Stock Option
Cancellation and Reissuance."
(4) Mr. Paul joined the Company in July 1996 and became its Chief Executive
Officer in March 1997. The 1996 amounts only include Mr. Paul's
compensation as President for the period from July 1, 1996 through December
31, 1996 and do not include a $200,000 bonus and $17,512 of vacation pay
earned at MediTek and accrued prior to the acquisition of MediTek by the
Company and paid by the Company in July 1996 subsequent to the date of
acquisition. These amounts do not include Mr. Paul's 1996 salary and bonus
earned for the period prior to the acquisition of MediTek by the Company
(January 1, 1996 to June 30, 1996) in the amounts of $70,488 and $37,500,
respectively. Mr. Paul's salary and bonus at MediTek was $140,413 in 1996.
(5) Represents Company contributions to the 401(k) Plan.
(6) Reimbursement for Mr. Paul's relocation expenses totaled $43,040, and
Company contributions to the 401(k) Plan on his behalf totaled $2,515.
(7) Mr. Maraist's employment began in November 1997. Mr. Maraist was paid
$64,932 as reimbursement for relocation expenses, and the Company's
contributions to the 401(k) Plan on his behalf totaled $241.
(8) Mr. Moor's employment began in June 1997. Mr. Moor was paid $622 as
reimbursement for relocation expenses in 1998. During 1997, the Company
paid Mr. Moor a total of $46,110 in consulting fees prior to his employment
by the Company.
(9) Mr. Harkins' employment began in December 1997.
(10) Mr. Winakor's employment began in October 1996.
STOCK OPTIONS
The following table sets forth information concerning the Named Executive
Officers whose stock options were cancelled and reissued during the year ended
December 31, 1998. See "Stock Option Cancellation and Reissuance" and "Ten-Year
Option/SAR Repricings."
OPTION/SAR GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
PERCENT OF RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(2)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) IN 1998 ($/SH) DATE 5%($) 10%($)
- ---- ------------- ---------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Paul............... 375,001 20.1% $.937 12/11/2003 97,079 214,519
Leon F. Maraist.............. 75,000 4.0% $.937 12/11/2003 19,416 42,904
J. Wayne Moor................ 75,000 4.0% $.937 12/11/2003 19,416 42,904
Francis J. Harkins, Jr....... 50,000 2.7% $.937 12/11/2003 12,944 28,602
David Cohen.................. 125,000 6.7% $.937 12/11/2003 32,359 71,506
Alan M. Winakor.............. 50,000 2.7% $.937 12/11/2003 12,944 28,602
</TABLE>
- -------------------------
(1) The cancelled and reissued stock options vested 25% on December 11, 1998,
and 25% on each of December 11, 1999, 2000 and 2001.
(2) The potential realizable value is based on the term of the option at the
time of grant. An assumed stock price appreciation of 5% and 10% is used
pursuant to rules promulgated by the Securities and Exchange Commission. The
potential realizable value is calculated by assuming that (i) the stock
price on the date
7
<PAGE> 10
of grant was equal to the exercise price and (ii) such stock price
appreciates at the indicated rate, compounded annually for the entire term
of the option and that the option is exercised and sold on the last day of
its term at this appreciated price. The potential realizable value is not
intended to forecast the future appreciation of the Common Stock. Actual
gains, if any, on stock option exercises will depend upon the future
performance of the Common Stock and the date on which the options are
exercised.
The following table sets forth year-end option values for the Named
Executive Officers who held unexercised options at December 31, 1998:
AGGREGATED OPTION EXERCISES IN LAST YEAR AND
YEAR END OPTION VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS AT OPTIONS AT FISCAL
ACQUIRED ON VALUE FISCAL YEAR END (#) YEAR END($)
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
- ---- ----------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Joseph A. Paul................. 0 N/A 93,750/281,251 N/A
Leon F. Maraist................ 0 N/A 18,750/56,250 N/A
J. Wayne Moor.................. 0 N/A 18,750/56,250 N/A
Francis J. Harkins, Jr......... 0 N/A 12,500/37,500 N/A
David Cohen.................... 0 N/A 31,250/93,750 N/A
Alan M. Winakor................ 0 N/A 12,500/37,500 N/A
</TABLE>
- -------------------------
(1) See "Stock Option Cancellation and Reissuance."
(2) As of December 31, 1998, none of the options was in the money.
STOCK OPTION CANCELLATION AND REISSUANCE
As discussed in the Compensation Committee Report, and as previously
reported in the Company's Form 10-K for the year ended December 31, 1998, on
December 11, 1998, the Company offered certain holders of stock options,
including certain executive officers, the opportunity to cancel their
outstanding stock options in exchange for the issuance of replacement stock
options. This December 1998 cancellation and reissuance was consummated in lieu
of the July 1998 cancellation and reissuance previously disclosed which was not
consummated. The exercise price on the newly issued stock options was set at the
fair market value of the Company's Common Stock at the close of business on
December 10, 1998, which price was lower than the exercise price of the canceled
options. This action was taken in order to provide an appropriate incentive to
these individuals. As a result of the stock option cancellation and reissuance,
1,966,000 options outstanding under the 1995 Plan were cancelled and 1,695,001
options were reissued.
8
<PAGE> 11
The following table sets forth certain information concerning the
cancellation and reissuance of stock options to executive officers of the
Company on December 11, 1998 and within the previous ten years.
TEN-YEAR OPTION/SAR REPRICINGS (1)
<TABLE>
<CAPTION>
LENGTH OF ORIGINAL
NUMBER OF SECURITIES MARKET PRICE OF EXERCISE PRICE OPTION TERM
UNDERLYING STOCK AT TIME AT TIME OF NEW REMAINING AT DATE
OPTIONS/SARS OF REPRICING OR REPRICING OR EXERCISE OF REPRICING OR
NAME DATE(2) REPRICED OR AMENDED AMENDMENT ($) AMENDMENT ($) PRICE ($) AMENDMENT (YRS.)
- ---- ------- --------------------- --------------- -------------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Paul 12/11/98 75,000 .937 7.13 .937 2.5
Chief Executive Officer, 12/11/98 150,000 .937 12.13 .937 2.8
President and Director 12/11/98 150,001 .937 6.25 .937 3.4
-------
375,001
Leon F. Maraist 12/11/98 75,000 .937 6.63 .937 3.9
Executive Vice President,
Chief Operating Officer
J. Wayne Moor 12/11/98 75,000 .937 6.69 .937 3.5
Executive Vice President,
Chief Financial Officer
Francis J. Harkins, Jr. 12/11/98 50,000 .937 3.69 .937 4.0
Executive Vice President,
General Counsel and
Corporate Secretary
David Cohen 12/11/98 93,750 .937 5.00 .937 6.7
Executive Vice President 12/11/98 31,250 .937 7.13 .937 7.5
West Coast Region -------
125,000
Alan M. Winakor 12/11/98 50,000 .937 10.00 .937 2.7
Executive Vice President,
Northeast Region
Len V. Platt 12/11/98 42,858 .937 11.25 .937 2.9
Executive Vice President, 12/11/98 8,571 .937 4.56 .937 3.9
Southeast Region 12/11/98 8,571 .937 1.25 .937 4.9
-------
60,000
Arthur E. Quillo 12/11/98 50,000 .937 11.25 .937 2.9
Executive Vice President,
South Central and Midwest
Region
Andrew P. Shaw 12/11/98 19,780 .937 12.50 .937 2.6
Executive Vice President 12/11/98 16,484 .937 12.13 .937 2.8
12/11/98 3,956 .937 10.00 .937 2.9
12/11/98 19,780 .937 6.25 .937 3.4
-------
60,000
Amos F. Almand, III 12/11/98 23,810 .937 7.13 .937 2.5
Senior Vice President 12/11/98 26,190 .937 6.00 .937 3.4
-------
50,000
C. Keith Hartley 12/11/98 11,539 .937 12.13 .937 2.8
Former Co-Chairman of the 12/11/98 40,383 .937 8.63 .937 3.3
Board and Director 12/11/98 11,539 .937 6.50 .937 8.9
12/11/98 11,539 .937 1.63 .937 4.9
-------
75,000
L.E. Richey, M.D. 12/11/98 10,000 .937 7.50 .937 8.5
Former Chairman of the 12/11/98 10,000 .937 6.50 .937 8.9
Board and Former Director 12/11/98 350,000(3) .937 3.50 .937 4.6
12/11/98 10,000 .937 1.63 .937 4.9
-------
380,000
</TABLE>
- -------------------------
(1) For an explanation of the cancellation and reissuance, see "Compensation
Committee Report -- Stock Option Cancellation and Reissuance."
(2) The date reflects the date on which stock options to purchase shares of
Common Stock were canceled and the date on which replacement stock options
were issued.
(3) On July 13, 1998, the Board of Directors of the Company granted Dr. Richey
options to purchase 350,000 shares of Common Stock in recognition of the
extensive amount of time he devoted to the Company and in anticipation of
his future contributions as Chairman. The options were exercisable at a
price of $3.50 per share, which represented the closing price of the Common
Stock on the day immediately preceding the date of grant, and were to fully
vest one year from date of grant. These options were canceled and reissued
on December 11, 1998. Dr. Richey resigned as Chairman of the Board and as a
director of the Company on February 12, 1999.
9
<PAGE> 12
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee submits the following report for 1998:
COMPENSATION STRUCTURE
The key components of the compensation of the Company's Chief Executive
Officer and the other executive officers named in the Summary Compensation Table
are base salary, annual bonus and stock-based incentives. The objective of the
Company is to create a compensation package for executive officers that is
competitive with compensation payable by comparable medical imaging and other
companies of similar size and complexity, as well as to provide both short-term
rewards and long-term incentives for positive individual and corporate
performance. This policy is expected to attract, motivate and retain the
qualified management necessary to promote continuing improvement in the
Company's performance and long-term stockholder value.
Based on both objective and subjective determinations and subject to the
terms of the employment agreements, the Chief Executive Officer recommends to
the Compensation Committee the amount of total compensation payable to the Named
Executive Officers other than himself for each year. The Committee undertakes a
review of such recommendations in light of the factors noted by the Chief
Executive Officer and the various factors discussed below. The Committee sets
the compensation payable to the Chief Executive Officer relying on similar
factors. In the compensation process, predetermined performance targets are used
for purposes of compensation decisions. Relevant subjective criteria are used as
well in the Committee's reasonable business discretion. The Committee and the
Board of Directors have historically approved the compensation recommendations
of the Chief Executive Officer.
The various components of the Company's executive compensation are
discussed below.
Salaries
The base salaries of the Named Executive Officers, including the base
salary of the Chief Executive Officer of the Company, are set at a level the
Company believes to be comparable to salaries paid to executive officers of
companies of comparable size. The objective of the Company is to attract and
retain the best possible individuals while setting compensation at levels that
are sufficiently competitive with companies of similar size and complexity. The
base salary is reviewed annually.
Joseph A. Paul became President of the Company in June 1996 and Chief
Executive Officer in March 1997. Mr. Paul's base salary as an employee of the
Company is set at $235,000 annually, is subject to annual increases of at least
5% and includes other terms as set forth in the "Employment Agreements" section
of this Proxy Statement. These terms were established after arms-length
negotiations between the Company and Mr. Paul and the Company believes them to
be appropriate for an executive of Mr. Paul's experience in the increasingly
competitive and rapidly evolving medical imaging industry.
Bonuses
Annual discretionary bonuses allow the Company greater flexibility in
rewarding favorable individual and corporate performance and in motivating
executives. The bonus for the Chief Executive Officer is tied to earnings per
share, among other considerations. Further, the Compensation Committee generally
considers in reviewing bonus recommendations such factors as increases in the
Company's revenues and profits, scan volume, new center openings, EBITDA,
collection of accounts receivable, completion and integration of significant
acquisitions, the execution of the Company's business plan and individual
performance, among other factors.
Stock-Based Incentives
The third component of the Company's executive compensation is comprised of
stock-based incentive plans. The Committee considers the current year's vesting
of previously issued shares under the 1995 Plan in evaluating the executive
compensation recommendations of the Chief Executive Officer. Whereas the cash
10
<PAGE> 13
bonus payments are intended to reward positive short-term individual and
corporate performance, grants under the stock-based plans are intended to
provide executives with longer term incentives which appreciate in value with
the continued favorable performance of the Company. Such options generally vest
over a period of years and thus are helpful in retaining qualified executives.
The use of stock incentives is intended to align the interests of the Company's
executives with that of the Company's stockholders. In 1998, the Committee
granted options with respect to 715,500 shares of the Company's Common Stock. Of
those options, 350,000 were granted to Dr. Richey, representing 48.9% of the
total options granted to all employees. No options were granted to Named
Executive Officers except options issued in connection with the stock option
cancellation and reissuance. See "Stock Option Cancellation and Reissuance"
below.
Stock Option Cancellation and Reissuance
Pursuant to the 1995 Plan, the Compensation Committee had granted stock
options to certain members of management and other senior employees at exercise
prices ranging from $3.50 to $13.50 per share. After the decline in the market
price of the Company's Common Stock, the Compensation Committee considered
whether or not, in conjunction with the other forms of compensation, the
outstanding stock options were sufficient to motivate and retain certain members
of management and other senior employees. The Compensation Committee concluded
that the outstanding options were insufficient to motivate and retain these key
employees and, therefore, the Compensation Committee issued new options to
certain employees in consideration of their agreement to cancel their
outstanding options. Accordingly, effective December 11, 1998, 1,966,000 options
outstanding under the 1995 Plan were cancelled and 1,695,001 options were issued
with an exercise price of $0.937 per share, which was the closing market price
per share of Common Stock on December 10, 1998. This December 1998 cancellation
and reissuance was consummated in lieu of the July 1998 cancellation and
reissuance previously disclosed which was not consummated. For information
regarding the stock options reissued to each named executive officer as well as
to other executive officers, see "Ten-Year Option/SAR Repricings."
The Compensation Committee
Kenneth R. Jennings, Ph.D.
Gordon C. Rausser, Ph.D.
11
<PAGE> 14
PERFORMANCE GRAPH
The graph below compares the cumulative total returns (as described below)
of the Company's Common Stock with the Nasdaq Stock Market (U.S.) Index and the
Nasdaq Health Services Index for the period commencing October 20, 1994 (the
date on which trading in the Company's Common Stock commenced) and ending
December 31, 1998. The interim measurement points are the last days of the years
during the measurement period: December 31, 1994, December 31, 1995, December
31, 1996, December 31, 1997 and December 31, 1998.
Stockholder returns are calculated assuming $100 was invested at the
closing market prices on October 20, 1994, assuming in all cases reinvestment of
any subsequent dividends. The Performance Graph below is presented in accordance
with Securities and Exchange Commission requirements. Stockholders are cautioned
that historical stock price performance shown on the Performance Graph is not
necessarily indicative of future stock price performance and in no way reflects
the Company's forecast of future stock price performance.
COMPARISON OF 50 MONTH CUMULATIVE TOTAL RETURN*
AMONG US DIAGNOSTIC INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ HEALTH SERVICES INDEX
(GRAPH OMITTED)
<TABLE>
<CAPTION>
NASDAQ
US STOCK NASDAQ
MEASUREMENT PERIOD DIAGNOSTIC MARKET HEALTH
(FISCAL YEAR COVERED) INC. (U.S.) SERVICES
--------------------- ---------- ------- --------
<S> <C> <C> <C>
10/94 100 100 100
12/94 86 99 97
12/95 138 140 123
12/96 176 172 122
12/97 70 211 125
12/98 16 297 107
</TABLE>
* $100 INVESTED ON 10/20/94 IN STOCK OR ON 9/30/94 IN INDEX -- INCLUDING
REINVESTMENT OF DIVIDENDS, YEAR ENDED DECEMBER 31.
EMPLOYMENT AGREEMENTS
Joseph A. Paul and the Company entered into a five-year employment
agreement dated June 18, 1996 for Mr. Paul to serve as President and a director
of the Company effective on July 1, 1996. Effective in February 1997, he was
also appointed as interim Chief Executive Officer of the Company, and in March
1997, he became Chief Executive Officer. The agreement as amended provides for
an annual base salary of $235,000 during the first year of its term, and for
annual increases in each of the remaining years of at least 5%. The agreement
also provides for an annual bonus of $50,000 during the first year and a bonus
in each subsequent year as currently determined by the Compensation Committee.
The agreement provides that all options and
12
<PAGE> 15
restricted stock awards granted to Mr. Paul will vest if he is terminated
without cause or upon a change of the Company. The agreement also provides that,
upon the occurrence of certain events including a "change in control" of the
Company as defined in the agreement and a material breach of the agreement by
the Company, Mr. Paul has the right to elect to deem his employment to have been
terminated by the Company without cause and receive a lump sum payment equal to
2.9 times the annual salary and incentive or bonus payments made to him by the
Company during the most recent year.
Leon F. Maraist and the Company entered into an employment agreement
effective on November 1, 1997 and continuing through November 1, 2000, pursuant
to which Mr. Maraist serves as Executive Vice President and Chief Operating
Officer of the Company. The agreement provides for an annual base salary of
$200,000 and payment of annual bonuses at the discretion of the Board of
Directors. In addition, Mr. Maraist was granted 80,000 stock options pursuant to
the terms and conditions of the 1995 Plan. In the event of a "change in control"
of the Company as defined in the 1995 Plan, the unvested portion of the 80,000
options would automatically vest. See "Stock Option Cancellation and
Reissuance." The agreement also provided for reimbursement of relocation
expenses. In the event that the Company materially breaches the employment
agreement or in the event of the occurrence of certain changes in control or
ownership of the Company enumerated in the agreement, Mr. Maraist may elect, by
written notice to the Company, to deem his employment terminated by the Company
without cause and would be entitled to receive lump sum compensation equal to
twice his annual salary and incentive or bonus payments, if any, paid to Mr.
Maraist during the Company's most recent fiscal year.
J. Wayne Moor and the Company entered into a three-year employment
agreement effective on June 18, 1997 and ending June 17, 2000, pursuant to which
Mr. Moor would serve as Vice President and Chief Financial Officer of the
Company. Mr. Moor was elected an Executive Vice President of the Company on
October 20, 1998. The agreement provides for an annual base salary of $150,000
and payment of annual bonuses at the discretion of the Board of Directors. The
determination of bonus entitlement will be based 50% upon the profitability and
performance of the Company and 50% upon Mr. Moor's performance. In addition, Mr.
Moor was granted 50,000 stock options pursuant to the terms and conditions of
the 1995 Plan. In the event of a "change in control" of the Company as defined
in the 1995 Plan, the unvested portion of the 50,000 options would automatically
vest. See "Stock Option Cancellation and Reissuance." In the event that the
Company materially breaches the employment agreement or in the event of the
occurrence of certain changes in control or ownership of the Company enumerated
in the agreement, Mr. Moor may elect, by written notice to the Company, to deem
his employment terminated by the Company without cause and would be entitled to
receive lump sum compensation equal to twice his annual salary and incentive or
bonus payments, if any, paid to Mr. Moor during the Company's most recent fiscal
year.
Francis J. Harkins, Jr. and the Company entered into an employment
agreement effective on December 9, 1997 and continuing through November 30,
2000, pursuant to which Mr. Harkins serves as Executive Vice President and
General Counsel of the Company. As amended, the agreement currently provides for
an annual base salary of $150,000 and payment of annual bonuses at the
discretion of the Company. In addition, Mr. Harkins was granted 25,000 stock
options pursuant to the terms and conditions of the 1995 Plan. In the event of a
"change in control" of the Company as defined in the 1995 Plan, the unvested
portion of the 25,000 options would automatically vest. See "Stock Option
Cancellation and Reissuance." In the event that the Company materially breaches
the employment agreement or in the event of the occurrence of certain changes in
control or ownership of the Company enumerated in the agreement, Mr. Harkins may
elect, by written notice to the Company, to deem his employment terminated by
the Company without cause and would be entitled to receive lump sum compensation
equal to twice his annual salary and incentive or bonus payments, if any, paid
to Mr. Harkins during the Company's most recent fiscal year.
David Cohen and the Company entered into a four-year employment agreement
in August 1995, as amended in May 1997. Mr. Cohen currently serves as Executive
Vice President of the Company in charge of the West Coast Region. The agreement
provides that Mr. Cohen's annual base salary was $120,000 for the first year of
the agreement, subject to annual increases and payment of annual bonuses equal
to the greater of five percent of the net income before taxes of the Company's
San Francisco Magnetic Resonance Center ("SFMRC") or $50,000. Mr. Cohen was also
entitled to a cash bonus of 3% of the net income before taxes
13
<PAGE> 16
resulting from Mr. Cohen's identification and development of certain mergers and
acquisitions that were consummated by the Company prior to June 1, 1997. Mr.
Cohen was granted 100,000 fully vested stock options and 50,000 options that
vest at the rate of 12,500 options per year, but only for each year in which the
SFMRC earned a minimum of $250,000 before taxes. See "Stock Option Cancellation
and Reissuance." In the event that Mr. Cohen's duties and authority are
materially diminished or the Company materially breaches the agreement, Mr.
Cohen is entitled to deem his employment terminated without cause and receive
all compensation which would have accrued to him under the agreement for the
longer of the remainder of the term or for a period of one year.
Alan M. Winakor and the Company entered into a five-year employment
agreement, dated September 4, 1996. Mr. Winakor currently serves as Executive
Vice President of the Company in charge of the Northeast Region. The agreement
provides for an annual base salary of $200,000 during the first year of its
term, annual increases of at least 5%, and an annual bonus of $50,000 subject to
conditions enumerated in the agreement. In addition, Mr. Winakor was granted
options to purchase 100,000 shares, 25,000 options of which vested in each year
in which certain income targets were met. All options granted to Mr. Winakor
will vest upon the earlier of the termination of his employment without cause
and a change in control of the Company. See "Stock Option Cancellation and
Reissuance."
In addition, each of the Named Executive Officers is entitled during the
term of his employment with the Company to customary employee benefits, such as
paid vacation, health insurance and a car allowance.
14
<PAGE> 17
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and the notes thereto set forth, as of April 22, 1999,
the beneficial ownership of the Company's Common Stock ("Common Stock") by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the Common Stock in reliance upon information set forth in any statements filed
with the Securities and Exchange Commission under Section 13(d) or 13(g) of the
Exchange Act, (ii) each director and Named Executive Officer of the Company and
(iii) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------
NAME COMMON STOCK PERCENT
- ---- ------------ -------
<S> <C> <C>
Lighthouse Capital Insurance Company........................ 1,687,750 7.4
Anderson Square
3rd Floor
P.O. Box 112356T
Grand Cayman, BVI
The Robert C. Fanch Revocable Trust......................... 1,165,000 5.1
1873 South Bellaire Street, Suite 1550
Denver, CO 80222
Francis D. Hussey, Jr. d/b/a Magnetic Scans................. 1,138,000 5.0
2660 Airport Road South
Naples, FL 34112
C. Keith Hartley............................................ 319,445(2) 1.4
Michael A. O'Hanlon......................................... 8,000 *
Kenneth R. Jennings, Ph.D................................... -- *
David McIntosh.............................................. 10,000 *
Gordon C. Rausser, Ph.D..................................... 625,000(3) 2.7
Joseph A. Paul.............................................. 167,475(4) *
Leon F. Maraist............................................. 28,914(5) *
J. Wayne Moor............................................... 18,750(6) *
Francis J. Harkins, Jr...................................... 12,600(7) *
David Cohen................................................. 34,750(8) *
Alan M. Winakor............................................. 327,128(9) 1.4
All directors and executive officers as a group
(11 persons).............................................. 1,552,062(10) 6.8
</TABLE>
- -------------------------
* Less than 1%.
(1) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. Each beneficial owner's
percentage ownership is determined by assuming that convertible securities,
options or warrants that are held by such person (but not those held by any
other person) and which are exercisable within 60 days after April 22, 1999
have been exercised. Calculation of percentage ownership was based on
22,734,233 shares of Common Stock outstanding as of April 22, 1999.
(2) Mr. Hartley is a Managing Partner, Corporate Finance, of Forum Capital
Markets LLC ("Forum"), which served as an underwriter in connection with
the Company's $57.5 million subordinated convertible debenture offering.
Forum is the holder of record of warrants to purchase 319,445 shares of
Common Stock. Mr. Hartley disclaims beneficial ownership of such shares.
(3) Includes 400,000 shares subject to warrants and 75,000 shares of restricted
stock granted under the 1995 Plan over which Dr. Rausser exercises voting
power, 24,000 shares of which are subject to a five-year vesting period and
51,000 shares of which are subject to a three-year vesting period.
Accordingly, Dr. Rausser does not currently have investment power over
21,800 shares of the 75,000 shares of restricted stock which have not yet
vested.
15
<PAGE> 18
(4) Includes 93,750 shares subject to options (see "Stock Option Cancellation
and Reissuance") and 45,000 shares of restricted stock granted under the
1995 Plan over which Mr. Paul exercises voting power, 30,000 of which have
vested and 15,000 of which vest in three equal annual installments
beginning on October 9, 1999 or immediately upon a change in control of the
Company. Accordingly, Mr. Paul does not currently have investment power
with respect to 15,000 of the 45,000 shares of restricted stock which have
not yet vested.
(5) Includes 18,750 shares subject to options (see "Stock Option Cancellation
and Reissuance").
(6) Includes 18,750 shares subject to options (see "Stock Option Cancellation
and Reissuance").
(7) Includes 12,500 shares subject to options (see "Stock Option Cancellation
and Reissuance").
(8) Includes 31,250 shares subject to options (see "Stock Option Cancellation
and Reissuance").
(9) Includes 12,500 shares subject to options (see "Stock Option Cancellation
and Reissuance").
(10) Includes all shares and options described in footnotes 2-9 above.
16
<PAGE> 19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1998, the Company purchased a condominium from J. Wayne Moor, the
Company's Chief Financial Officer, for $200,000 to facilitate Mr. Moor's
relocation to Palm Beach County, Florida. In February 1999, the Company sold the
condominium for $187,000.
In March 1998, the Company completed reimbursement to Leon F. Maraist for
approximately $65,000 to facilitate his relocation to Palm Beach County,
Florida.
The Company is a party to a Consulting Agreement effective as of January 1,
1995, with Dr. Gordon C. Rausser, as amended, pursuant to which Dr. Rausser acts
as a consultant to the Company on economic, financial and strategic matters.
Under the agreement, as amended, Dr. Rausser is entitled to a consulting fee of
$25,000 per calendar quarter until December 31, 1999, provided that he offers or
agrees to serve as a director of the Company and offers or agrees to serve as a
consultant under the agreement. In connection with entering into the agreement,
as amended, Dr. Rausser received a warrant to purchase 400,000 shares of Common
Stock of the Company exercisable at $5.00 per share at any time through December
31, 1999. Also in connection with the Consulting Agreement, in October 1996, the
Company issued 24,000 restricted shares of Common Stock with a fair market value
of $12.625 per share to Dr. Rausser under the 1995 Plan, and in January 1997,
the Company issued an additional 51,000 restricted shares of Common Stock with a
fair market value of $8.625 per share to Dr. Rausser under the 1995 Plan.
The Company entered into an Installation Agreement ("Installation
Agreement") dated February 27, 1997, and a Network Support Agreement ("Support
Agreement") dated July 31, 1997, with CIERRA Solutions, Inc. ("CSI"). A brother
of Todd Smith, who was a Vice President and the Chief Information Officer of the
Company through October 1998, is a substantial minority shareholder of CSI. CSI
has been providing project management services to the Company in connection with
the deployment of a wide area computer network to over 100 of the Company's
locations and other services since February 1996. The Installation Agreement had
a one-year term. The Support Agreement covered a six-month term and was
renewable by mutual consent of the parties for successive periods. The Company
has decided not to renew the Support Agreement with CIERRA after the current
contract lapses on April 30, 1999. Payments made to CSI during 1998 totaled $1.0
million, including reimbursement for expenses and equipment purchases of
$206,000.
In June 1996, the Company acquired U.S. Imaging in a merger transaction
pursuant to which U.S. Imaging merged into a wholly-owned subsidiary of the
Company. The merger consideration paid to the former sole stockholder of U.S.
Imaging, the Reese General Trust (the "Reese Trust"), was $7,000,000 in cash and
1,671,000 shares of the Company's Common Stock, of which 671,000 shares were
placed in escrow. The Reese Trust transferred the shares to Lighthouse Capital
Insurance Company. Dr. L.E. Richey, a former director, does not have beneficial
ownership of these shares. The shares held in escrow were to be released to
Lighthouse if U.S. Imaging achieved certain financial results in 1997 and 1998.
Of the shares held in escrow, 400,000 shares were released in 1997 and the
balance was released in 1998. Dr. Richey was the President of U.S. Imaging at
the time of the merger, and became a director of the Company in June 1997. In
December 1997, Dr. Richey became a Co-Chairman of the Board of the Company and
in July 1998, Dr. Richey became Chairman of the Board of the Company. Dr. Richey
was not a director or an employee of the Company at the time that the Company
acquired U.S. Imaging. On February 12, 1999, the Company sold U.S. Imaging to
United Radiology Associates, Inc., a company with which Dr. Richey was
affiliated, for $11,650,000 including a secured promissory note payable to the
Company in the aggregate principal amount of $1,850,000, which was personally
guaranteed by Dr. Richey. Also on February 12, 1999, Dr. Richey resigned as a
director and Chairman of the Board of the Company.
Pursuant to the terms of a Subscription Agreement dated December 1, 1996,
the Company purchased approximately 5,000,000 shares (which as a result of a
reverse 4:1 stock split in 1998 currently number 1,250,000 shares) of common
stock of Diversified Therapy Corp. ("DTC") for $3.5 million, representing
approximately 25% of all of the outstanding common stock of DTC at September 11,
1998. DTC commenced operations in 1996 to develop a leadership position in the
ownership and operations of U.S. wound care treatment facilities utilizing
hyperbaric chambers. Mr. Amos F. Almand, III, an executive officer of the
17
<PAGE> 20
company until October 20, 1998, is the Chairman of the Board and a more than 5%
beneficial owner of DTC. Dr. Rausser, a director of the Company until the date
of the Annual Meeting, is also a director of DTC. On December 31, 1998, the
Company sold its interest in DTC for a nominal amount.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to report ownership and changes in
ownership of the Company's Common Stock to the Securities and Exchange
Commission. Copies of these reports are also required to be delivered to the
Company.
Except as set forth below, the Company believes that, based solely on its
review of the copies of such reports received and written representations that
no other reports were required, during the year ended December 31, 1998, all
Section 16(a) filing requirements applicable to its Reporting Persons were
complied with, except that Messrs. Maraist, Platt and McIntosh each
inadvertently filed a Form 4 late for one transaction; Mr. Cohen inadvertently
filed two Form 4's late, each for one transaction; and Form 5's reporting two
related, simultaneous transactions for each of Dr. Jennings, Messrs. Harkins,
Maraist and Moor and four related, simultaneous transactions for Mr. Paul were
inadvertently filed late.
RELATIONSHIP WITH THE COMPANY'S AUDITORS
Representatives of Deloitte & Touche LLP, the independent certified public
accountants who audited the Company's financial statements for 1998, are
expected to be present at the Annual Meeting. Such representatives will be
afforded the opportunity to make a statement, if they so desire, and are
expected to be available to respond to appropriate questions from stockholders.
The Company is not required to obtain stockholder approval or ratification of
its selection of its auditors under the laws of the State of Delaware, and the
Audit Committee and the Board of Directors have the discretion to select the
Company's auditors as appropriate.
OTHER MATTERS
The Board of Directors is not aware of any other matters to be presented at
the Annual Meeting. However, if any matter is properly presented at the Annual
Meeting, the persons named in the enclosed proxy will have discretionary
authority to vote in accordance with their best judgment.
18
<PAGE> 21
STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the 2000 Annual
Meeting of Stockholders and who wishes to have a proposal included in the
Company's proxy statement and form of proxy for the 2000 Annual Meeting must
deliver the proposal to the Secretary of the Company no later than December 30,
1999. The Company will not be required to include in its proxy statement or
proxy card a stockholder proposal which is received after that date or which
otherwise fails to meet the requirements for stockholder proposals established
by the rules and regulations of the Securities and Exchange Commission.
In addition, the By-Laws provide that only stockholder proposals submitted
in a timely manner to the Secretary of the Company may be acted upon at an
annual meeting of stockholders. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the executive offices of the Company
not less than 90 days (March 12, 2000) nor more than 120 days (February 11,
2000) before the date of the originally scheduled meeting. The Annual Meeting of
Stockholders for the year ended December 31, 1999 is expected to be held no
later than June 10, 2000. A proxy may confer discretionary authority on the
proxy holders to vote on an untimely stockholder proposal.
Any stockholder proposals should be addressed to Francis J. Harkins, Jr.,
Secretary, US Diagnostic Inc., 777 South Flagler Drive, Suite 1201 East, West
Palm Beach, Florida 33401.
By Order of the Board of Directors,
/s/ FRANCIS J. HARKINS, JR.
FRANCIS J. HARKINS, JR.
Secretary
Dated: April 30, 1999
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<PAGE> 22
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
US DIAGNOSTIC INC.
FOR THE 1999 ANNUAL MEETING OF THE STOCKHOLDERS
JUNE 10, 1999
The undersigned stockholder of US Diagnostic Inc., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, each dated April 30, 1999, and the 1998 Annual Report on Form
10-K, and hereby appoints Joseph A. Paul, Leon F. Maraist and J. Wayne Moor, or
any one of them, proxies, with full power to each of substitution, on behalf and
in the name of the undersigned, to represent the undersigned at the 1999 Annual
Meeting of Stockholders of US Diagnostic Inc. to be held on Thursday, June 10,
1999 at 10:00 a.m., local time, at the Sheraton West Palm Beach Hotel, 630
Clearwater Park Road, West Palm Beach, Florida 33401, and at any adjournment or
adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if personally present, on the matters set
forth on the reverse side.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSAL SET FORTH HEREIN.
1. ELECTION OF DIRECTORS:
[ ] FOR all nominees listed below (except as indicated) [ ] WITHHOLD AUTHORITY
to vote for all
nominees listed
below
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW.
C. Keith Hartley David McIntosh
Kenneth R. Jennings, Ph.D. Michael A. O'Hanlon
Joseph A. Paul
(Continued and to be SIGNED on the OTHER SIDE)
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
DATED: , 1999
----------------------
----------------------------------
SIGNATURE
----------------------------------
SIGNATURE IF SHARES HELD JOINTLY
NOTE: Please sign exactly as name
appears hereon. When shares are
held by joint tenants, both should
sign. When signing as attorney,
executor, administrator, trustee
or guardian, please give full
title as such. If a corporation,
please sign in full corporate name
by the President or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
