radnet_pre14a-2009.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934
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Filed
by the Registrant
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x |
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Filed
by a Party other than the Registrant
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o |
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Check the
appropriate box:
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x |
Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §
240.14a-12
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RADNET,
INC.
(Name of
Registrant as Specified in its Charter)
(Name of
Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
x No fee
required
o Fee computed on
table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title
of each class of securities to which transaction applies:
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Not
applicable
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(2)
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Aggregate
number of securities to which transaction applies:
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Not
applicable
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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Not
applicable
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(4)
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Proposed
maximum aggregate value of transaction:
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[_______]
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(5)
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Total
fee paid:
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[______]
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o Fee paid
previously with preliminary materials:
o 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.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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RADNET,
INC.
1510
Cotner Ave.
Los
Angeles, CA 90025
May 6,
2009
Dear
Stockholder:
You are
cordially invited to attend the annual meeting of stockholders of RadNet, Inc.
to be held at The Olympic Collection, 11301 Olympic Blvd., Los Angeles,
California on Friday, June 5, 2009, at 10:00 a.m. (Pacific time).
The
attached notice of annual meeting and proxy statement include the agenda for the
stockholders' meeting, explain the matters that we will discuss at the meeting
and provide general information about our company.
Your vote
is very important. We have provided a postage-paid envelope for your
convenience. If you plan to attend the annual meeting and prefer to
vote in person, you may still do so even if you have already given your
proxy. If your shares are registered in the name of a broker or other
nominee, your nominee may be participating in a program provided through
Broadridge Financial Solutions, Inc. that allows you to vote by telephone or the
Internet. If so, the voting form that your nominee sends you will
provide telephone and Internet instructions.
We look
forward to seeing you at the annual meeting.
Sincerely,
Norman R.
Hames
Corporate
Secretary
RADNET,
INC.
1510
Cotner Ave.
Los
Angeles, CA 90025
______________________________________
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
June
5, 2009
______________________________________
The
annual meeting of stockholders of RadNet, Inc. will be held at The Olympic
Collection, 11301 Olympic Blvd., Los Angeles, California on Friday, June 5,
2009, at 10:00 a.m. (Pacific time) for the following purposes:
1. To
elect seven nominees named in the attached proxy statement as directors to hold
office until the 2010 annual meeting of stockholders;
2. To
amend our 2006 Equity Incentive Plan to allow for a stock option exchange for
eligible employees, consultants and directors, including the cancellation of
certain stock options held by our current employees, consultants and
directors;
3. To
amend our 2006 Equity Incentive Plan to increase the number of shares available
to 5,500,000;
4. To
ratify the appointment of Ernst & Young LLP as our independent registered
public accounting firm for the fiscal year ending December 31, 2009;
and
5. To
transact any other business that may properly come before the meeting or any
adjournment or postponement of the meeting.
The
foregoing items of business are more fully described in the proxy
statement.
The board
of directors has fixed the close of business on May 4, 2009 as the record date
for the determination of stockholders entitled to notice of and to vote at the
annual meeting and at any adjournment or postponement thereof. A list
of stockholders entitled to vote at the meeting will be available for inspection
at our offices.
Important
Notice Regarding the Availability of Proxy Materials for the 2009 Annual Meeting
to be held on June 5, 2009: In accordance with new rules issued by the
Securities and Exchange Commission, you may access our 2008 Annual Report and
our Proxy Statement at http://materials.proxyvote.com/750491
which does not have “cookies” that identify visitors to the site.
By order
of the board of directors,
Norman R.
Hames
Corporate
Secretary
Dated: May
6, 2009
All
stockholders are cordially invited to attend the meeting in
person. Whether or not you expect to attend the meeting, please
complete, sign, date and return the enclosed proxy card as soon as possible to
ensure your representation at the meeting. A postage-paid return
envelope is enclosed for your convenience. Stockholders holding
shares with a broker, bank or other nominee may also be eligible to vote via the
Internet or to vote telephonically if their broker, bank or other nominee
participates in the proxy voting program provided by Broadridge Financial
Solutions, Inc. (formerly ADP Investor Communication Services). See
"Voting Shares Registered in the Name of a Broker or Bank" in the proxy
statement for further details on the Broadridge program. Even if you
have given your proxy, you may still vote in person if you attend the
meeting. Please note, however, that if a broker, bank or other
nominee holds your shares of record and you wish to vote at the meeting, then
you must obtain from the record holder a proxy issued in your name.
RADNET,
INC.
1510
Cotner Ave.
Los
Angeles, CA 90025
___________________________
2009
PROXY STATEMENT
___________________________
General
Information
The board
of directors of RadNet, Inc., a Delaware corporation, is providing these proxy
materials to you in connection with the solicitation of proxies for use at our
2009 annual meeting of stockholders. The meeting will be held at The
Olympic Collection, 11301 Olympic Blvd., Los Angeles, California on Friday, June
5, 2009, at 10:00 a.m. (Pacific time) or at any adjournment or postponement
thereof, for the purposes stated herein. This proxy statement
summarizes the information that you will need to know to vote in an informed
manner.
Voting
Rights and Outstanding Shares
We will
begin mailing this proxy statement and the accompanying proxy card on or about
May 6, 2009 to all stockholders of record that are entitled to
vote. Only stockholders that owned our common stock at the close of
business on May 4, 2009, the record date, are entitled to vote at the annual
meeting. On the record date, 35,924,279
shares of our common stock were outstanding.
Each
share of our common stock that you own entitles you to one vote on all matters
to be voted upon at the meeting. The proxy card indicates the number
of shares of our common stock that you own. We will have a quorum to
conduct the business of the annual meeting if holders of a majority of the
shares of our common stock are present in person or represented by
proxy. Abstentions and broker non-votes (i.e., shares of common stock
held by a broker, bank or other nominee that are represented at the meeting, but
that the broker, bank or other nominee is not empowered to vote on a particular
proposal) will be counted in determining whether a quorum is present at the
meeting.
Directors
will be elected by a plurality of votes cast by shares present or represented at
the meeting. Shares not present at the meeting, broker non-votes and
shares voting “abstain” will have no impact on the election of
directors. The proposals to exchange options, increase the number of
shares available under our equity incentive plan and ratify the appointment of
our independent registered public accounting firm must be approved by a majority
of the shares present in person or represented by proxy and entitled to vote on
such matter at the annual meeting. With respect to such proposals,
abstentions will be included in the number of shares present and entitled to
vote with respect to a proposal and, accordingly, will have the effect of a vote
"AGAINST" the proposal. However, broker non-votes with respect to such proposals
will not be counted as shares present and entitled to vote and, accordingly,
will not have any effect with respect to the approval of such proposals (other
than to reduce the number of affirmative votes required to approve the
proposal).
Voting
Shares Registered in Your Name
If you
are a stockholder of record, you may vote in one of two ways:
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Attend
the 2009 annual meeting and vote in person;
or
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Complete,
sign, date and return the enclosed proxy
card.
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Voting
Shares Registered in the Name of a Broker, Bank or Other Nominee
Most
beneficial owners whose stock is held in street name will receive instructions
for voting their shares from their broker, bank or other nominee, rather than
our proxy card.
A number
of brokers and banks participate in a program provided through Broadridge
Financial Solutions, Inc. that allows stockholders to grant their proxy to vote
shares by means of the telephone or Internet. If your shares are held
in an account with a broker or bank participating in the Broadridge program,
then you may vote your shares telephonically by calling the telephone number
shown on the instruction form received from your broker or bank, or over the
Internet at Broadridge's web site at http://www.proxyvote.com.
If you
wish to vote in person at the annual meeting, then you must obtain a legal proxy
issued in your name from the broker, bank or other nominee that holds your
shares of record.
Tabulation
of Votes
A
representative from our transfer agent, American Stock Transfer & Trust
Company, will tabulate the votes. The shares of our common stock
represented by proxy will be voted in accordance with the instructions given on
the proxy so long as the proxy is properly executed and received by us prior to
the close of voting at the meeting or any adjournment or postponement of the
meeting (or in the case of proxies submitted by telephone or via the Internet,
by the deadline specified in the instructions you receive from your broker or
bank). If no instruction is given, then the proxy will be voted for
the nominees for director, for the option exchange and amendment to the equity
incentive plan and for the proposal to ratify the appointment of Ernst &
Young LLP as our independent registered public accounting firm. In
addition, the individuals that we have designated as proxies for the meeting
will have discretionary authority to vote for or against any other stockholder
matter presented at the meeting.
Revocability
of Proxies
As a
stockholder of record, once you have submitted your proxy you may revoke it at
any time before it is voted at the meeting. You may revoke your proxy
in any one of three ways:
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You
may grant another proxy marked with a later date (which automatically
revokes the earlier proxy) using any of the methods described above (and
until the applicable deadline for each
method);
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You
may notify our Corporate Secretary in writing that you wish to revoke your
proxy before it is voted at the annual meeting;
or
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You
may vote in person at the annual
meeting.
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Solicitation
This
solicitation is made by our board of directors, and we will bear the entire cost
of soliciting proxies, including preparation, assembly, printing and mailing of
this proxy statement, the proxy card and any additional information furnished to
stockholders. We will provide copies of solicitation materials to
banks, brokerage houses, fiduciaries and custodians holding in their names
shares of our common stock that are beneficially owned by others for forwarding
to the beneficial owners. We may reimburse persons representing
beneficial owners of common stock for their costs of forwarding solicitation
materials to the beneficial owners. Solicitations will be made
primarily through the mail, but may be supplemented by telephone, telegram,
facsimile, Internet or personal solicitation by our directors, executive
officers, employees or other agents. No additional compensation will
be paid to these individuals for these services.
Stockholder
Proposals for 2010
Requirements for Stockholder
Proposals to be Considered for Inclusion in RadNet, Inc.'s Proxy
Materials. Stockholder proposals submitted pursuant to Rule 14a-8 under
the Exchange Act and intended to be presented at our 2010 annual meeting must be
received by us not later than January 6, 2010, in order to be considered for
inclusion in our proxy materials for that meeting.
Requirements for Stockholder
Proposals to be Brought Before an Annual Meeting. Our bylaws provide
that, for stockholder nominations to the board of directors or other proposals
to be considered at an annual meeting, the stockholder must have given timely
notice of the proposal or nomination in writing to our Corporate
Secretary. To be timely for the 2010 annual meeting, a stockholder's
notice must be delivered to or mailed and received by our Corporate Secretary at
our principal executive offices between January 28, 2010 and February 27,
2010. A stockholder's notice to the Corporate Secretary must set
forth, as to each matter the stockholder proposes to bring before the annual
meeting, the information required by our bylaws.
Separate
Copy of Annual Report or Proxy Materials
If you
share an address with another stockholder, each stockholder may not receive a
separate copy of our annual report and proxy materials. Stockholders
who do not receive a separate copy of our annual report and proxy materials, and
who want to receive a separate copy, may request to receive a separate copy of
our annual report and proxy materials by writing to Investor Relations at
RadNet, Inc., 1510 Cotner Ave., Los Angeles, CA 90025 or by calling
310-445-2955. We will undertake to deliver promptly a copy of the
annual report or proxy materials, as applicable, upon the receipt of such
request. Stockholders who share an address and receive multiple
copies of our annual report and proxy materials may also request to receive a
single copy following the instructions above.
Stockholder
Communications to the Board
Stockholders
who wish to send communications to our board of directors may do so by sending
them in care of our Secretary at the address on the cover page of this Proxy
Statement. The envelope containing such communication must contain a clear
notation indicating that the enclosed letter is a “Stockholder-Board
Communication” or “Stockholder-Director Communication” or similar statement that
clearly and unmistakably indicates the communication is intended for the board.
All such communications must clearly indicate the author as a stockholder and
state whether the intended recipients are all members of the board or just
certain specified directors. Our Secretary will have the discretion to screen
and not forward to directors communications which the Secretary determines in
his or her discretion are communications unrelated to our business or our
governance, commercial solicitations, or communications that are offensive,
obscene, or otherwise inappropriate. The Secretary will, however, compile all
stockholder communications which are not forwarded and such communications will
be available to any director.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table presents information concerning the beneficial ownership of the
shares of our common stock as of March 31, 2009,
by:
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each
person we know to be the beneficial owner of 5% or more of our outstanding
shares of common stock,
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each
of our Named Executive Officers and directors,
and
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all
of our current executive officers and directors as a
group.
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Unless
otherwise noted below, the address of each beneficial owner listed in the table
is c/o RadNet, Inc., 1510 Cotner Ave., Los Angeles, CA 90025.
We have
determined beneficial ownership in accordance with the rules of the
SEC. Except as indicated by the footnotes below, we believe, based on
the information furnished to us, that the persons and entities named in the
table below have sole voting and investment power with respect to all shares of
common stock that they beneficially own, subject to applicable community
property laws.
Applicable
percentage ownership is based on 35,924,279 shares of common stock outstanding
on March 31, 2009. In computing the number of shares of common stock
beneficially owned by a person and the percentage ownership of that person, we
deemed as outstanding shares of common stock subject to options or warrants held
by that person that are currently exercisable or exercisable within 60 days of
March 31, 2009. We did not deem these shares outstanding, however,
for the purpose of computing the percentage ownership of any other
person.
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Name
of Beneficial Owner
##
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Shares
Beneficially
Owned
(1)
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Number
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__%
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5%
or Greater Stockholders:
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Howard G. Berger,
M.D.
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6,507,500
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15.4
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WC Capital Management,
LLC
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3,206,746
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7.6
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Directors
and Named Executive Officers:
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Howard G. Berger, M.D.(2)
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6,507,500
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15.4
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Marvin S.
Cadwell
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118,928(3)
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*
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John V. Crues, III,
M.D.
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673,262(4)
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1.6
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Norman R.
Hames
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1,576,237(5)
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3.7
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Lawrence L.
Levitt
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150,000(6)
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*
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Michael L. Sherman,
M.D.
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125,315(7)
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*
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David L.
Swartz
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185,000(8)
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*
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Stephen M.
Forthuber
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100,000(9)
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*
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Jeffrey L.
Linden
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885,000(10)
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2.1
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Mark D.
Stolper
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492,205(11)
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1.2
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All directors and executive
officers as a group (10 persons)
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10,640,642(12)
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25.2
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_______________________
## Except
as otherwise indicated, the address for each beneficial owner is 1510 Cotner
Avenue, Los Angeles, California 90025.
* Represents
less than 1%.
(1) Subject
to applicable community property statutes and except as otherwise noted, each
holder named in the table has sole voting and investment power with respect to
all shares of common stock shown as beneficially owned.
(2) As
a result of his stock ownership and positions as president and director, Dr.
Berger may be deemed to be a controlling person of our company.
(3) Beneficial
ownership includes 100,000 shares subject to options exercisable within 60 days
of March 31, 2009.
(4) Beneficial
ownership includes 250,000 shares subject to options exercisable within 60 days
of March 31, 2009.
(5) Beneficial
ownership includes 1,376,237 shares subject to options exercisable within 60
days of March 31, 2009.
(6) Beneficial
ownership includes 150,000 shares subject to options exercisable within 60 days
of March 31, 2009.
(7) Beneficial
ownership includes 75,000 shares subject to options exercisable within 60 days
of March 31, 2009.
(8) Beneficial
ownership includes 125,000 shares subject to options exercisable within 60 days
of March 31, 2009.
(9) Beneficial
ownership includes 125,000 shares subject to options exercisable within 60 days
of March 31, 2009.
(10) Beneficial
ownership includes 387,500 shares subject to options exercisable within 60 days
of March 31, 2009.
(11) Beneficial
ownership includes 475,000 shares subject to options exercisable within 60 days
of March 31, 2009.
(12) Beneficial
ownership includes 2,963,737 shares subject to options exercisable within 60
days of March 31, 2009.
PROPOSAL
NO. 1
ELECTION
OF DIRECTORS
Our board
of directors, acting pursuant to our bylaws, has determined that the number of
directors constituting the full board of directors shall be seven at the present
time. The board of directors has, upon approval of the independent
directors, nominated Howard G. Berger, M.D., Marvin S. Cadwell, John V. Crues,
III, M.D., Norman R. Hames, Lawrence L. Levitt, Michael L. Sherman, M.D. and
David L. Swartz for reelection as members of the board of
directors.
Each of
the nominees is currently a director of our company. Each
newly-elected director will serve a one-year term until the next annual meeting
of stockholders or until his successor is duly qualified and
elected. During the course of a term, the board of directors may
appoint a new director to fill any vacant spot, including a vacancy caused by an
increase in the size of the board of directors. The new director will
complete the term of the director he or she replaced. Each person
nominated for election has agreed to serve if elected, and we have no reason to
believe that any nominee will be unable to serve. However, if any
nominee cannot serve, then your proxy will be voted for another nominee proposed
by the board of directors, or if no nominee is proposed by the board of
directors, a vacancy will occur.
We, as a
matter of policy, encourage our directors to attend meetings of
stockholders. There are no family relationships between any nominees
or executive officers of our company, and there are no arrangements or
understandings between any nominee and any other person pursuant to which such
nominee was or is selected as a director or nominee.
Nominees
for Director
You are
being asked to vote on the seven director nominees listed
below. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for these seven nominees. All of our
nominees for director are current members of our board of
directors. The names of the director nominees, their ages as of March
31, 2009 and other information about them are shown below.
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Name of Director Nominee
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Age
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Position
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Director Since
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Howard
G. Berger, M.D.
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64
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President,
Chief Executive Officer
and
Chair of the Board of Directors
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1992
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Marvin
S. Cadwell
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65
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Director
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2007
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John
V. Crues, III, M.D.
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59
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Director
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2000
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Norman
R. Hames
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52
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Director
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1996
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Lawrence
L. Levitt
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66
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Director
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2005
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Michael
L. Sherman, M.D.
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65
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Director
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2007
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David
L. Swartz
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65
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Director
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2004
|
The
following is a brief description of the business experience of each director and
executive officer during the past five years.
Howard G.
Berger, M.D. has served as President and Chief Executive Officer of our company
and its predecessor entities since 1987. Dr. Berger is also the
president of the entities that own BRMG. Dr. Berger has over 25 years
of experience in the development and management of healthcare
businesses. He began his career in medicine at the University of
Illinois Medical School, is Board Certified in Nuclear Medicine and trained in
an Internal Medicine residency, as well as in a masters program in medical
physics in the University of California system.
Marvin S.
Cadwell served as a director of Radiologix between June 2002 and November
2006. He was appointed Chairman of the Board of Radiologix in
December 2002 and served as Chairman of the Nominations and Governance Committee
of the Board of Radiologix. He was the Radiologix interim Chief
Executive Officer from September 2004 until November 2004. From
December 2001 until November 2002, Mr. Cadwell served as Chief Executive Officer
of SoftWatch, Ltd., an Israeli based company that provides Internet
software. Since 2003, he has served as a director of ChartOne, Inc.,
a private company that provides patient chart management services to the
healthcare industry.
John V.
Crues, III, M.D. is a world-renowned radiologist. Dr. Crues has
served as our Medical Director for more than five years. Dr. Crues
plays a significant role as a musculoskeletal specialist for many of our
patients as well as a resource for physicians providing services at our
facilities. Dr. Crues received his M.D. at Harvard University,
completed his internship at the University of Southern California in Internal
Medicine, and completed a residency at Cedars-Sinai in Internal Medicine and
Radiology. Dr. Crues has authored numerous publications while
continuing to actively participate in radiological societies such as the
Radiological Society of North America, American College of Radiology, California
Radiological Society, International Society for Magnetic Resonance Medicine and
the International Skeletal Society.
Norman R.
Hames has served as our Chief Operating Officer since 1996 and currently as our
Executive Vice President and Chief Operating Officer - Western
Operations. Applying his 20 years of experience in
the industry, Mr. Hames oversees all aspects of our California
facility operations. His management team, comprised of regional
directors, managers and sales managers, are responsible for responding to all of
the day-to-day concerns of our California facilities, patients, payors and
referring physicians. Prior to joining our company, Mr. Hames was
President and Chief Executive Officer of his own company, Diagnostic Imaging
Services, Inc. (which we acquired), which owned and operated 14 multi-modality
imaging facilities throughout Southern California. Mr. Hames gained
his initial experience in operating imaging centers for American Medical
International, or AMI, and was responsible for the development of AMI’s single
and multi-modality imaging centers.
Lawrence
L. Levitt is a C.P.A. and since 1987 has been the President and Chief Financial
Officer of Canyon Management Company, a company which manages a privately held
investment fund. Mr. Levitt is also a director of River Downs
Management Company, operator of a thoroughbred racetrack in Ohio.
Michael
L. Sherman, M.D., F.A.C. R., had been a Radiologix director since
1997. He served as President of Advanced Radiology, P.A., a 90-person
radiology practice located in Baltimore, Maryland, from 1995 to 2001, and
subsequently as its board chairman and a consultant until his retirement from
active practice in 2005. Radiologix has a contractual relationship
with Advanced Radiology, P.A. Dr. Sherman has broad experience in the
medical and business aspects of radiology. In addition, Dr. Sherman
was a director of MedStar Health, a seven-hospital system in the
Baltimore-Washington, D.C. market from 1998 until 2006. He continues
to serve on the board of MedStar Health’s captive insurance company, Greenspring
Financial Insurance Limited, Inc. Dr. Sherman is also a Senior
Advisor for healthcare at FOCUS Enterprises, a Washington, D.C.-based investment
banking firm.
David L.
Swartz is a C.P.A. with thirty-five years of experience providing accounting and
advisory services to clients. Mr. Swartz currently serves as the
president of the California State Board of Accountancy. Between 1993
and 2008, Mr. Swartz served as the managing partner of Good, Swartz, Brown &
Berns. Prior to this, Mr. Swartz served as managing partner and was
on the national board of directors of a 50 office international accounting
firm. Mr. Swartz is also a former CFO of a publicly held shopping
center and development company.
None of
the directors serves as a director of any other corporation with a class of
securities registered pursuant to Section 12 of the Exchange Act or subject to
the requirements of Section 15(d) of the Exchange Act. There are no family
relationships among any of the officers and directors. Furthermore, none of the
events described in Item 401(f) of Regulation S-K involve a director or officer
during the past five years.
Vote
Required
The
nominees who receive the highest number of votes represented by shares of common
stock present or represented by proxy and entitled to vote at the annual meeting
will be elected.
OUR
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION
TO
THE BOARD OF EACH OF THESE NOMINEES
PROPOSAL
NO. 2
APPROVAL
OF AMENDMENT TO 2006 EQUITY INCENTIVE PLAN TO ALLOW FOR A STOCK OPTION EXCHANGE
FOR EMPLOYEES, CONSULTANTS AND DIRECTORS
Introduction
We are
seeking stockholder approval of an amendment to our 2006 Equity Incentive Plan
(the “2006 Plan”), to allow for a one-time stock option exchange. If
implemented, the exchange would allow us to cancel certain stock options
currently held by some of our employees, consultants and directors in exchange
for the grant of the same amount of stock options with lower exercise prices,
while all other terms would remain unchanged. Only outstanding
options that are “underwater” (meaning the exercise prices of the options are
greater than our current stock price) are eligible for the
exchange. Stockholder approval is required for this proposal under
the NASDAQ listing rules. If stockholders approve this proposal to
amend the 2006 Plan, the board of directors intends to commence the exchange as
soon as practicable after the annual meeting. If stockholders do not
approve this proposal, the exchange will not take place.
Overview
Our stock
price has experienced a significant decline during the last year due in large
part to the continued weakness and uncertainty in the general economy and credit
markets, extraordinary selling by stockholders seeking liquidity as a result of
redemptions or liquidations, selling by stockholders in order to satisfy margin
calls and continued operating losses, despite our growth and improved
performance. Our efforts have not yet had a significant impact on our
stock price, which remains at a relatively low level. Consequently,
our employees, consultants and directors hold a significant number of stock
options with exercise prices that greatly exceed both the current market price
of our common stock and the average market price of our stock over the prior 12
months. Further, given current economic and credit market conditions,
there can be no assurance that our efforts to improve our business and improve
our performance will ultimately result in significant increases in our stock
price. Thus, the board of directors and the Compensation and
Management Development Committee (“Compensation Committee”) believe these
underwater options no longer provide the long-term incentive and retention
objectives that they were intended to provide. The board of directors
and the Compensation Committee believe the exchange is an important component in
our strategy to align Company and stockholder interest through our equity
compensation program. We believe that the exchange is important for
the Company because it will permit us to:
|
·
|
Provide
renewed incentives to our employees, consultants and directors who
participate in the exchange. We believe the exchange will
enable us to enhance long-term stockholder value by providing greater
assurance that the Company will be able to retain experienced, motivated
and productive employees, consultants and directors, by improving the
morale of our employees, consultants and directors generally, and by
aligning the interests of our employees, consultants and directors more
fully with the interests of our
stockholders.
|
|
·
|
Insure
that the non-cash compensation expense recorded by the Company in the
future is aligned with options that are perceived by our employees,
consultants and directors to provide value. The existing
out-of-the money options were granted at the then fair market value of our
common stock. Under applicable accounting rules, we will have
to recognize a total of approximately $13.4 million in compensation
expense related to these underwater options, $7.5 million of which has
already been expensed as of December 31, 2008 and $5.9 million of which we
will continue to be obligated to expense, even if these options are never
exercised because the majority remain underwater. By replacing
options that have little or no retention or incentive value with options
that will provide both retention and incentive value while creating
minimal additional non-cash compensation expense (other than immaterial
expense that might result from fluctuations in our stock price after the
exchange ratios have been set but before the exchange actually occurs
which is estimated at about $300,000 per year for three years),
the Company will be making more efficient use of its
resources.
|
For
reference purposes the following table summarizes information regarding
outstanding equity awards issued pursuant to the 2006 Plan and shares of common
stock available for future grants under the 2006 Plan as of March 31,
2009:
|
Shares
available for future grant under the 2006 Plan
|
100,000
|
|
Shares
issuable pursuant to outstanding stock options
|
2,400,000
|
|
Weighted
average exercise price of all outstanding stock options
|
$5.36
|
|
Weighted
average remaining term of all outstanding stock options
|
4.64
years
|
Shares
issuable pursuant to all other outstanding equity awards1
|
151,000
|
1 Consists
solely of warrants
If
our stockholders do not approve the amendment to our 2006 Plan authorizing the
exchange, eligible options will remain outstanding and in effect in accordance
with their existing terms. We will continue to recognize compensation
expense for these eligible options, even though the options may have little or
no retention or incentive value.
Summary
of Material Terms
If
stockholders approve the requisite amendment to the 2006 Plan, the material
terms of the exchange will include eligibility of participants in the exchange
and the vesting schedule to apply to replacement options granted pursuant to the
exchange. Terms of the exchange may include the
following:
|
·
|
The
exchange will be open to all employees, consultants and directors who are
employed or engaged by us as of the start of the exchange and remain so
employed or engaged through the date the exchange ends and who hold
eligible underwater options. Eligible employees, consultants
and directors will be permitted to elect to exchange all (but not less
than all) or none of the eligible options for replacement options on a
grant-by-grant basis;
|
|
·
|
In
addition to our employees, the members of our board and our Named
Executive Officers (as defined in this proxy statement) and consultants
designated by our Compensation Committee as of the start of the exchange,
will be eligible to participate in the
exchange;
|
|
·
|
The
exchange of shares subject to eligible options surrendered in exchange for
replacement options granted will result in the grant of replacement
options that are the same in all material respects as the options they
replace, except for a change in exercise
price;
|
|
·
|
Each
replacement option will have an exercise price per share equal to the
closing price of our common stock on the date of grant of such replacement
option; and
|
|
·
|
The
exchange will begin within six months of the date of stockholder
approval. The board of directors and the Compensation Committee
will determine the actual start date within that time
period. If the exchange does not commence within six months of
stockholder approval, we will consider any future exchange or similar
program to be a new one, requiring new stockholder approval before it
could be implemented.
|
While
the actual terms of the exchange are expected to be materially similar to the
terms described in this proposal, the board of directors and the Compensation
Committee may change the terms of the exchange in their sole discretion to take
into account a change in circumstances, as described below, and may determine
not to implement the exchange even if stockholder approval is
obtained.
Reasons
for the Option Exchange
We
believe that an effective and competitive incentive program is imperative for
the success of our business. We rely on our experienced and
productive employees, consultants and directors and their efforts to help the
Company achieve its business objectives. As a result we have been
able to hold cash compensation levels down because of the incentive compensation
offered by stock options. The board of directors and the Compensation
Committee believe that equity compensation encourages employees, consultants and
directors to act like owners of the business, motivating them to work toward our
success and rewarding their contributions by allowing them to benefit from
increases in the value of our shares.
Due to
the significant decline of our stock price during the last year, many of our
employees, consultants and directors now hold stock options with exercise prices
significantly higher than the current market price of our common
stock. For example, the closing price per share of our common stock
on the NASDAQ Global Market on March 31, 2009 was $1.24, whereas the weighted
average exercise price of all outstanding options held by our employees,
consultants and directors was $5.36. As of March 31, 2009,
approximately 94% of outstanding stock options held by our employees,
consultants and directors were underwater. Although we continue to
believe that stock options are an important component of our total compensation,
many of our employees, consultants and directors view their existing options as
having little or no value due to the significant difference between the exercise
prices and the current market price of our common stock. As a result,
for many employees, consultants and directors, these options are ineffective at
providing the incentives and retention value that our board of directors and the
Compensation Committee believe is necessary to motivate and retain our
employees, consultants and directors.
Alternatives
Considered
When
considering how best to continue to incentivize and reward our employees,
consultants and directors who have underwater options, we considered the
following alternatives:
|
·
|
Increase cash
compensation. To replace equity incentives, we
considered whether we could substantially increase cash
compensation. However, significant increases in cash
compensation would substantially increase our compensation expenses and
reduce our cash flow from operations, which could adversely affect our
business and operating results.
|
|
·
|
Grant additional equity
awards. We also considered special grants of additional
stock options at current market prices or another form of equity award
such as restricted stock units. However, these additional
grants would substantially increase our overhang by increasing the number
of equity awards outstanding, and would further dilute our
stockholders.
|
|
·
|
Exchange options for
cash. We also considered implementing a program to
exchange underwater options for cash payments. However, an
exchange for cash would increase our compensation expenses and reduce our
cash flow from operations, which could adversely affect our business and
operating results. In addition, we do not believe that such a
program would have significant long-term retention
value.
|
|
·
|
Exchange options for
restricted stock units. We also considered implementing
a program to exchange underwater options for restricted stock
units. However, in order to ensure that the exchange is
approximately expense-neutral from an accounting perspective, the exchange
ratios for an options-for restricted stock units exchange would likely
need to be substantially higher than for an options-for options exchange
(i.e., fewer replacement awards granted). Thus, we believe that
employees, consultants and directors' participation in an
options-for-restricted stock units exchange would be lower than with an
options-for-options exchange.
|
Implementation
of the Option Exchange
We also
considered implementing a program to exchange underwater options for replacement
options and chose this alternative. We determined that a program
under which our employees, consultants and directors could exchange stock
options was the most attractive alternative because the exchange offers a
reasonable, balanced and meaningful incentive for our eligible employees,
consultants and directors. Under the exchange, participating
employees, consultants and directors will surrender eligible underwater options
for the same number of replacement options with a lower exercise
price.
Description
of the Option Exchange
Implementing the
Exchange. We have not commenced the exchange and will not do
so unless our stockholders approve this proposal. If the Company
receives stockholder approval of the amendment to our 2006
Plan permitting the exchange, the exchange may commence at a time
determined by the board of directors or the Compensation Committee, on terms
expected to be materially similar to those described in this
proposal. If the Company receives the required stockholder approval
for the plan amendment, the approval will be for a one-time
exchange. Even if the stockholders approve this proposal, the board
of directors or the Compensation Committee may still later determine not to
implement the exchange. It is currently anticipated that the exchange
will commence as soon as practicable following approval of this proposal by our
stockholders. However, if the exchange does not commence within six
months after the date of stockholder approval, the Company will not commence an
exchange or similar program without again seeking and receiving stockholder
approval.
Upon
commencement of the exchange, employees, consultants and directors holding
eligible options would receive written materials (the “offer to exchange”)
explaining the precise terms and timing of the exchange. Eligible
employees, consultants and directors would elect to exchange all (but not less
than all) or none of their eligible options, on a grant-by-grant basis, for
replacement options. After the offer to exchange is closed, the
eligible options surrendered for exchange would be cancelled, and the
Compensation Committee would approve grants of replacement options to
participating employees, consultants and directors. All such
replacement options would be granted under the 2006 Plan and would be subject to
the terms of the 2006 Plan.
If you
are both a stockholder and an employee, consultant or director holding eligible
options, please note that voting to approve the amendment to the 2006 Plan
authorizing the exchange does not constitute an election to participate in the
exchange.
Eligible
Options. In order for an underwater option to be eligible
under the exchange, the exercise price of the option must be above the
then-current trading price of our common stock.
Eligible
Participants. The exchange will be open to all employees,
consultants and directors who hold eligible options. To be eligible,
an individual must be employed, a consultant or a director on the date the offer
to exchange commences and must remain employed, or a consultant or a director
through the date that replacement options are granted. As of March
31, 2009, there were approximately 22 employees, consultants and directors
eligible to participate in the exchange.
Election to
Participate. Participation in the exchange will be
voluntary. Eligible employees, consultants and directors will be
permitted to exchange all (but not less than all) or none of the eligible
options for replacement options on a grant-by-grant basis.
Exercise Price of Replacement
Options. All replacement options will be granted with an
exercise price equal to the closing price of our common stock on the replacement
option grant date as reported by the NASDAQ Global Market.
Term and Vesting of the Replacement
Options. The term and vesting schedule of the replacement
options will be the same as the options being replaced.
Other Terms and Conditions of the
Replacement Options. The other terms and conditions of the
replacement options will be set forth in an option agreement to be entered into
as of the replacement option grant date. Any additional terms and
conditions will be comparable to the other terms and conditions of the eligible
options.
Return of Eligible Options
Surrendered. The eligible options surrendered for exchange
will be cancelled and all shares of common stock that were subject to such
surrendered options will again become available for future awards under the 2006
Plan.
Accounting
Treatment. Under SFAS 123(R), the exchange of options under
the option exchange is treated as a modification of the existing options for
accounting purposes. Accordingly, we will recognize the unamortized
compensation cost of the surrendered options, as well as the incremental
compensation cost of the replacement options granted in the exchange, ratably
over the vesting period of the replacement options. The incremental
compensation cost will be measured as the excess, if any, of the fair value of
each replacement option granted to employees, consultants and directors in
exchange for surrendered eligible options, measured as of the date the
replacement options are granted, over the fair value of the surrendered eligible
options in exchange for the replacement options, measured immediately prior to
the cancellation. We expect to recognize an incremental compensation
expense for financial reporting purposes as a result of the exchange of
approximately $300,000 each year for 3 years, which has been determined assuming
a share price of $1.25. In the event that any of the replacement
options are forfeited prior to their vesting due to termination of service, the
incremental compensation cost for the forfeited replacement options will not be
recognized; however, we would recognize any unamortized compensation
expense from the surrendered options which would have been recognized under the
original vesting schedule.
U.S. Federal Income Tax
Consequences. The following is a summary of the anticipated
material U.S. federal income tax consequences of participating in the
exchange. This summary is based on the federal tax laws in effect as
of the date of this proxy statement. Changes to these laws could
alter the tax consequences described below. This summary does not
discuss all of the tax consequences that may be relevant to eligible employees,
consultants and directors in light of their personal circumstances.
We
believe the exchange of eligible options for replacement options pursuant to the
exchange should be treated as a non-taxable exchange, and no income should be
recognized for U.S. federal income tax purposes by the eligible employees,
consultants and directors upon the grant of the replacement
options. All replacement options will be nonstatutory stock options
granted under our 2006 Plan, regardless of the tax status of the eligible
options surrendered for exchange. As a result, upon the subsequent
exercise of any replacement options, the eligible employees, consultants and
directors will recognize ordinary income equal to the excess, if any, of the
fair market value of the purchased shares on the exercise date over the exercise
price paid for those shares.
We will
not recognize any income for U.S. federal income tax purposes upon the surrender
of eligible options and the grant of replacement options. However, we
will be entitled to a deduction that corresponds with any ordinary income
recognized by the holders of replacement options upon their exercise of such
options. Any deduction we are entitled to will be subject to the
limitations of Section 162(m) of the Internal Revenue Code. Please
note that the tax consequences of the exchange are not entirely certain, and the
Internal Revenue Service is not precluded from adopting a contrary
position. The law and regulations themselves are also subject to
change. All holders of eligible options are urged to consult their
own tax advisor regarding the tax treatment of participating in the exchange
under all applicable laws prior to participating in the exchange.
Plan
Benefits Relating to the Option Exchange
Because
participation in the exchange is voluntary, the benefits or amounts that will be
received by any participant, if this proposal is approved and the exchange is
implemented, are not currently determinable, since we are not able to predict
who or how many participants will elect to participate, how many options will be
surrendered for exchange or the number of replacement options that may be
granted. The maximum number of shares underlying options that could
be cancelled is 2.4 million shares, and the maximum number of shares
underlying new options that would be granted is 2.4 million
shares.
Effect
on Stockholders
We are
unable to predict the precise impact of the exchange on our stockholders because
we are unable to predict how many or which employees, consultants and directors
will exchange their eligible options. If all eligible options are
exchanged, options to purchase approximately 2.4 million shares will be
surrendered and cancelled, while replacement options concerning
approximately 2.4 million shares will be granted. Following the
exchange, if all eligible options are exchanged, we will have
approximately 2.6 million options outstanding, with a weighted average
exercise price of $1.23 and a weighted average remaining term of 4.64
years. The total number of shares subject to outstanding equity
awards as of March 31, 2009, including the replacement options, would be
approximately 2.4 million shares. As of March 31, 2009, the total
number of our shares of common stock outstanding was 35,924,279.
Interests
of Our Directors and Executive Officers
The following table shows the number of
shares subject to eligible options held by our chief executive officer, chief
financial officer, our three highest paid officers other than the CEO and CFO,
and certain groups of our employees and directors as of March 31, 2009 and the
number of shares subject to new options that each such officer or director may
receive.
|
Name
of Director or Executive Officer
|
Title
|
|
Maximum
Number of Shares Underlying Eligible Options
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Life (in Years)
|
Hypothetical
Number of Shares Underlying New Options that May be Granted Based on
Specified Assumptions
|
|
Howard
G. Berger, M.D.
|
Director,
President and Chief Executive Officer
|
|
--
|
--
|
--
|
--
|
|
John
V. Crues, III, M.D.
|
Director,
Vice President and Medical Director
|
|
--
|
--
|
--
|
--
|
|
Norman
R. Hames
|
Director,
Executive Vice President and Chief Operating Officer-Western
Operations
|
|
150,000
|
$3.24 |
4.58
|
150,000
|
|
Jeffrey
L. Linden
|
Executive
Vice President and General Counsel
|
|
150,000
|
$3.24 |
4.58
|
150,000
|
|
Mark
D. Stolper
|
Executive
Vice President and Chief Financial Officer
|
|
150,000
|
$3.24 |
4.58
|
150,000
|
|
Michael
N. Murdock
|
Executive
Vice President – Chief Development Officer
|
|
150,000 |
$5.88 |
4.0
|
150,000
|
|
Stephen
M. Forthuber
|
Executive
Vice President and Chief Operating Officer-Eastern
Operations
|
|
400,000
|
$4.89 |
4.3
|
400,000
|
|
Marvin
S. Cadwell
|
Director
|
|
75,000
|
$6.29 |
3.84 |
75,000
|
|
Lawrence
L. Levitt
|
Director
|
|
75,000
|
$6.29 |
3.84 |
75,000
|
|
Michael
L. Sherman, M.D.
|
Director
|
|
75,000
|
|
|
|
|
David
L. Swartz
|
Director
|
|
|
|
|
|
|
Executive
Group
|
|
|
|
|
|
|
|
Non-Executive
Director Group
|
|
|
|
|
|
|
|
Non-Executive
Officer Employee Group
|
|
|
|
|
|
|
Text
of Amendment to 2006 Plan
In order
to permit the Company to implement the one-time stock option exchange in
compliance with its existing equity plan and applicable NASDAQ listing rules,
the Compensation Committee recommended and the board of directors approved an
amendment to the 2006 Plan, subject to approval of the amendment by the
Company’s stockholders. The Company is seeking stockholder approval
to amend the 2006 Plan to allow for the exchange. The amendment would
add a new Section ___ to the 2006 Plan, which new section will read as
follows:
“Notwithstanding
any other provision of the Plan to the contrary, upon approval of the Company’s
stockholders, the Committee may provide for, and the Company may implement, an
option exchange, pursuant to which certain outstanding Options could, at the
election of the person holding such Option, be tendered to the Company for
cancellation in exchange for the issuance of an Option with a lower exercise
price, provided that such one-time-only option exchange is commenced within six
months of the date of such approval.”
Summary
of the 2006 Plan
A summary
of the material terms of the 2006 Plan as proposed to be amended is discussed at
[page__] and is
qualified in its entirety by reference to the 2006 Plan,a copy of which is
attached to this proxy statement as Exhibit A.
Vote
Required
Approval
of this proposal requires the affirmative vote of the holders of a majority of
the shares present in person or represented by proxy on this proposal at the
annual meeting.
FOR
THE FOREGOING REASONS, OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
THE PROPOSAL TO AMEND THE COMPANY’S EXISTING EQUITY PLAN TO ALLOW FOR A ONE-TIME
STOCK OPTION EXCHANGE FOR EMPLOYEES, CONSULTANTS AND DIRECTORS.
PROPOSAL
NO. 3
APPROVAL
OF AMENDMENT TO 2006 PLAN TO INCREASE NUMBER OF SHARES AVAILABLE FOR
GRANT
The
board of directors is requesting that our stockholders vote in favor of adding
3,000,000 shares to the authorized grant amount to increase the 2006 Plan total
to 5,500,000 shares. We believe that this amount of shares will
provide enough available shares for grant for the 2006 Plan through
2011. The 2006 Plan is the sole active plan for providing equity
incentive compensation to eligible employees, consultants and non-employee
directors. The board believes that our 2006 Plan is in the best
interest of stockholders and the Company, as equity awards granted under the
plan help to attract, motivate, and retain talented employees, consultants and
non-employee directors, align employees and stockholder interests, link employee
compensation with company performance, and maintain a culture based on employee
stock ownership. The following summary of major features of the 2006
Plan is qualified in its entirety by reference to the actual text of the 2006
Plan, set forth as Exhibit A.
We are
seeking approval of the following amendment to the 2006 Plan:
Addition of 3,000,000 shares to the
2006 Plan. The board is recommending the approval of an
additional 3,000,000 shares for a total authorization of 5,500,000 shares for
the 2006 Plan.
2006
Plan Share Reservation
|
Initial
shares authorized under the 2006 Plan
|
2,500,000
|
|
Shares
awarded from November 2006 through March 31, 2009
|
(____
______
|
|
Estimated
shares (before cancellations) available to be granted as of March 31,
2009
|
(__________)
|
|
Cancellations
added back to share reserve November 2006 through March 31,
2009
|
|
|
Additional
shares requested under this amendment
|
3,000,000
|
|
Estimated
total shares available for issuance from June 2009 through November
2016
|
__________
|
Background
on Equity Compensation of the Company
We have
been granting stock options and warrants to our officers, consultants,
non-employee directors and other key employees for more than nine years in order
to align our employees’ economic interests with the interests of our
stockholders. We have been able to hold down our compensation costs
while retaining our officers, key employees, consultants and non-employee
directors through the use of stock options.
We
strongly believe that our stock programs and emphasis on employee stock
ownership have been integral to our success. We believe that our
equity program has enhanced our ability to attract, motivate, and retain the
employee talent critical to attaining long-term improved company performance and
stockholder return. Therefore, we consider approval of the amendment
vital to our future success, as it will enable the Company to continue offering
equity awards.
Equity
Compensation Plan Information
If
stockholders approve this proposal, we will add 3,000,000 shares to the 2006
Plan for a total of 5,500,000 shares. Information as of December 31,
2008 regarding equity compensation plans approved and not approved by
stockholders is summarized in the following table (shares in
millions).
|
Plan
Category
|
(A)
Number
of Shares to
Be
Issued Upon
Exercise
of
Outstanding
Options
And
Rights (#)
|
(B)
Weighted
Average
Exercise
Price of
Outstanding
Options
($)
|
(C)
Number
of Shares
Remaining
Available
For
Future Issuance
Under
Equity Incentive Plans
(Excluding
Shares
Reflected
in
Column
(A))
|
|
Equity
incentive plans approved by stockholders
|
2,451,000
|
$5.44
|
,000
|
|
Equity
incentive plans not approved by stockholders (1)
|
3,432,898
|
$2.07
|
---
|
|
TOTAL
|
5,883,898
|
|
|
|
(1)
|
Consists
of shares available upon exercise of warrants granted under various
agreements.
|
The 2000
Stock Option Plan (2000 Plan) was terminated as to future grants when the 2006
Plan was approved by stockholders in 2006. The Plans are administered
by the Compensation Committee, which has the power to determine matters related
to outstanding option awards under the Plans, including conditions of vesting
and exercisability. Options granted under the Plans expire no later
than 10 years from the grant date. Options generally vest in
increments over three or five years from the date of grant. Grants to
non-employee directors vest on issuance.
Purpose
of the 2006 Plan
As set
forth in this proxy statement, the 2006 Plan allows us to make broad-based
grants of stock options, restricted stock, RSUs, and SARs, any of which may or
may not require the satisfaction of performance objectives, to employees,
consultants and non-employee directors through November 2016. The
purpose of these equity awards is to attract, motivate, and retain talented
employees and directors, align employee and stockholder interest, link employee
compensation with company performance, and maintain a culture based on employee
stock ownership.
Eligible
Participants
Awards
may be granted under the 2006 Plan to any of our employees, officers, directors,
or consultants or those of our affiliates. As of March 31, 2009, there were
approximately 2,940 full-time employees and 4 non-employee directors who would be
eligible to participate. An incentive stock option may be granted under the 2006
Plan only to a person who, at the time of the grant, is an employee of the
Company or a related corporation.
Number
of Shares of Common Stock Available
If
approved by the stockholders, a total of 3,000,000 new shares of our common
stock will be reserved for issuance under the 2006 Plan. The maximum aggregate
number of new shares that may be issued under the 2006 Plan through the exercise
of incentive stock options will be 3,000,000. If an award is
cancelled, terminates, expires, or lapses for any reason without having been
fully exercised or vested, or is settled for less than the full number of shares
of common stock represented by such award actually being issued, the unvested,
cancelled, or unissued shares of common stock generally will be returned to the
available pool of shares reserved for issuance under the 2006 Plan. In addition,
if we experience a stock dividend, reorganization, or other change in our
capital structure, the administrator may, in its discretion, adjust the number
of shares available for issuance under the 2006 Plan and any outstanding awards
as appropriate to reflect the stock dividend or other change. The share number
limitations included in the 2006 Plan will also adjust appropriately upon such
event.
Administration
of the 2006 Plan
The 2006
Plan is administered by the board of directors or one or more committees of the
board of directors, which we refer to as the "Committee." The board has
appointed the Compensation Committee as the Committee referred to in the 2006
Plan. In the case of awards intended to qualify as
"performance-based-compensation" excludable from the deduction limitation under
Section 162(m) of the Code, the Committee will consist of two or more
"outside directors" within the meaning of Section 162(m).
The
administrator has the authority to, among other things, select the individuals
to whom awards will be granted and to determine the type of award to grant;
determine the terms of the awards, including the exercise price, the number of
shares subject to each award, the exercisability of the awards, and the form of
consideration payable upon exercise; to provide for a right to dividends or
dividend equivalents; and to interpret the 2006 Plan and adopt rules and
procedures relating to administration of the 2006 Plan. Except to the extent
prohibited by any applicable law, the administrator may delegate to one or more
individuals the day-to-day administration of the 2006 Plan.
Options
A stock
option is the right to purchase shares of our common stock at a fixed exercise
price for a fixed period. An option under the 2006 Plan may be an incentive
stock option or a nonstatutory stock option. The exercise price of an option
granted under the 2006 Plan must be at least equal to the fair market value of
our common stock on the date of grant. In addition, the exercise price for any
incentive stock option granted to any employee owning more than ten percent of
our common stock may not be less than 110 percent of the fair market value of
our common stock on the date of grant.
Unless
the administrator determines to use another method, the fair market value of our
common stock on the date of grant will be determined as the closing sales price
for our common stock on the date the option is granted (or if no sales are
reported that day, the closing price on the last preceding day on which a sale
occurred), using a reporting source selected by the administrator. As of May 4,
2009, the average quoted sales price on the NASDAQ Global Market for our common stock was
[$_____] per share. The
administrator determines the acceptable form of consideration for exercising an
option, including the method of payment, either through the terms of the option
agreement or at the time of exercise of an option, provided that consideration
must have a value of not less than the par value of the shares to be issued and
must be actually received before issuing any shares. The 2006 Plan permits
payment in the form of cash, check or wire transfer, other shares of our common
stock, cashless exercises, any other form of consideration and method of payment
permitted by applicable laws, or any combination thereof.
An option
granted under the 2006 Plan cannot be exercised until it becomes vested. The
administrator establishes the vesting schedule of each option at the time of
grant and the option will expire at the time established by the administrator.
After termination of the optionee's service, he or she may exercise his or her
option for the period stated in the option agreement, to the extent the option
is vested on the date of termination. If termination is due to death or
disability, the option usually will remain exercisable for twelve months
following such termination. In all other cases, the option generally will remain
exercisable for three months. Nevertheless, an option may never be
exercised later than the expiration of its term. The term of any stock option
may not exceed ten years, except that with respect to any participant who owns
ten percent or more of the voting power of all classes of our outstanding
capital stock, the term for incentive stock options must not exceed five
years.
Stock
Awards
Stock
awards are awards or issuances of shares of our common stock that vest in
accordance with terms and conditions established by the administrator. Stock
awards include stock units, which are bookkeeping entries representing an amount
equivalent to the fair market value of a share of common stock, payable in cash,
property, or other shares of stock. The administrator may determine the number
of shares to be granted, and impose whatever conditions to vesting it determines
to be appropriate, including performance criteria and level of achievement
versus the criteria that the administrator determines. The criteria may be based
on financial performance, personal performance evaluations, and completion of
service by the participant. Unless the administrator determines otherwise,
shares that do not vest typically will be subject to forfeiture or to a right of
repurchase of the unvested portion of such shares at the original price paid by
the participant, which the Company may exercise upon the voluntary or
involuntary termination of the awardee's service with the Company for any
reason, including death or disability.
For stock
awards intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code, the measures established by the
administrator must be qualifying performance criteria. Qualifying performance
criteria under the 2006 Plan include any of the following performance criteria,
individually or in combination:
|
· cash
flow
|
· earnings
(including gross margin, earnings before interest and taxes, earnings
before taxes, and net earnings)
|
|
· earnings
per share
|
· growth
in earnings or earnings per share
|
|
· stock
price
|
· return
on equity or average stockholders' equity
|
|
· total
stockholder return
|
· return
on capital
|
|
· return
on assets or net assets
|
· return
on investment
|
|
· revenue
|
· income
or net income
|
|
· operating
income or net operating income
|
· operating
profit or net operating profit
|
|
· operating
margin
|
· return
on operating revenue
|
|
· market
share
|
· contract
awards or backlog
|
|
· overhead
or other expense reduction
|
· growth
in stockholder value relative to the moving average of the S&P 500
Index or a peer group index
|
|
· credit
rating
|
· strategic
plan development and implementation
|
|
· improvement
in workforce diversity
|
· EBITDA
(Earnings Before Interest, Taxes, Depreciation and
Amortization)
|
|
· any
other similar criteria
|
|
Qualifying
performance criteria may be applied either to the Company as a whole or to a
business unit, affiliate, or business segment, individually or in any
combination. Qualifying performance criteria may be measured either annually or
cumulatively over a period of years, and may be measured on an absolute basis or
relative to a pre-established target, to previous years' results, or to a
designated comparison group, in each case as specified by the administrator in
writing in the award.
Stock
Appreciation Rights
A stock
appreciation right is the right to receive the appreciation in the fair market
value of our common stock in an amount equal to the difference between
(a) the fair market value of a share of our common stock on the date of
exercise, and (b) the exercise price. This amount will be paid, as
determined by the administrator, in shares of our common stock with equivalent
value, cash, or a combination of both. The exercise price must be at least equal
to the fair market value of our common stock on the date of grant. Subject to
these limitations, the administrator determines the exercise price, term,
vesting schedule, and other terms and conditions of stock appreciation rights,
except that stock appreciation rights terminate under the same rules that apply
to stock options.
Cash
Awards
Cash
awards confer upon the participant the opportunity to earn future cash payments
tied to the level of achievement with respect to one or more performance
criteria established by the administrator for a performance period. The
administrator will establish the performance criteria and level of achievement
versus these criteria, which will determine the target and the minimum and
maximum amount payable under a cash award. The criteria may be based on
financial performance or personal performance evaluations, or both. For cash
awards intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code, the measures established by the
administrator must be specified in writing.
OTHER
PROVISIONS OF THE 2006 PLAN
Transferability
of Award
Unless
the administrator determines otherwise, the 2006 Plan does not permit the
transfer of awards other than by beneficiary designation, will, or by the laws
of descent or distribution, and only the participant may exercise an award
during his or her lifetime.
Preemptive
Rights
The 2006
Plan provides that no shares will be issued in violation of any preemptive
rights held by any stockholder of the Company.
Adjustments
upon Merger or Change in Control
The 2006
Plan provides that in the event of a merger with or into another corporation in
which we are not the surviving entity or the Company's "change in control,"
including the sale of all or substantially all of our assets, and various other
events, the board or the Committee may, in its discretion, provide for the
assumption or substitution of, or adjustment to, each outstanding award;
accelerate the vesting of options and stock appreciation rights, and terminate
any restrictions on stock awards or cash awards; provide for the cancellation of
awards in exchange for a cash payment to the participant; or provide for the
cancellation of awards that have not been exercised or redeemed as of the
relevant event.
The
following is a summary as of this date of the federal income tax consequences to
the Company and to U.S. participants for awards granted under the 2006 Plan. The
federal tax laws may change and the federal, state, and local tax consequences
for any participant will depend upon his or her individual circumstances. Tax
consequences for any particular individual may be different. This
summary is not intended to be exhaustive and we urge participants to consult
with their own tax advisor regarding the tax implications of their awards under
the 2006 Plan.
Tax
Effects for Participants
Incentive Stock Options. For federal
income tax purposes, a participant does not recognize taxable income when the
incentive stock option is granted or upon its exercise. When an incentive stock
option is exercised, however, the difference between the option exercise price
and the fair market value of the shares on the exercise date is an adjustment in
computing the participant's alternative minimum taxable income and may be
subject to an alternative minimum tax, which is paid if such tax exceeds the
participant's regular tax for the year.
A
participant who disposes of shares acquired by exercise of an incentive stock
option more than two years after the option is granted and one year after its
exercise recognizes a long-term capital gain or loss equal to the difference
between the sale price and the exercise price. If both of the holding periods
are not met and the sale price exceeds the exercise price,
the participant generally will recognize ordinary income as of the exercise date
equal to the difference between the exercise price and the lower of the sale
price of the shares or their fair market value on the exercise date. Any gain or
loss recognized on such premature sale of the shares in excess of the amount of
ordinary income is characterized as capital gain or loss. If both of the holding
periods are not met and the sale price is less than the exercise price,
the participant will recognize a capital loss equal to the difference between
the exercise price and the sale price.
Nonstatutory
Stock Options. A participant who receives a nonstatutory stock
option with an exercise price equal to or greater than the fair market value of
the stock on the grant date generally will not realize taxable income on the
grant of such option, but will realize ordinary income when he or she exercises
the option, equal to the excess of the fair market value of the shares on the
date of exercise over the option exercise price. Any additional gain or loss
recognized upon any later disposition of shares would be capital gain or loss.
Any taxable income recognized in connection with an option exercised by an
employee or former employee of the Company is subject to tax withholding by the
Company.
Stock
Awards. A participant who receives a stock award that is not subject
to a "substantial risk of forfeiture" will recognize ordinary income at the time
of grant equal to the difference between the fair market value of the stock on
the date of grant less any amount paid for the stock. A restricted stock
award is subject to a "substantial risk of forfeiture" within the meaning of
Section 83 of the Code to the extent the award will be forfeited if the
participant ceases to provide services to the Company. A participant
who receives a restricted stock award will not recognize ordinary income at the
time of grant, but will recognize ordinary income on the date or dates when the
stock "vests"(i.e., is no longer subject to a substantial risk of forfeiture),
or when the stock becomes transferable, if earlier. The participant's ordinary
income is measured as the difference between the fair market value of the stock
on the date the stock is no longer subject to a substantial risk of forfeiture
less any amount paid for the stock.
The
participant may accelerate his or her recognition of ordinary income, if any,
and begin his or her capital gains holding period by timely filing (i.e., within
thirty days of the award) an election pursuant to Section 83(b) of the
Code. Upon making a Section 83(b) election, the ordinary income recognized, if
any, is measured as the difference between the fair market value of the stock on
the date of award less any amount paid for the stock, and the capital gain
holding period commences on such date. The ordinary income recognized by an
employee or former employee will be subject to tax withholding by the Company.
If the stock award consists of stock units, no taxable income is reportable when
stock units are granted to a participant or upon vesting. Upon settlement, the
participant will recognize ordinary income in an amount equal to the value of
the payment received pursuant to the stock units.
Stock
Appreciation Rights. No taxable income is reportable when a stock
appreciation right with an exercise price equal to or greater than the fair
market value of the stock on the date of grant is granted to a participant or
upon vesting. Upon exercise, the participant will recognize ordinary income in
an amount equal to the fair market value of any shares or cash received. If the
participant receives shares upon exercise, any additional gain or loss
recognized upon any later disposition of the shares would be capital gain or
loss.
Cash
Awards. Upon receipt of cash, the recipient will have taxable
ordinary income, in the year of receipt, equal to the cash received. Any cash
received by an employee or former employee will be subject to tax withholding by
the Company.
Tax
Effect for the Company. Unless limited by
Section 162(m) or Section 280G of the Code, the Company generally
will be entitled to a tax deduction in connection with an award under the 2006
Plan in an amount equal to the ordinary income realized by a participant at the
time the participant recognizes such income (for example, upon the exercise of a
nonstatutory stock option).
Section 162(m) Limits.
Section 162(m) of the Code places a limit of $1,000,000 on the amount
of compensation that we may deduct in any one year with respect to our principal
executive officer and each of our other three most highly paid executive
officers (other than our principal financial officer). Certain performance-based
compensation approved by stockholders is not subject to the deduction limit. The
2006 Plan is qualified such that awards under the Plan may constitute
performance-based compensation not subject to Section 162(m) of the
Code. One of the requirements for equity compensation plans is that there must
be a limit to the number of shares granted to any one individual under the plan.
Accordingly, the 2006 Plan provides that the maximum number of shares for which
awards may be made to any employee, in any calendar year, is 125,000, except
that in connection with his or her initial service, an awardee may be granted
awards covering up to an additional 125,000 shares; provided, that these
limitations do not apply to awards that are not intended to qualify as
“performance-based” compensation within the meaning of Section 162(m) of the
Code and these limitations will be subject to adjustment only to the extent that
the adjustment will not affect the status of any award intended to qualify as
“performance-based” compensation under Section 162(m) of the Code. The maximum
amount payable pursuant to that portion of a cash award granted under the 2006
Plan for any fiscal year to any employee that is intended to satisfy the
requirements for "performance-based compensation" under
Section 162(m) of the Code may not exceed $1,000,000.
Section
409A. Section 409A of the Code provides specific rules governing the
federal income taxation of certain types of deferred compensation
arrangements. A violation of Section 409A of the Code generally
results in an acceleration of income of amounts intended to be deferred and the
imposition of an excise tax of 20%, paid by the service provider, over and above
the income tax owed. Additional interest and penalties may also
apply. The types of arrangements covered by Section 409A of the Code
are broad and may apply to some types of awards available under the 2006
Plan. Moreover, certain post-grant actions may subject an award to
Section 409A of the Code even though the award was previously exempt from, or in
compliance with, the requirements of Section 409A of the Code. The 2006 Plan
provides that it and awards granted thereunder are intended to comply with the
requirements of Section 409A of the Code, and are to be interpreted in a manner
consistent with that intention.
Section 280G
Limits. Section 280G of the Code limits the amount of
compensation payable upon a change in control of the Company, so-called
"parachute payments." If stock options or other awards vest upon a change in
control, or if other payments contingent upon such a change in control are made,
the vesting or payment may, in whole or in part, result in a nondeductible
parachute payment. In addition, the recipient of the parachute payment would be
subject to a 20% excise tax that we would be required to withhold in addition to
federal income tax. The 2006 Plan provides discretion to the board of directors
to provide for the vesting of awards upon a change in control.
Except
for the option exchange described in proposal no. 2, the Company has no current
plans, proposals or arrangements to grant any awards under the 2006
Plan.
The
administrator may amend the 2006 Plan at any time or from time to time or may
terminate it, but any such amendment shall be subject to the approval of the
stockholders in the manner and to the extent required by applicable law, rules,
or regulations. Nevertheless, no action by the administrator or the stockholders
may alter or impair any option or other type of award under the 2006 Plan,
unless mutually agreed otherwise between the holder of the award and the
administrator. The 2006 Plan will continue in effect for a term of ten years,
unless terminated earlier in accordance with the provisions of the 2006
Plan.
VOTE
REQUIRED
THE
COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
PROPOSAL
NO. 3 TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR GRANT
UNDER
THE 2006 PLAN.
PROPOSAL
NO. 4
RATIFICATION
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We are
asking you to ratify the appointment of Ernst & Young LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2009.
Ernst & Young LLP has audited our financial statements annually since
January 1, 2007. Representatives of Ernst & Young LLP are
expected to be at the annual meeting to answer any questions and make a
statement should they choose to do so.
Although
our bylaws do not require that our stockholders approve the appointment of our
independent registered public accounting firm, our board of directors is
submitting the selection of Ernst & Young LLP to our stockholders for
ratification as a matter of good corporate practice. If our
stockholders vote against the ratification of Ernst & Young LLP, our board
of directors will reconsider whether or not to retain the firm. Even
if our stockholders ratify the appointment, our board of directors may choose to
appoint a different independent registered public accounting firm at any time
during the year if our board of directors determines that such a change would be
in the best interests of our company and our stockholders.
Independent
Registered Public Accounting Firm Fees
The
following table presents fees for professional audit and other services rendered
by Ernst & Young LLP for the audit of our annual financial statements as of
and for the fiscal year ended December 31, 2008 and fees billed for other
services rendered by Ernst & Young LLP during that period.
|
|
|
2007
|
2008
|
|
|
Audit
Fees (1)
|
$1,024,183
|
$956,969
|
|
|
Audit-Related
Fees (2)
|
---
|
---
|
|
|
Tax
Fees (3)
|
---
|
---
|
|
|
All
Other Fees (4)
|
---
|
$3,445
|
|
|
Total
|
$1,024,183
|
$960,414
|
___________________________
|
(1)
|
Audit
Fees consist of fees billed for professional services rendered for the
audit of our consolidated annual financial statements and review of the
interim consolidated financial statements included in quarterly reports
and services that are normally provided by Ernst & Young LLP in
connection with statutory and regulatory filings or
engagements.
|
|
(2)
|
Audit-Related
Fees consist of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of our
consolidated financial statements and are not reported under Audit
Fees.
|
|
(3)
|
Tax
fees consist of fees billed for professional services rendered for tax
compliance, tax advice and tax planning. These services include
assistance regarding federal and state tax compliance, acquisitions and
tax planning.
|
|
(4)
|
All
Other Fees consist of fees for products and services other than the
services reported above.
|
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
the Independent Registered Public Accounting Firm
As a
matter of policy, all audit and non-audit services provided by our independent
registered public accounting firm are approved in advance by the Audit
Committee, which considers whether the provision of non-audit services is
compatible with maintaining such firm's independence. All services
provided by Ernst & Young LLP during the fiscal year 2008 were pre-approved
by the Audit Committee. The Audit Committee has considered the role
of Ernst & Young LLP in providing services to us for the fiscal year ended
December 31, 2008 and has concluded that such services are compatible with their
independence as our auditors.
Vote
Required
Ratification
of Ernst & Young LLP as our independent registered public accounting firm
requires the affirmative vote of the holders of a majority of the shares present
in person or represented by proxy on this proposal at the annual
meeting.
OUR
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION
OF ERNST
& YOUNG LLP AS OUR
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
CORPORATE
GOVERNANCE
Director
Independence
Our board
of directors has determined that Marvin S. Cadwell, Lawrence L. Levitt, Michael
L. Sherman, M.D. and David Swartz meet the independence requirements under
NASDAQ Marketplace Rule 4200(a)(15). Howard G. Berger, M.D., John V.
Crues, III, M.D., and Norman R. Hames do not meet the independence requirements
under NASDAQ Marketplace Rule 4200(a)(15) for the following reasons: (1) Howard
G. Berger, M.D. is our President and Chief Executive Officer; (2) John V. Crues,
III, M.D. is our Vice President and Medical Director; and (3) Norman R. Hames is
our Executive Vice President and Chief Operating Officer-Western
Operations.
Board
Committees
We have
an audit committee and compensation committee. Our board and audit
committees generally meet at least quarterly. Our compensation committee meets
at least once each year. Each of the board committees has the
composition and responsibilities described below. The charters of the
audit committee and the compensation committee, which have been adopted by the
board of directors, are publicly available on our website at www.radnet.com under
Investor Relations – Corporate Governance. The board does not
presently have a standing nominating committee because in its view nominations
which are subject to the approval of the independent members of the board,
Messrs. Cadwell, Levitt, Sherman and Swartz, is sufficient.
Audit
committee. Our audit committee consists of three directors,
Marvin S. Cadwell, Lawrence L. Levitt and David L. Swartz, all of whom our board
of directors determined to be independent under SEC Rule 10A-3(b)(1) and NASDAQ
Marketplace Rule 4200(a)(15). The audit committee held six meetings
in fiscal 2008. The chair of the audit committee is David L.
Swartz. David L. Swartz qualifies as an audit committee financial
expert under the NASDAQ rules and the rules of the SEC. The functions
of this committee include:
|
·
|
selecting
and overseeing the engagement of a firm to serve as an independent
registered public accounting firm to audit our financial
statements,
|
|
·
|
helping
to ensure the independence of our independent registered public accounting
firm,
|
|
·
|
discussing
the scope and results of the audit with our independent registered public
accounting firm,
|
|
·
|
developing
procedures for employees to anonymously submit concerns about questionable
accounting or audit matters,
|
|
·
|
meeting
with our independent registered public accounting firm and our management
to consider the adequacy of our internal accounting controls and audit
procedures, and
|
|
·
|
approving
all audit and non-audit services to be performed by our independent
registered public accounting firm.
|
We
believe that the composition of our audit committee meets the criteria for
independence under, and the functioning of our audit committee will comply with
the applicable requirements of, the Sarbanes Oxley Act of 2002 and the NASDAQ
and SEC rules, including the requirement that the audit committee have at least
one qualified financial expert.
Compensation
committee. Our compensation committee consists of three
directors, Lawrence L. Levitt, Michael Sherman, M.D. and David Swartz, all of
whom our board of directors determined to be independent under NASDAQ
Marketplace Rule 4200(a)(15). The compensation committee held two
meetings in fiscal 2008. The chair of the compensation committee is
Lawrence L. Levitt. The functions of this committee
include:
|
·
|
determining
or recommending to the board of directors the compensation of our
executive officers,
|
|
·
|
administering
our stock and equity incentive
plans,
|
|
·
|
reviewing
and, as it deems appropriate, recommending to our board of directors,
policies, practices, and procedures relating to the compensation of our
directors, officers, and other managerial employees and the establishment
and administration of our employee benefit plans,
and
|
|
·
|
advising
and consulting with our officers regarding managerial personnel and
development.
|
Certain
compensation is paid to executive officers by BRMG (See Note 4 to Summary
Compensation Table). The compensation committee's objectives and
process for determining compensation are the same regardless of whether payments
are from the company or BRMG.
We
believe that the composition of our compensation committee meets the criteria
for independence under, and the functioning of our compensation committee will
comply with the applicable requirements of, the Sarbanes Oxley Act of 2002 and
NASDAQ and SEC rules. In accordance with NASDAQ Marketplace Rule
4350(a)(5), we intend that all members of our compensation committee are
independent, as defined in NASDAQ Marketplace Rule 4200(a)(15).
Meetings
of the Board of Directors and Board Committees
During
fiscal 2008, our board of directors held seven meetings and each director
attended at least 75% of all meetings of the board of directors and applicable
committees, during the periods that he served.
Code
of Ethics
We have
adopted a written code of financial ethics applicable to our directors, officers
and employees in accordance with the rules of NASDAQ and the SEC. Our code of
ethics is designed to deter wrongdoing and to promote:
|
·
|
honest
and ethical conduct,
|
|
·
|
full,
fair, accurate, timely and understandable disclosure in reports and
documents that we file with the SEC and in our other public
communications,
|
|
·
|
compliance
with applicable laws, rules and regulations, including insider trading
compliance, and
|
|
·
|
accountability
for adherence to the code and prompt internal reporting of violations of
the code, including illegal or unethical behavior regarding accounting or
auditing practices.
|
The audit
committee of our board of directors will review our code of ethics periodically
and may propose or adopt additions or amendments as it determines are required
or appropriate. Our financial code of ethics is posted on our website
at www.radnet.com under
Investor Relations-Corporate Governance.
Compensation
Committee Interlocks and Insider Participation
No
executive officer of our company (1) served as a member of the compensation
committee (or other board committee performing equivalent functions or, in the
absence of any such committee, the entire board of directors) of another entity,
one of whose executive officers served on our Company's compensation committee,
(2) served as a director of another entity, one of whose executive officers
served on our Company's compensation committee, or (3) served as a member of the
compensation committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) of
another entity, one of whose executive officers served as a director of our
Company.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our directors, executive officers and
beneficial owners of more than 10% of our common stock to file reports of
ownership and changes in ownership with the SEC. Based solely on
copies of these reports provided to us and written representations that no other
reports were required, we believe that these persons met all of the applicable
Section 16(a) filing requirements during fiscal 2008.
EXECUTIVE
OFFICERS
The names
of our current executive officers, their ages as of March 31, 2009, and their
positions are shown below. Biographical summaries of each of our
executive officers who are not also members of our board of directors are
included below.
|
Name
|
Age
|
Position Held
|
|
Howard
G. Berger, M.D.
|
64
|
President
and Chief Executive Officer
|
|
John
V. Crues, III, M.D.
|
59
|
Vice
President and Medical Director
|
|
Stephen
M. Forthuber
|
47
|
Executive
Vice President and Chief Operating Officer-Eastern
Operations
|
|
Norman
R. Hames
|
52
|
Executive
Vice President and Chief Operating Officer-Western
Operations
|
|
Michael
N. Murdock
|
54
|
Executive
Vice President – Chief Development Officer
|
|
Jeffrey
L. Linden
|
66
|
Executive
Vice President and General Counsel
|
|
Mark
D. Stolper
|
37
|
Executive
Vice President and Chief Financial
Officer
|
Stephen
M. Forthuber became our Executive Vice President and Chief Operating Officer for
Eastern Operations subsequent to the Radiologix acquisition. He
joined Radiologix in January 2000 as Regional Director of Operations,
Northeast. From July 2002 until January 2005 he served as Regional
Vice President of Operations, Northeast and from February until December 2005 he
was Senior Vice President and Chief Development Officer for
Radiologix. Prior to working at Radiologix, Mr. Forthuber was
employed from 1982 until 1999 by Per-Se Technologies, Inc. and its predecessor
companies, where he had significant physician practice management and radiology
operations responsibilities.
Michael
Murdock was appointed Executive Vice President and Chief Development Officer of
the Company in 2007. Mr. Murdock has spent the majority of his career
in senior financial positions with health care companies, ranging in size from
venture-backed startups to multi-billion dollar corporations, including
positions with American Medical International (“AMI”) and its successor American
Medical Holding, Inc. (“AMH”), a $2.4 billion in revenue publicly traded owner
and operator of acute care facilities, that was acquired by National Medical
Enterprises, now Tenet Healthcare. From 1999 through 2004, Mr.
Murdock served as Chief Financial Officer of Dental One, a venture
capital-backed owner and operator of 48 dental practices in Texas, Arizona,
Colorado and Utah. From 2005 to 2006, Mr. Murdock served as Chief
Financial Officer of Radiologix, Inc. Radiologix, Inc. was acquired
by us in November 2006. Mr. Murdock began his career in 1978 as an
auditor with Arthur Andersen after receiving a B.S. degree from California State
University, Northridge.
Jeffrey
L. Linden joined us in 2001 and currently serves as our Executive Vice President
and General Counsel. He is also associated with Cohen & Lord, a
professional corporation, outside general counsel to our
company. Prior to joining our company, Mr. Linden had been engaged in
the private practice of law. He has lectured before numerous
organizations on various topics, including the California State Bar, American
Society of Therapeutic Radiation Oncologists, California Radiological
Association, and National Radiology Business Managers Association.
Mark D.
Stolper had diverse experiences in investment banking, private equity, venture
capital investing and operations prior to joining us. Mr. Stolper
began his career as a member of the corporate finance group at Dillon, Read and
Co., Inc., executing mergers and acquisitions, public and private financings and
private equity investments with Saratoga Partners LLP, an affiliated principal
investment group of Dillon Read. After Dillon Read, Mr. Stolper
joined Archon Capital Partners, backed by the Milken Family and News Corp, which
made private equity investments in media and entertainment
companies. Mr. Stolper received his operating experience with Eastman
Kodak, where he was responsible for business development for Kodak's
Entertainment Imaging subsidiary ($1.5 billion in sales). Mr. Stolper
was also co-founder of Broadstream Capital Partners, a Los Angeles-based
investment banking firm focused on advising middle market companies engaged in
financing and merger and acquisition transactions.
There are
no family relationships among any of the officers and directors. Furthermore,
none of the events described in Item 401(f) of Regulation S-K involve an officer
during the past five years. The officers are elected annually and serve at the
discretion of the board of directors.
COMPENSATION
DISCUSSION AND ANALYSIS
This
discussion describes the Company's compensation program for the five Named
Executive Officers, namely, our principal executive officer and our principal
financial officer and the three other most highly compensated executive officers
in fiscal 2008, as well as certain consultants listed below.
Overview
We have a
Compensation Committee to determine the salaries and incentive compensation for
our employees and consultants composed of Lawrence L. Levitt, Michael L.
Sherman, M.D. and David L. Swartz. The Committee oversees the
compensation programs for these individuals and ensures consistency with Company
goals and objectives.
Committee
Meetings
Our
Compensation Committee meets as often as necessary to perform its duties and
responsibilities. In fiscal 2008 the Committee met
twice. The Committee meets with the Chief Executive Officer to
establish the meeting agenda and where appropriate with the General Counsel and
outside advisors. The Committee meets in executive session without
management.
Role
of Committee
The
Committee operates under a written charter adopted by the board. A
copy of the charter is available at www.radnet.com under
Investor Relations – Corporate Governance. The fundamental
responsibilities of our Committee are:
1. annually
review and approve corporate goals and objectives relevant to the chief
executive officer compensation, evaluate the chief executive officer’s
performance in light of those goals and objectives, and recommend to the board
the chief executive officer’s compensation levels based on this
evaluation. In determining the long-term incentive component of our
chief executive officer’s compensation, the Committee will consider our
performance and relative stockholder return, the value of similar incentive
awards to chief executive officers at peer group companies, and the awards given
the chief executive officer in past years and other such matters deemed
relevant.
2. annually
review and make recommendations to the board with respect to the compensation of
executive officers and certain other members of senior management.
3. review
matters relating to management succession, including, but not limited to,
compensation.
4. if
appropriate, hire experts in the field of executive compensation to assist the
Committee with its evaluation of the chief executive officer or senior executive
compensation. The Committee shall have the sole authority to retain
and to terminate such experts, and to approve the expert’s fees and other
retention terms. The Committee shall also have the authority to
obtain advice and assistance from internal or external legal, accounting, human
resources, or other advisors.
5. make
recommendations to the board with respect to incentive-compensation plans and
equity-based plans and interpret and administer such plans, including but not
limited to determining eligibility, the number and type of equity
awards available for grant, and the terms of such grants.
6. appoint,
monitor and terminate plan trustees, and monitor, adopt, amend and terminate our
qualified and non-qualified pension plans.
7. form and
delegate authority to subcommittees when appropriate.
8. make
regular reports to the board.
9. produce
the required annual report on executive compensation for inclusion in our proxy
statement.
10. annually
evaluate its own performance .
11. fulfill
such other duties and responsibilities as may be assigned to the Committee, from
time-to-time, by the board and/or chairman of the board.
12. review
and reassess the adequacy of the Committee Charter annually and recommend any
proposed changes to the board for approval.
13. oversee
our compensation philosophy and strategy.
The
Committee receives and reviews materials in advance of each
meeting. These materials include information that management believes
will be helpful to the Committee as well as materials that the Committee has
specifically requested. Depending on the agenda for the particular
meeting, these materials may include:
|
·
|
financial
reports on year-to-date performance versus budget and compared to prior
year performance;
|
|
·
|
calculations
and reports on levels of achievement of individual and corporate
performance objectives;
|
|
·
|
reports
on the Company’s strategic objectives and budget for future
periods;
|
|
·
|
reports
on the Company’s five-year performance and current year performance versus
a peer group of companies;
|
|
·
|
information
on the executive officers’ stock ownership and option holdings;
and
|
|
·
|
information
regarding equity compensation plan dilution; tally sheets setting forth
the total compensation of the Named Executive Officers, including base
salary, cash incentives, equity awards, perquisites and other compensation
and any amounts payable to the executives upon voluntary or involuntary
termination, early or normal retirement or following a change-in-control
of the Company.
|
A
Continuing Process
Our
compensation planning process neither begins nor ends with any particular
Committee meeting. Compensation decisions are designed to promote our
fundamental business objectives and strategy. Business and succession
planning, evaluation of management performance and consideration of the business
environment are year-round processes.
Management’s
Role in the Compensation-Setting Process
Management
plays a significant role in the compensation-setting process. The
most significant aspects of management’s role are:
|
·
|
establishing
business performance targets and objectives;
and
|
|
·
|
recommending
salary levels and option awards.
|
The Chief
Executive Officer works with the Compensation Committee in establishing the
agenda for Committee meetings. Management also prepares meeting
information for each Compensation Committee meeting.
The Chief
Executive Officer also participates in Committee meetings at the Committee’s
request to provide:
|
·
|
background
information regarding the Company’s strategic
objectives;
|
|
·
|
his
evaluation of the performance of the senior executive officers, including
accomplishments, areas of strength and weakness;
and
|
|
·
|
compensation
recommendations as to senior executive officers (other than
himself).
|
Committee
Advisors
The
Compensation Committee Charter is granted, where appropriate, the authority to
hire and fire advisors and compensation consultants. The Company is
obligated to pay our advisors and consultants. These advisors will
report directly to the Compensation Committee.
Annual
Evaluation
The
Committee meets in executive session each year to evaluate the performance of
the Named Executive Officers, to determine if there will be changes in their
annual compensation, to establish annual performance objectives for the current
fiscal year, and to consider and approve any grants to them of equity incentive
compensation.
2008
Compensation Determinations
The
Committee begins with base salary compensation as the foundation of executive
compensation, and considers the need for option grants to supplement overall
compensation. For the year ending December 31, 2008, the Committee
reviewed base salaries and [did
not] increase base salaries for the Named Executive
Officers. However, in order to continue to motivate and retain the
Company’s Named Executive Officers, the Committee recommended and approved
incentive stock option awards to Messrs. Hames, Linden and Stolper in the amount
of 150,000 options each. See “Grants of Plan-Based Awards”
below. The Committee believes that given the amount of each
executive’s base salary, the option awards are reasonable.
Performance
Objectives
The
Committee’s process begins with determining whether we will establish individual
and corporate performance objectives for senior executive officers in each
fiscal year. The Committee engages in an active dialogue with the
Chief Executive Officer concerning whether to use strategic objectives and
performance targets. Corporate performance objectives may be
established on the basis of a targeted return on capital employed for the
Company or a particular business unit.
Benchmarking
The
Committee does not believe that it is appropriate to establish compensation
levels primarily based on benchmarking. The Committee believes that
information regarding pay practices at other companies is useful in two
respects, however. First, it recognizes that our compensation
practices must be competitive in the marketplace. Second, this
marketplace information is one of the many factors that the Committee considers
in assessing the reasonableness of compensation.
Committee
Effectiveness
We
review, on an annual basis, the performance of the Committee and the
effectiveness of the compensation program in obtaining desired
results.
Compensation
Philosophy
Our
executive compensation program is designed with one fundamental
objective: to support the Company’s core values and strategic
objectives. Our compensation philosophy is intended to align the
interests of management with those of our stockholders. The following
principles influence and guide our compensation decisions:
We Focus on Results and
Strategic Objectives
Our
compensation analysis begins with an examination of the Company’s business plan
and strategic objectives. We intend that our compensation decisions
will attract and retain leaders and reward them for achieving the Company’s
strategic initiatives and objective measures of success.
We Believe in a Pay for
Performance Culture
At the
core of our compensation philosophy is our guiding belief that pay should be
directly linked to performance.
|
·
|
A
substantial portion of executive officer compensation is contingent on,
and variable with, achievement of objective corporate and/or individual
performance objectives.
|
|
·
|
Our
stock option plan prohibits discounted stock options, reload stock options
and re-pricing of stock options.
|
Compensation and Performance
Pay Should Reflect Position and Responsibility
Total
compensation and accountability should generally increase with position and
responsibility. Consistent with this philosophy:
|
·
|
Total
compensation is higher for individuals with greater responsibility and
greater ability to influence the Company’s achievement of targeted results
and strategic initiatives.
|
|
·
|
As
position and responsibility increases, a greater portion of the executive
officer’s total compensation is performance-based pay contingent on the
achievement of performance
objectives.
|
|
·
|
Equity-based
compensation is higher for persons with higher levels of responsibility,
making a significant portion of their total compensation dependent on
long-term stock appreciation.
|
Compensation Decisions
Should Promote the Interests of Stockholders
Compensation
should focus management on achieving strong short-term (annual) performance in a
manner that supports and ensures our long-term success and
profitability. We believe that stock options create long-term
incentives that align the interest of management with the long-term interest of
stockholders.
Compensation Should be
Reasonable and Responsible
It is
essential that our overall compensation levels be sufficiently competitive to
attract talented leaders and motivate those leaders to achieve superior
results. At the same time, we believe that compensation should be set
at responsible levels. Our executive compensation programs are
intended to be consistent with our constant focus on controlling
costs.
Compensation Disclosures
Should be Clear and Complete
We
believe that all aspects of executive compensation should be clear,
comprehensible and promptly disclosed in plain English. We believe
that compensation disclosures should provide all of the information necessary to
permit stockholders to understand our compensation philosophy, our
compensation-setting process and how and how much our executives are
paid.
Elements of Executive
Compensation
Base
Salary
Base pay
is a critical element of executive compensation because it provides executives
with a base level of monthly income. In determining base salaries, we
consider the executive’s qualifications and experience, scope of
responsibilities and future potential, the goals and objectives established for
the executive, the executive’s past performance, competitive salary practices at
similar companies, internal pay equity and the tax deductibility of
base salary.
Finally,
for our most senior executives (our Chief Executive Officer, Executive Vice
Presidents and Chief Financial Officer), we establish base salaries at a level
so that a significant portion of the total compensation that such executives can
earn is performance-based pay.
Equity Based
Compensation
We
believe that equity compensation is the most effective means of creating a
long-term link between the compensation provided to officers and other key
management personnel with gains realized by the stockholders. We have
elected to use stock options and warrants as the equity compensation
vehicle. All stock options and warrants incorporate the following
features:
|
·
|
the
term of the grant does not exceed 10
years;
|
|
·
|
the
grant price is not less than the market price on the date of
grant;
|
|
·
|
grants
do not include “reload” provisions;
|
|
·
|
repricing
of options is prohibited, unless approved by the stockholders;
and
|
|
·
|
options
generally vest over a term of years (5 to 7 years) beginning with the
first anniversary of the date of
grant.
|
We
continue to use stock options and warrants as a long-term incentive vehicle
because:
|
·
|
Stock
options and warrants align the interests of executives with those of the
stockholders, support a pay-for-performance culture, foster employee stock
ownership and focus the management team on increasing value for the
stockholders.
|
|
·
|
The
vesting period encourages executive retention and the preservation of
stockholder value.
|
In
determining the number of options or warrants to be granted to senior executive
officers, we take into account the individual’s position, scope of
responsibility, ability to affect profits and stockholder value and the
individual’s historic and recent performance and the value of stock options and
warrants in relation to other elements of total compensation.
Additional
Benefits
Executive
officers participate in other employee benefit plans generally available to all
employees on the same terms as similarly situated employees.
Internal Pay
Equity
We
believe that internal equity is an important factor to be considered in
establishing compensation for the officers. We have not established a
policy regarding the ratio of total compensation of the Chief Executive Officer
to that of the other officers, but we do review compensation levels to ensure
that appropriate equity exists. We intend to continue to review
internal compensation equity and may adopt a formal policy in the future, if we
deem such a policy to be appropriate.
Equity
Compensation
We
believe that long-term performance is achieved through an ownership culture that
encourages such performance by our Named Executive Officers through the use of
stock and stock based awards. Our stock compensation plans have been established
to provide certain of our employees, including our Named Executive Officers,
with incentives to help align those employees' interests with the interests of
our stockholders. Our compensation committee believes the use of
stock and stock based awards offers the best approach to achieving this
goal. We intend to develop and adopt stock ownership requirements or
guidelines. Our stock compensation plans have provided the principal
method for our Named Executive Officers to acquire equity or equity linked
interests in our company.
We
sponsor the 2006 Plan. Upon the adoption of the 2006 Plan our prior
plans no longer were available for new awards. For more information about the
2006 Plan, please read "Compensation of Directors and Executive Officers—Stock
Incentive Plans" below. A copy of the 2006 Plan is attached as
Exhibit A. The 2006 Plan is currently administered by our
compensation committee. In the case of awards intended to qualify as
"performance based compensation" excludable from the deduction limitation under
Section 162(m) of the Internal Revenue Code, the administrator of the 2006 Plan
will consist of two or more "outside directors" within the meaning of Section
162(m).
Change
in Control and Severance Payments
The
employment agreements of some of our Named Executive Officers provide them
benefits if their employment is terminated (other than for misconduct),
including termination following a change in control. The details and
amount of this benefit are set forth below under “Compensation of Directors and
Executive Officers – Severance Agreements – Change-in-Control
Arrangements.”
Tax
and Accounting Implications
Deductibility
of Executive Compensation
Our
compensation committee reviews and considers the deductibility of executive
compensation under Section 162(m) of the Internal Revenue Code, which provides
that we may not deduct compensation of more than $1,000,000 that is paid to
certain individuals. In as much as no executive is currently paid an
amount near the thresholds our compensation committee believes that compensation
paid to our Named Executive Officers is generally fully deductible for federal
income tax purposes. However, in certain situations, certain of the
independent members of our compensation committee may approve compensation that
will not meet these requirements in order to ensure competitive levels of total
compensation of our Named Executive Officers.
Accounting
for Stock Based Compensation
Effective
January 1, 2006, we began accounting for stock based payments in accordance with
the requirements of FASB Statement No. 123(R).
Conclusion
Our
compensation practices are designed to retain and motivate our Named Executive
Officers and to ultimately reward them for outstanding performance.
Compensation
Committee Report
We, the
compensation committee of the board of directors of RadNet, Inc., have reviewed
and discussed the Compensation Discussion and Analysis (set forth above) with
the management of the company, and, based on such review and discussion, have
recommended to the board of directors inclusion of the Compensation Discussion
and Analysis in this proxy statement.
.
|
|
Compensation
Committee:
Lawrence
L. Levitt
Michael
L. Sherman, M.D.
David
L. Swartz
|
COMPENSATION
OF DIRECTORS AND EXECUTIVE OFFICERS
Summary
Compensation Table
The table
below summarizes the total compensation paid or earned by our principal
executive officer, principal financial officer and each of our three other most
highly compensated executive officers for the fiscal year ended December 31,
2008 (“Named Executive Officers”).
|
|
Annual Compensation
|
|
|
|
Name and Principal Position
|
Year
|
Salary ($)(1)
|
Bonus ($)
|
Stock
Awards($)
|
Option
Awards ($)(2)
|
Totals
(#)
|
|
Howard
G. Berger, M.D.,
|
2008
|
500,000
|
—
|
—
|
—
|
|
|
Principal
Executive Officer
|
2007
|
415,000(5)
|
—
|
—
|
—
|
—
|
|
|
2006
|
50,000
(3)
(5)
|
|
|
|
|
|
|
|
|
—
|
—
|
—
|
—
|
|
Norman
R. Hames
|
2008
|
353,986
|
|
—
|
93,670
|
576,656
|
|
Executive
Vice President and
|
2007
|
303,330
|
—
|
—
|
1,213,829
|
1,517,159
|
|
Chief
Operating Officer – Western Operations
|
2006
|
224,518
|
129,000(6)
|
|
137,936
|
362,454
|
|
|
|
|
|
|
|
—
|
|
John
V. Crues, III, M.D.,
|
2008
|
512,805(4)
|
—
|
—
|
—
|
|
|
Medical
Director
|
2007
|
558,000(4)
|
—
|
—
|
—
|
—
|
|
|
2006
|
453,000(4)
|
—
|
—
|
—
|
450,000
|
|
|
|
|
|
|
|
|
|
Jeffrey
L. Linden,
|
2008
|
400,000
|
—
|
—
|
93,570
|
503,270
|
|
Executive
Vice President and
|
2007
|
400,000(5)
|
—
|
—
|
—
|
—
|
|
General
Counsel
|
2006
|
350,000(5)
|
|
|
472,419
|
822,419
|
|
|
|
|
|
|
|
|
|
Mark
D. Stolper,
|
2008
|
348,846
|
—
|
—
|
93,670
|
442,516
|
|
Executive
Vice President and
|
2007
|
300,000
|
—
|
—
|
205,714
|
455,714
|
|
Principal
Financial Officer
|
2006
|
250,000
|
|
|
124,902
|
|
|
|
|
|
|
|
|
|
_______________________
|
(1)
|
The
dollar value of perquisites and other personal benefits, if any, for each
of the Named Executive Officers was less than $10,000 or 10% of salary and
bonus, the reporting thresholds established by the
SEC.
|
|
(2)
|
The
amounts listed in this column represent the dollar amount we recognized
for financial statement reporting purposes with respect to fiscal 2006,
2007 and 2008 (for awards made both in and before these fiscal years),
disregarding an estimate of forfeitures related to service-based vesting
conditions, under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 123(R), “Share-Based Payment,” or SFAS
No. 123(R). For a more detailed discussion on the valuation
model and assumptions used to calculate the fair value of these awards,
see Note 11 to the consolidated financial statements included in our
annual report on Form 10-K for the year ended December 31,
2008.
|
|
(3)
|
In
October 2006, Dr. Berger returned the majority of his annual
compensation to assist us with cash flow
requirements.
|
|
(5)
|
Cohen
& Lord, a professional corporation, a law firm with which Mr. Linden
is associated, received $411,859 in fees for the year ended December 31,
2007 and $398,128 for the year ended December 31, 2008. Mr.
Linden has specifically waived any interest in our fees paid to Cohen
& Lord since becoming an
officer.
|
|
(6)
|
In
accordance with Mr. Hane's employment agreement, Mr. Hanes received the
bonus upon exercise of certain outstanding stock
warrants.
|
Grants
of Plan-Based Awards
The
following table sets forth certain information with respect to grants of awards
to our Named Executive Officers under our equity incentive plans during fiscal
2008.
|
Name
|
Grant Date
|
All Other Option
Awards: Number
of Securities Underlying Options
(#)
|
Exercise or Base Price of Option Awards
($/Sh)(1)
|
Grant Date Fair Value of Stock and Option
Awards(2)
|
|
|
|
|
|
|
|
Norman
R. Hames
|
10/28/08
|
150,000(3)
|
3.24
|
$240,865
|
|
Jeffrey
L. Linden
|
10/28/08
|
150,000(3)
|
3.24
|
$240,865
|
|
Mark
D. Stolper
|
10/28/08
|
150,000(3)
|
3.24
|
$240,865
|
_____________________________
(1) Exercise
prices reflect the closing public market price on the date of
grant.
(2) For
discussion regarding the valuation model and assumptions used to calculate the
fair value of these option awards, see Note 11 to the consolidated financial
statements included in our annual report on Form 10-K for the year ended
December 31, 2008.
(3) Vest
in equal increments on October 28, 2008, 2009 and 2010.
Outstanding
Equity Awards at Fiscal Year End
The table
below summarizes outstanding equity awards held by our Named Executive Officers
at December 31, 2008.
|
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
|
Norman
R. Hames
|
1,172,898
|
---
|
1.12
|
05/01/2013
|
|
|
50,000)
|
100,000(2)
|
3.24
|
10/28/2013
|
|
|
|
|
|
|
|
John
V. Crues, III, M.D.
|
250,000
|
---
|
.72
|
06/07/2010
|
|
|
|
|
|
|
|
Jeffrey
L. Linden
|
250,000
37,500
100,000
50,000(2)
|
---
---
---
100,000(2)
|
2.52
.92
.60
3.24
|
04/28/2012
08/12/2011
07/30/2009
10/28/2013
|
|
|
|
|
|
|
|
Mark
D. Stolper
|
100,000
325,000
25,000
50,000(2)
|
---
---
---
100,000(2)
|
3.10
.60
1.20
3.24
|
07/11/2011
07/30/2009
03/01/2009
10/28/2013
|
_______________
(1) Except
as noted all information in this table relates to nonqualified
warrants.
(2) Relates
to options issued under Option Plan and vests in equal increments on October 28,
2008, 2009 and 2010.
Option
Exercises and Stock Vested
There
were no option exercises in the fiscal years ended December 31, 2007 and
December 31, 2008 by the Named Executive Officers except as
follows:
|
Name
|
Shares
Acquired on Exercise
|
Value
Realized (1)
|
Year
|
|
Norman
R. Hames
|
300,000
|
$2,553,000
|
2008
|
|
Jeffrey
L. Linden
|
100,000
|
$233,500
|
2008
|
|
John
V. Crues, III, M.D.
|
150,000
|
$820,000
|
2007
|
________________
|
(1)
|
The
value realized equals the fair market value of the common stock acquired
on the date of exercise minus the exercise
price.
|
Pension
Benefits, Nonqualified Defined Contribution and Other Deferred Compensation
Plans
We do not
have any tax-qualified defined benefit plans or supplemental executive
retirement plans that provide for payments or other benefits to our Named
Executive Officers in connection with their retirement. We also do
not have any non-qualified defined contribution plan or other deferred
compensation plans that provide for payments or other benefits to our Named
Executive Officers.
Potential
Payments Upon Termination or Change in Control
Payments
Made Upon Termination and Retirement
Regardless
of the manner in which the employment of a Named Executive Officer is
terminated, he is entitled to receive amounts earned during his term of
employment. Such amounts include:
|
·
|
non-equity
incentive compensation earned, to the extent
vested;
|
|
·
|
equity
awarded pursuant to our 2006 Plan, to the extent vested;
and
|
Payments
Made Upon Death or Disability
In the
event of the death or disability of a Named Executive Officer, no additional
benefits other than those listed under the heading "Payments Made Upon
Termination and Retirement" above, will be paid to our Named Executive
Officers.
Severance
Agreements
None of
our Named Executive Officers have any arrangements that provide for the payment
of severance benefits except that upon termination (by the employee or by the
Company without cause) of the employment of (i) Norman Hames, he is entitled to
receive an amount equal to three times his then annual compensation, or
approximately $900,000 based upon his compensation in 2008; (ii) Stephen
Forthuber, he shall receive an amount equal to one year’s compensation; and
(iii) Jeffrey Linden, he shall receive an amount equal to five times his then
annual compensation, or approximately $2,000,000 based upon his compensation in
2008.
Change-in-Control
Arrangements
None of
our Named Executive Officers are entitled to payment of any benefits upon a
change-in-control of the Company; however Mssrs. Hames and Linden have the right
at any time to terminate their employment and receive their severance payment as
provided above.
Overview
of Director Compensation
We use
cash and stock based incentive compensation to attract and retain qualified
candidates to serve on our board. In setting director compensation,
we consider the significant amount of time that our directors expend in
fulfilling their duties to our Company as well as the skill level required by
the members of our board.
Cash
Compensation Paid to Board Members
For the
fiscal year ended December 31, 2008 members of our board who were not employees
of the Company received annual compensation of
$25,000. Additionally, members of our board who are not
employees of the Company are entitled to receive an attendance fee for board
meetings of $1,000 per meeting and committee meetings of $750 per meeting. Our
Chairman of the Audit Committee receives $10,000 per year for serving in such
capacity and our Chairman of the Compensation Committee receives $5,000 per year
for serving in such capacity. Directors who are our employees
received no additional compensation for their services as
directors.
Stock
Based Incentive Compensation
For the
fiscal year ended December 31, 2008, members of our board who were not employees
of the Company each received options to purchase 25,000 shares of common stock
exercisable at the closing price of the Company’s common stock in the public
market on the date of issuance.
Director
Compensation
The table
below summarizes the compensation we paid to directors who are not employees of
our company for the fiscal year ended December 31, 2008.
|
Name(1)
|
Fees
Earned or
Paid in Cash ($)
|
Option
Awards ($)(2)
(3)
|
All
Other
Compensation ($)
|
Total ($)
|
|
Marvin
S. Cadwell
|
36,500
|
25,000
|
---
|
36,500
|
|
Lawrence
L. Levitt
|
43,000
|
25,000
|
---
|
43,000
|
|
Michael
L. Sherman, M.D.
|
32,750
|
25,000
|
---
|
32,750
|
|
David
L. Swartz
|
48,000
|
25,000
|
---
|
48,000
|
__________________________
(1) Howard
G. Berger, M.D., our President and Chief Executive Officer, is not included in
this table because he is an employee of the company and thus receives no
additional compensation for his services as a director. Norman R.
Hames and John v. Crues, III, M.D. also do not appear because they are also
employees. The compensation received by these persons as an employee
of the Company is shown in the Summary Compensation Table above.
(2) On
January 2, 2008, each of the named individuals was granted 25,000 stock options
with a fair value of $401,036, calculated under SFAS No. 123(R). On
February 27, 2007, each of the named individuals was granted 25,000 stock
warrants with a fair value of $283,968 calculated under SFAS No.
123(R). As of December 31, 2008, each director has the following
number of options fully vested and outstanding: Marvin S.
Cadwell: 25,000 (exercise price of $5.99 per share); Lawrence L.
Levitt: 75,000 (exercise prices of $0.64 per share, $1.00 per share
and $5.99 per share, each as to 25,000 share increments); David L.
Swartz: 100,000 (exercise prices of $1.20 per share, $0.64 per share,
$1.00 per share and $5.99 per share, each as to 25,000 share
increments).
(3) The
amounts listed in this column represent the dollar amount we recognized for
financial statement reporting purposes with respect to fiscal 2008 (for awards
made both in and before fiscal 2008), disregarding an estimate of forfeitures
related to service-based vesting conditions, under Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 123(R),
“Share-Based Payment,” or SFAS No. 123(R). For a more detailed discussion on the
valuation model and assumptions used to calculate the fair value of these
awards, see Note 11 to the consolidated financial statements included in our
annual report on Form 10-K for the year ended December 31, 2008.
Stock
Incentive Plans
We have
two stock incentive plans: our 2000 Long-Term Incentive Plan and our 2006
Plan.
The
2000 Long-Term Incentive Plan
We have
reserved 1,000,000 shares of common stock for issuance under our 2000 Long-Term
Incentive Plan, or the 2000 Plan. As of March 31, 2009, there were
151,000 options outstanding under the 2000 Plan. Upon approval of the
2006 Plan, we ceased granting options under the 2000 Plan. The
material features of the 2000 Plan are as follows:
Administration
The 2000
Plan is presently administered by our Compensation Committee. Subject
to the terms of the 2000 Plan, the Compensation Committee has full authority to
administer the 2000 Plan in all respects. Our senior legal and human
resources representatives are also authorized to take ministerial actions as
necessary to implement the 2000 Plan and awards issued under the 2000
Plan.
Eligibility
Employees,
directors and other individuals who provide services to us, our affiliates and
subsidiaries who, in the opinion of the board, or the compensation committee, if
applicable, are in a position to make a significant contribution to our success
or the success of our affiliates and subsidiaries have been eligible for awards
under the 2000 Plan.
Stock
Options
The 2000
Plan authorizes the grant of options to purchase shares of common stock,
including options to employees intended to qualify as incentive stock options
within the meaning of Section 422 of the Code, as well as non-statutory options.
The term of each option will not exceed ten years and each option will be
exercisable at a price per share not less than 100% of the fair market value of
a share of common stock on the date of the grant. Generally, optionees will pay
the exercise price of an option in cash or by check, although the board, and the
Compensation Committee may permit other forms of payment including payment
through the delivery of shares of common stock. Options granted under the 2000
Plan are generally not transferable, except at death or as gifts to certain
Family Members, as defined in the 2000 Plan. At the time of grant or thereafter,
the board, and the Compensation Committee may determine the conditions under
which stock options vest and remain exercisable.
Unless
otherwise determined by the board, and the Compensation Committee, unexercised
options will terminate if the holder ceases for any reason to be associated with
us, our affiliates or our subsidiaries. Options generally remain exercisable for
a specified period following termination for reasons other than for Cause, as
defined in the 2000 Plan, particularly in circumstances of death, Disability and
Retirement, as defined in the 2000 Plan. In the event of a Change in Control or
Covered Transaction, as defined in the 2000 Plan, of our Company, options become
immediately exercisable and/or are converted into options for securities of the
surviving party as determined by the board, and the compensation committee, if
established.
Amendments
The
board, and the Compensation Committee may amend the 2000 Plan or any outstanding
award for any purpose permitted by law, or may at any time terminate the 2000
Plan as to future grants of awards. The board, and the Compensation Committee
may not, however, increase the maximum number of shares of common stock issuable
under the 2000 Plan or change the description of the individuals eligible to
receive awards. In addition, no termination of or amendment to the 2000 Plan may
adversely affect the rights of a participant with respect to any award
previously granted under the 2000 Plan without the participant’s consent, unless
the Compensation Committee expressly reserves the right to do so in writing at
the time the award is made. To the extent the board, and the Compensation
Committee desire the 2000 Plan to qualify under the Code, certain amendments may
require stockholder approval.
The
2006 Plan
Eligible
Participants
Awards
may be granted under the 2006 Plan to any of our employees, officers, directors,
or consultants or those of our affiliates. An incentive stock option
may be granted under the 2006 Plan only to a person who, at the time of the
grant, is an employee of the Company or a related corporation. The
2006 Plan was approved by our board on October 11, 2006 and by our stockholders
at our special meeting held on November 15, 2006.
Number
of Shares of Common Stock Available
A total
of 2,500,000 new shares of our common stock have been reserved for issuance
under the 2006 Plan. The maximum aggregate number of shares that may be issued
under the 2006 Plan through the exercise of incentive stock options is
2,500,000. If an award is cancelled, terminates, expires, or lapses for any
reason without having been fully exercised or vested, or is settled for less
than the full number of shares of common stock represented by such award
actually being issued, the unvested, cancelled, or unissued shares of common
stock generally will be returned to the available pool of shares reserved for
issuance under the 2006 Plan. In addition, if we experience a stock dividend,
reorganization, or other change in our capital structure, the administrator may,
in its discretion, adjust the number of shares available for issuance under the
2006 Plan and any outstanding awards as appropriate to reflect the stock
dividend or other change. The share number limitations included in the 2006 Plan
will also adjust appropriately upon such event.
Administration
of the 2006 Plan
The 2006
Plan is administered by the board of directors or one or more committees of the
board of directors, which we refer to as the Committee. The Company’ s board has
appointed the Compensation Committee as the Committee referred to in the 2006
Plan. In the case of awards intended to qualify as
"performance-based-compensation" excludable from the deduction limitation under
Section 162(m) of the Code, the Committee will consist of two or more
"outside directors" within the meaning of Section 162(m).
The
administrator has the authority to, among other things, select the individuals
to whom awards will be granted and to determine the type of award to grant;
determine the terms of the awards, including the exercise price, the number of
shares subject to each award, the exercisability of the awards, and the form of
consideration payable upon exercise; to provide for a right to dividends or
dividend equivalents; and to interpret the 2006 Plan and adopt rules and
procedures relating to administration of the 2006 Plan. Except to the extent
prohibited by any applicable law, the administrator may delegate to one or more
individuals the day-to-day administration of the 2006 Plan.
Award
Types
Options
A stock
option is the right to purchase shares of our common stock at a fixed exercise
price for a fixed period. An option under the 2006 Plan may be an incentive
stock option or a nonstatutory stock option. The exercise price of an option
granted under the 2006 Plan must be at least equal to the fair market value of
the Company's common stock on the date of grant. In addition, the exercise price
for any incentive stock option granted to any employee owning more than ten
percent of our common stock may not be less than 110 percent of the fair market
value of the Company's common stock on the date of grant.
An option
granted under the 2006 Plan cannot be exercised until it becomes vested. The
administrator establishes the vesting schedule of each option at the time of
grant and the option will expire at the time established by the administrator.
After termination of the optionee's service, he or she may exercise his or her
option for the period stated in the option agreement, to the extent the option
is vested on the date of termination. If termination is due to death or
disability, the option usually will remain exercisable for twelve months
following such termination. In all other cases, the option generally will remain
exercisable for three months. Nevertheless, an option may never be
exercised later than the expiration of its term. The term of any stock option
may not exceed ten years, except that with respect to any participant who owns
ten percent or more of the voting power of all classes of the Company's
outstanding capital stock, the term for incentive stock options must not exceed
five years.
Stock
Awards
Stock
awards are awards or issuances of shares of our common stock that vest in
accordance with terms and conditions established by the administrator. Stock
awards include stock units, which are bookkeeping entries representing an amount
equivalent to the fair market value of a share of common stock, payable in cash,
property, or other shares of stock. The administrator may determine the number
of shares to be granted, and impose whatever conditions to vesting it determines
to be appropriate, including performance criteria and level of achievement
versus the criteria that the administrator determines. The criteria may be based
on financial performance, personal performance evaluations, and completion of
service by the participant. Unless the administrator determines otherwise,
shares that do not vest typically will be subject to forfeiture or to a right of
repurchase of the unvested portion of such shares at the original price paid by
the participant, which the Company may exercise upon the voluntary or
involuntary termination of the awardee's service with the Company for any
reason, including death or disability.
For stock
awards intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code, the measures established by the
administrator must be qualifying performance criteria, as defined by the 2006
Plan.
Stock Appreciation
Rights
A stock
appreciation right is the right to receive the appreciation in the fair market
value of our common stock in an amount equal to the difference between
(a) the fair market value of a share of our common stock on the date of
exercise, and (b) the exercise price. This amount will be paid, as
determined by the administrator, in shares of our common stock with equivalent
value, cash, or a combination of both. The exercise price must be at least equal
to the fair market value of our common stock on the date of grant. Subject to
these limitations, the administrator determines the exercise price, term,
vesting schedule, and other terms and conditions of stock appreciation rights,
except that stock appreciation rights terminate under the same rules that apply
to stock options.
Cash
Awards
Cash
awards confer upon the participant the opportunity to earn future cash payments
tied to the level of achievement with respect to one or more performance
criteria established by the administrator for a performance period. The
administrator will establish the performance criteria and level of achievement
versus these criteria, which will determine the target and the minimum and
maximum amount payable under a cash award. The criteria may be based on
financial performance or personal performance evaluations, or both. For cash
awards intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code, the measures established by the
administrator must be specified in writing.
Other
Provisions of the 2006 Plan
Transferability
of Awards
Unless
the administrator determines otherwise, the 2006 Plan does not permit the
transfer of awards other than by beneficiary designation, will, or by the laws
of descent or distribution, and only the participant may exercise an award
during his or her lifetime.
Preemptive
Rights
The 2006
Plan provides that no shares will be issued in violation of any preemptive
rights held by any stockholder of the Company.
Adjustments
upon Merger or Change in Control
The 2006
Plan provides that in the event of a merger with or into another corporation in
which the Company is not the surviving entity or the Company's "change in
control," including the sale of all or substantially all of the Company 's
assets, and various other events, the Company 's board or the Committee may, in
its discretion, provide for the assumption or substitution of, or adjustment to,
each outstanding award; accelerate the vesting of options and stock appreciation
rights, and terminate any restrictions on stock awards or cash awards; provide
for the cancellation of awards in exchange for a cash payment to the
participant; or provide for the cancellation of awards that have not been
exercised or redeemed as of the relevant event.
REPORT
OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The audit
committee of the board of directors is comprised entirely of independent
directors who meet the independence requirements of The NASDAQ and the SEC.
The audit
committee operates pursuant to a charter that is available on our website at
www.radnet.com under Investor Relations – Corporate Governance.
The audit
committee oversees our financial reporting process on behalf of the board of
directors. Management is responsible for the preparation, presentation and
integrity of the financial statements, including establishing accounting and
financial reporting principles and designing systems of internal control over
financial reporting. Our independent registered public accounting
firm is responsible for expressing an opinion as to the conformity of our
consolidated financial statements with generally accepted accounting
principles.
In
performing its responsibilities, the audit committee has reviewed and discussed,
with management and Ernst & Young LLP, our independent registered public
accounting firm, the audited consolidated financial statements in our annual
report on Form 10-K for the year ended December 31, 2008. The audit
committee has also discussed with Ernst & Young LLP matters required to be
discussed by Statement on Auditing Standards 61, "Communications with Audit
Committees."
Pursuant
to Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees," the audit committee received written disclosures and the
letter from Ernst & Young LLP, and discussed with Ernst & Young LLP
their independence.
Based on
the reviews and discussions referred to above, the audit committee recommended
to the board of directors that the audited consolidated financial statements of
RadNet, Inc. be included in the company's annual report on Form 10-K for the
year ended December 31, 2008.
|
|
Audit
Committee:
Marvin
S. Cadwell
Lawrence
L. Levitt
David
L. Swartz
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Howard G.
Berger, M.D. is our President and Chief Executive Officer, chair of our board of
directors, and owns approximately 15% of our outstanding common stock. Dr.
Berger also owns, indirectly, 99% of the equity interests in BRMG. BRMG provides
all of the professional medical services at most of our California facilities
under a management agreement and contracts with various other independent
physicians and physician groups to provide all of the professional medical
services at most of our other California facilities. We obtain professional
medical services from BRMG in California, rather than providing such services
directly or through subsidiaries, in order to comply with California's
prohibition against the corporate practice of medicine. However, as a result of
this close relationship with Dr. Berger and BRMG, we believe that we are able to
better ensure that professional medical services are provided at our California
facilities in a manner consistent with our needs and expectations and those of
our referring physicians, patients and payors than if we obtained these services
from unaffiliated practice groups.
Under our
management agreement with BRMG, which expires on January 1, 2014, BRMG pays us,
as compensation for the use of our facilities and equipment and for our
services, a percentage of the gross amounts collected for the professional
services it renders. The percentage, which was 79% , and [$__________], at
December 31, 2008, is adjusted annually, if necessary, to ensure that the
parties receive fair value for the services they render. In operation and
historically, the annual revenue of BRMG from all sources closely approximates
its expenses, including Dr. Berger's compensation, fees payable to us and
amounts payable to third parties. For administrative convenience and in order to
avoid inconveniencing and confusing our payors, a single bill is prepared for
both the professional medical services provided by the radiologists and our
non-medical, or technical, services, generating a receivable for BRMG. BRMG
maintains a $55 million revolving credit facility with General Electric Capital
Corporation from which we may obtain funds by utilizing our accounts receivable
for working capital purposes, if needed. We repay or offset these advances with
periodic payments from BRMG to us under the management agreement. We guarantee
BRMG's obligations under this working capital facility.
Dr. Crues
receives all or a portion of his salary from BRMG (Please See Summary
Compensation Table).
In April
2006, in order to induce Mr. Linden to continue his employment we issued to him
a six year warrant to purchase 250,000 shares of common stock at a price of
$2.52, the public market price of our common stock on the date of issuance,
vesting over a six year period.
Cohen
& Lord, a professional corporation, a law firm with which Mr. Linden is
associated, received $411,859 in fees during the year ended December 31, 2007
and [$398,128] during
the year ended December 31, 2008. Mr. Linden has specifically waived any
interest in our fees since becoming an officer of the Company.
In
consideration of the continued employment by Norman Hames, our Executive Vice
President and Chief Operating Officer – Western Operations and a director, in
March 2006 we extended the warrant originally issued to him in connection with
the acquisition of DIS by reissuing to Mr. Hames a seven year warrant to
purchase 1,500,000 shares at an exercise price of $1.12 per share, the public
market price of our common stock [Jeff –I thought extension of warrant
was not related to cont. employ?] on the date of the reissuance, vesting
over the seven year period. We have agreed to provide to Mr. Hames a
bonus of $.040 per share for each share exercised.
In
recognition of our chief financial officer, Mark D. Stolper’s services to the
Company, on July 11, 2006, the Company issued to Mr. Stolper a five-year warrant
to purchase 100,000 shares of the Company common stock at $3.10 per share, the
public market price of our common stock on the date of issuance.
On
October 28, 2008, we issued five year options vesting over three years to
purchase 150,000 shares each to our Executive Vice Presidents, Norman Hames,
Steve Forthuber, Mark Stolper and Jeffrey Linden, at an exercise price of $3.24,
the public market price of our stock on the date of issuance.
As a
matter of policy, the board reviews any transaction in which we are proposed to
be a party, directly or indirectly, and any of the following persons or entities
is or is entitled to be a party, directly or indirectly, to the transaction or
any director has a material financial interest in the
transaction: (i) any of our executive officers or any related person
of any such officer or a director, (ii) any person or entity of which the
executive officer or director or any related person is the owner of more than 5%
of the securities, (iii) any person or entity that controls one or more of the
persons specified in subparagraph (ii) or a person that is controlled by, or is
under common control with one or more of the persons specified in subparagraph
(ii), or (iv) an individual who is a general partner, principal or employer of a
director. Additionally, any transaction which would be required to be
disclosed pursuant to Item 404 by Regulation S-K of the Regulations of the SEC
is reviewed by the board.
Indemnification
Agreements
We have
indemnification agreements with each of our directors and certain officers in
addition to provisions which are reflected in our certificate of incorporation
and bylaws which require us to indemnify our directors and officers to the
fullest extent permitted by Delaware law.
OTHER
MATTERS
We know
of no other matters to be submitted at the annual meeting. If any
other matters are properly brought before the annual meeting, it is the
intention of the persons named in the enclosed proxy card to vote the shares
that they represent in accordance with their judgment.
For
further information about RadNet, Inc., please refer to our annual report on
Form 10-K for the fiscal year ended December 31, 2008 which accompanies this
proxy statement. Our annual report on Form 10-K was filed with the
SEC on March 16, 2009, and is publicly available on our website at www.radnet.com. You
may also obtain a copy by sending a written request to Investor Relations,
RadNet, Inc., 1510 Cotner Ave., Los Angeles, CA 90025.
|
|
By
order of the board of directors,
/s/
Norman R.
Hames
Norman
R. Hames
Corporate
Secretary
|
EXHIBIT
A
PRIMEDEX
HEALTH SYSTEMS, INC.
2006
EQUITY INCENTIVE PLAN
1. Purpose
of the Plan. The purpose of this Plan is to encourage
ownership in the Company by key personnel whose long-term service the Company
considers essential to its continued progress and, thereby, encourage recipients
to act in the stockholders' interest and share in the Company's
success.
2. Definitions. As
used herein, the following definitions shall apply:
"Act"
shall mean the Securities Act of 1933, as amended.
"Administrator"
shall mean the Board, any Committees, or such delegates as shall be
administering the Plan in accordance with Section 4 of the Plan.
"Affiliate"
shall mean any entity that is directly or indirectly in control of or controlled
by the Company, or any entity in which the Company has a significant ownership
interest as determined by the Administrator.
"Applicable
Laws" shall mean the requirements relating to the administration of stock plans
under federal and state laws; any stock exchange or quotation system on which
the Company has listed or submitted for quotation the Common Stock to the extent
provided under the terms of the Company's agreement with such exchange or
quotation system; and, with respect to Awards subject to the laws of any foreign
jurisdiction where Awards are, or will be, granted under the Plan, to the laws
of such jurisdiction.
"Award"
shall mean, individually or collectively, a grant under the Plan of an Option,
Stock Award, SAR, or Cash Award.
"Awardee"
shall mean a Service Provider who has been granted an Award under the
Plan.
"Award
Agreement" shall mean an Option Agreement, Stock Award Agreement, SAR Agreement,
or Cash Award Agreement, which may be in written or electronic format, in such
form and with such terms as may be specified by the Administrator, evidencing
the terms and conditions of an individual Award. Each Award Agreement
is subject to the terms and conditions of the Plan.
"Board"
shall mean the Board of Directors of the Company.
"Cash
Award" shall mean a bonus opportunity awarded under Section 13 pursuant to which
a Participant may become entitled to receive an amount based on the satisfaction
of such performance criteria as are specified in the agreement or other
documents evidencing the Award (the "Cash Award Agreement").
"Change
in Control" shall mean any of the following, unless the Administrator provides
otherwise:
(i) any
merger or consolidation in which the Company shall not be the surviving entity
(or survives only as a subsidiary of another entity whose stockholders did not
own all or substantially all of the Common Stock in substantially the same
proportions as immediately before such transaction);
(ii) the sale
of all or substantially all of the Company's assets to any other person or
entity (other than a wholly-owned subsidiary of the Company);
(iii) the
acquisition of beneficial ownership of a controlling interest (including power
to vote) in the outstanding shares of Common Stock by any person or entity
(including a "group" as defined by or under Section 13(d)(3) of the Exchange
Act);
(iv) the
dissolution or liquidation of the Company;
(v) a
contested election of Directors, as a result of which or in connection with
which the persons who were Directors before such election or their nominees
cease to constitute a majority of the Board; or
(vi) any other
event specified, at the time an Award is granted or thereafter, by the Board or
a Committee.
Notwithstanding
the foregoing, the term "Change in Control" shall not include any underwritten
public offering of Shares registered under the Act.
"Code"
shall mean the Internal Revenue Code of 1986, as amended.
"Committee"
shall mean a committee of Directors appointed by the Board in accordance with
Section 4 of the Plan.
"Common
Stock" shall mean the common stock of the Company, par value $0.01.
"Company"
shall mean Primedex Health Systems, Inc., a New York corporation, or its
successor.
"Consultant"
shall mean any natural person, other than an Employee or Director, who performs
bona fide services for the Company or an Affiliate as a consultant or
advisor.
"Conversion
Award" has the meaning set forth in Section 4(b)(xii) of the Plan.
"Director"
shall mean a member of the Board.
"Disability"
shall mean permanent and total disability as defined in Section 22(e)(3) of the
Code.
"Employee"
shall mean an employee of the Company or any Affiliate, and may include an
Officer or Director. Within the limitations of Applicable Law, the
Administrator shall have the discretion to determine the effect upon an Award
and upon an individual's status as an Employee in the case of (i) any individual
who is classified by the Company or its Affiliate as leased from or otherwise
employed by a third party or as intermittent or temporary, even if any such
classification is changed retroactively as a result of an audit, litigation or
otherwise; (ii) any leave of absence approved by the Company or an Affiliate;
(iii) any transfer between locations of employment with the Company or an
Affiliate or between the Company and any Affiliate or between any Affiliates;
(iv) any change in the Awardee's status from an employee to a Consultant or
Director; and (v) an employee who, at the request of the Company or an
Affiliate, becomes employed by any partnership, joint venture, or corporation
not meeting the requirements of an Affiliate in which the Company or an
Affiliate is a party.
"Exchange
Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair
Market Value" shall mean, unless the Administrator determines otherwise, as of
any date, the closing price for such Common Stock as of such date (or if no
sales were reported on such date, the closing price on the last preceding day
for which a sale was reported), as reported in such source as the Administrator
shall determine.
"Grant
Date" shall mean the date upon which an Award is granted to an Awardee pursuant
to this Plan.
"Incentive
Stock Option" shall mean an Option intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code.
"Nonstatutory
Stock Option" shall mean an Option not intended to qualify as an Incentive Stock
Option.
"Officer"
shall mean a person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act.
"Option"
shall mean a right granted under Section 8 of the Plan to purchase a certain
number of Shares at such exercise price, at such times, and on such other terms
and conditions as are specified in the agreement or other documents evidencing
the Award (the "Option Agreement"). Both Options intended to qualify
as Incentive Stock Options and Nonstatutory Stock Options may be granted under
the Plan.
"Participant"
shall mean the Awardee or any person (including any estate) to whom an Award has
been assigned or transferred as permitted hereunder.
"Plan"
shall mean this Primedex Health Systems, Inc. 2006 Equity Incentive
Plan.
"Qualifying
Performance Criteria" shall have the meaning set forth in Section 14(b) of the
Plan.
"Related
Corporation" shall mean any parent or subsidiary (as those terms are defined in
Section 424(e) and (f) of the Code) of the Company.
"Service
Provider" shall mean an Employee, Officer, Director, or Consultant.
"Share"
shall mean a share of the Common Stock, as adjusted in accordance with Section
15 of the Plan.
"Stock
Award" shall mean an award or issuance of Shares or Stock Units made under
Section 11 of the Plan, the grant, issuance, retention, vesting, and
transferability of which is subject during specified periods to such conditions
(including continued service or performance conditions) and terms as are
expressed in the agreement or other documents evidencing the Award (the "Stock
Award Agreement").
"Stock
Appreciation Right" or "SAR" shall mean an Award, granted alone or in connection
with an Option, that pursuant to Section 12 of the Plan is designated as a
SAR. The terms of the SAR are expressed in the agreement or other
documents evidencing the Award (the "SAR Agreement").
"Stock
Unit" shall mean a bookkeeping entry representing an amount equivalent to the
fair market value of one Share, payable in cash, property or
Shares. Stock Units represent an unfunded and unsecured obligation of
the Company, except as otherwise provided for by the Administrator.
"Ten-Percent
Stockholder" shall mean the owner of stock (as determined under
Section 424(d) of the Code) possessing more than 10% of the total combined
voting power of all classes of stock of the Company (or any Related
Corporation).
"Termination
Date" shall mean the date of a Participant's Termination of Service, as
determined by the Administrator in its sole discretion.
"Termination
of Service" shall mean ceasing to be a Service Provider. However, for
Incentive Stock Option purposes, Termination of Service will occur when the
Awardee ceases to be an employee (as determined in accordance with Section
3401(c) of the Code and the regulations promulgated thereunder) of the Company
or one of its Related Corporations. The Administrator shall determine
whether any corporate transaction, such as a sale or spin-off of a division or
business unit, or a joint venture, shall be deemed to result in a Termination of
Service.
3. Stock
Subject to the Plan.
(a) Aggregate
Limits.
(i) The
maximum aggregate number of Shares that may be issued under the Plan through
Awards is 5,000,000 Shares. Notwithstanding the foregoing, the
maximum aggregate number of Shares that may be issued under the Plan through
Incentive Stock Options is 5,000,000 Shares. The limitations of this
Section 3(a)(i) shall be subject to the adjustments provided for in Section 15
of the Plan.
(ii) Upon
payment in Shares pursuant to the exercise of an Award, the number of Shares
available for issuance under the Plan shall be reduced only by the number of
Shares actually issued in such payment. If any outstanding Award
expires or is terminated or canceled without having been exercised or settled in
full, or if Shares acquired pursuant to an Award subject to forfeiture or
repurchase are forfeited or repurchased by the Company, the Shares allocable to
the terminated portion of such Award or such forfeited or repurchased Shares
shall again be available to grant under the Plan. Notwithstanding the
foregoing, the aggregate number of shares of Common Stock that may be issued
under the Plan upon the exercise of Incentive Stock Options shall not be
increased for restricted Shares that are forfeited or
repurchased. Notwithstanding anything in the Plan, or any Award
Agreement to the contrary, Shares attributable to Awards transferred under any
Award transfer program shall not be again available for grant under the
Plan. The Shares subject to the Plan may be either Shares reacquired
by the Company, including Shares purchased in the open market, or authorized but
unissued Shares.
(b) Code Section 162(m)
Limit. Subject to the provisions of Section 15 of the Plan,
the aggregate number of Shares subject to Awards granted under this Plan during
any calendar year to any one Awardee shall not exceed 250,000 except that in
connection with his or her initial service, an Awardee may be granted Awards
covering up to an additional 250,000 Shares. Notwithstanding anything
to the contrary in the Plan, the limitations set forth in this Section 3(b)
shall be subject to adjustment under Section 15 of the Plan only to the
extent that such adjustment will not affect the status of any Award intended to
qualify as "performance-based compensation" under Code
Section 162(m).
4. Administration
of the Plan.
(a) Procedure.
(i) Multiple Administrative
Bodies. The Plan shall be administered by the Board or one or
more Committees, including such delegates as may be appointed under paragraph
(a)(iv) of this Section 4.
(ii) Section
162(m). To the extent that the Administrator determines it to
be desirable to qualify Awards granted hereunder as "performance-based
compensation" within the meaning of Section 162(m) of the Code, Awards to
"covered employees" within the meaning of Section 162(m) of the Code or
Employees that the Committee determines may be "covered employees" in the future
shall be made by a Committee of two or more "outside directors" within the
meaning of Section 162(m) of the Code.
(iii) Rule
16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3 promulgated under the Exchange Act ("Rule
16b-3"), Awards to Officers and Directors shall be made in such a manner to
satisfy the requirement for exemption under Rule 16b-3.
(iv) Other
Administration. The Board or a Committee may delegate to an
authorized Officer or Officers of the Company the power to approve Awards to
persons eligible to receive Awards under the Plan who are not (A) subject to
Section 16 of the Exchange Act; or (B) at the time of such approval, "covered
employees" under Section 162(m) of the Code.
(v) Delegation of Authority for
the Day-to-Day Administration of the Plan. Except to the
extent prohibited by Applicable Law, the Administrator may delegate to one or
more individuals the day-to-day administration of the Plan and any of the
functions assigned to it in this Plan. Such delegation may be revoked
at any time.
(b) Powers of the
Administrator. Subject to the provisions of the Plan and, in
the case of a Committee or delegates acting as the Administrator, subject to the
specific duties delegated to such Committee or delegates, the Administrator
shall have the authority, in its sole discretion:
(i) to select
the Service Providers of the Company or its Affiliates to whom Awards are to be
granted hereunder;
(ii) to
determine the number of shares of Common Stock to be covered by each Award
granted hereunder;
(iii) to
determine the type of Award to be granted to the selected Service
Provider;
(iv) to
approve the forms of Award Agreements for use under the Plan;
(v) to
determine the terms and conditions, consistent with the terms of the Plan, of
any Award granted hereunder. Such terms and conditions include the
exercise or purchase price, the time or times when an Award may be exercised
(which may or may not be based on performance criteria), the vesting schedule,
any vesting or exercisability acceleration or waiver of forfeiture restrictions,
the acceptable forms of consideration, the term, and any restriction or
limitation regarding any Award or the Shares relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine and may be established at the time an Award is granted or
thereafter;
(vi) to
correct administrative errors;
(vii) to
construe and interpret the terms of the Plan (including sub-plans and Plan
addenda) and Awards granted pursuant to the Plan;
(viii) to adopt
rules and procedures relating to the operation and administration of the Plan to
accommodate the specific requirements of local laws and
procedures. Without limiting the generality of the foregoing, the
Administrator is specifically authorized (A) to adopt the rules and procedures
regarding the conversion of local currency, withholding procedures, and handling
of stock certificates that vary with local requirements; and (B) to adopt
sub-plans and Plan addenda as the Administrator deems desirable, to accommodate
foreign laws, regulations and practice;
(ix) to
prescribe, amend and rescind rules and regulations relating to the Plan,
including rules and regulations relating to sub-plans and Plan
addenda;
(x) to modify
or amend each Award, including the acceleration of vesting, exercisability, or
both; provided, however, that any modification or amendment of an Award is
subject to Section 16 of the Plan and may not materially impair any outstanding
Award unless agreed to by the Participant;
(xi) to allow
Participants to satisfy withholding tax amounts by electing to have the Company
withhold from the Shares to be issued pursuant to an Award that number of Shares
having a Fair Market Value equal to the amount required to be
withheld. The Fair Market Value of the Shares to be withheld shall be
determined in such manner and on such date that the Administrator shall
determine or, in the absence of provision otherwise, on the date that the amount
of tax to be withheld is to be determined. All elections by a
Participant to have Shares withheld for this purpose shall be made in such form
and under such conditions as the Administrator may provide;
(xii) to
authorize conversion or substitution under the Plan of any or all stock options,
stock appreciation rights, or other stock awards held by service providers of an
entity acquired by the Company (the "Conversion Awards"). Any
conversion or substitution shall be effective as of the close of the merger or
acquisition. The Conversion Awards may be Nonstatutory Stock Options
or Incentive Stock Options, as determined by the Administrator, with respect to
options granted by the acquired entity. Unless otherwise determined
by the Administrator at the time of conversion or substitution, all Conversion
Awards shall have the same terms and conditions as Awards generally granted by
the Company under the Plan;
(xiii) to
authorize any person to execute on behalf of the Company any instrument required
to effect the grant of an Award previously granted by the
Administrator;
(xiv) to
determine whether Awards will be settled in Shares, cash, or in any combination
thereof;
(xv) to
determine whether to provide for the right to receive dividends or dividend
equivalents;
(xvi) to
establish a program whereby Service Providers designated by the Administrator
can reduce compensation otherwise payable in cash in exchange for Awards under
the Plan;
(xvii) to impose
such restrictions, conditions, or limitations as it determines appropriate as to
the timing and manner of any resales by a Participant or other subsequent
transfers by the Participant of any Shares issued as a result of or under an
Award, including (A) restrictions under an insider trading policy, and (B)
restrictions as to the use of a specified brokerage firm for such resales or
other transfers;
(xviii) to
provide, either at the time an Award is granted or by subsequent action, that an
Award shall contain as a term thereof, a right, either in tandem with the other
rights under the Award or as an alternative thereto, of the Participant to
receive, without payment to the Company, a number of Shares, cash, or a
combination of both, the amount of which is determined by reference to the value
of the Award; and
(xix) to make
all other determinations deemed necessary or advisable for administering the
Plan and any Award granted hereunder.
(c) Effect of Administrator's
Decision. All decisions, determinations and interpretations by
the Administrator regarding the Plan, any rules and regulations under the Plan
and the terms and conditions of any Award granted hereunder, shall be final and
binding on all Participants. The Administrator shall consider such
factors as it deems relevant, in its sole and absolute discretion, to making
such decisions, determinations and interpretations, including the
recommendations or advice of any officer or other employee of the Company and
such attorneys, consultants and accountants as it may select.
5. Eligibility. Awards
may be granted to Service Providers of the Company or any of its
Affiliates.
6. Effective
Date and Term of the Plan. Subject to stockholder approval,
the Plan shall become effective upon its adoption by the
Board. Options, SARs, and Cash Awards may be granted immediately
thereafter; provided, that no Option or SAR may be exercised and no Stock Award
may be granted under the Plan until it is approved by the stockholders of the
Company, in the manner and to the extent required by Applicable Law, within 12
months after the date of adoption by the Board. The Plan shall
continue in effect for a term of ten years from the date of the Plan's adoption
by the Board unless terminated earlier under Section 16 herein.
7. Term of
Award. The term of each Award shall be determined by the
Administrator and stated in the Award Agreement. In the case of an
Option, the term shall be ten years from the Grant Date or such shorter term as
may be provided in the Award Agreement.
8. Options. The
Administrator may grant an Option or provide for the grant of an Option, from
time to time in the discretion of the Administrator or automatically upon the
occurrence of specified events, including the achievement of performance goals,
and for the satisfaction of an event or condition within the control of the
Awardee or within the control of others.
(a) Option
Agreement. Each Option Agreement shall contain provisions
regarding (i) the number of Shares that may be issued upon exercise of the
Option; (ii) the type of Option; (iii) the exercise price of the Shares and the
means of payment for the Shares; (iv) the term of the Option; (v) such terms and
conditions on the vesting or exercisability of an Option, or both, as may be
determined from time to time by the Administrator; (vi) restrictions on the
transfer of the Option and forfeiture provisions; and (vii) such further terms
and conditions, in each case not inconsistent with this Plan, as may be
determined from time to time by the Administrator.
(b) Exercise
Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the
case of an Incentive Stock Option, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the Grant
Date. Notwithstanding the foregoing, if any Incentive Stock Option is
granted to a Ten-Percent Stockholder, then the exercise price shall not be less
than 110% of the Fair Market Value of a share of Common Stock on the Grant
Date.
(ii) In the
case of a Nonstatutory Stock Option, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the Grant
Date. The per Share exercise price may also vary according to a
predetermined formula; provided, that the exercise price never falls below 100%
of the Fair Market Value per Share on the Grant Date.
(iii) Notwithstanding
the foregoing, at the Administrator's discretion, Conversion Awards may be
granted in substitution or conversion of options of an acquired entity, with a
per Share exercise price of less than 100% of the Fair Market Value per Share on
the date of such substitution or conversion.
(c) Vesting Period and Exercise
Dates. Options granted under this Plan shall vest, be
exercisable, or both, at such times and in such installments during the Option's
term as determined by the Administrator. The Administrator shall have
the right to make the timing of the ability to exercise any Option granted under
this Plan subject to continued service, the passage of time, or such performance
requirements as deemed appropriate by the Administrator. At any time
after the grant of an Option, the Administrator may reduce or eliminate any
restrictions surrounding any Participant's right to exercise all or part of the
Option.
(d) Form of
Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment, either through the terms of the Option Agreement or at the time of
exercise of an Option. The consideration, determined by the
Administrator (or pursuant to authority expressly delegated by the Board, a
Committee, or other person), and in the form and amount required by applicable
law, shall be actually received before issuing any Shares pursuant to the Plan;
which consideration shall have a value, as determined by the Board, not less
than the par value of such Shares. Acceptable forms of consideration
may include:
(i) cash;
(ii) check or
wire transfer;
(iii) subject
to any conditions or limitations established by the Administrator, other Shares
that have a Fair Market Value on the date of surrender or attestation that does
not exceed the aggregate exercise price of the Shares as to which said Option
shall be exercised;
(iv) consideration
received by the Company under a broker-assisted sale and remittance program
acceptable to the Administrator to the extent that this procedure would not
violate Section 402 of the Sarbanes-Oxley Act of 2002, as amended;
(v) cashless,
subject to any conditions or limitations established by the
Administrator;
(vi) such
other consideration and method of payment for the issuance of Shares to the
extent permitted by Applicable Laws; or
(vii) any
combination of the foregoing methods of payment.
9. Incentive
Stock Option Limitations.
(a) Eligibility. Only
employees (as determined in accordance with Section 3401(c) of the Code and the
regulations promulgated thereunder) of the Company or any of its Related
Corporations may be granted Incentive Stock Options.
(b) $100,000
Limitation. Notwithstanding the designation "Incentive Stock
Option" in an Option Agreement, if the aggregate Fair Market Value of the Shares
with respect to which Incentive Stock Options are exercisable for the first time
by the Awardee during any calendar year (under all plans of the Company and any
of its Related Corporations) exceeds $100,000, then the portion of such Options
that exceeds $100,000 shall be treated as Nonstatutory Stock
Options. An Incentive Stock Option is considered to be first
exercisable during a calendar year if the Incentive Stock Option will become
exercisable at any time during the year, assuming that any condition on the
Awardee's ability to exercise the Incentive Stock Option related to the
performance of services is satisfied. If the Awardee's ability to
exercise the Incentive Stock Option in the year is subject to an acceleration
provision, then the Incentive Stock Option is considered first exercisable in
the calendar year in which the acceleration provision is
triggered. For purposes of this Section 9(b), Incentive Stock
Options shall be taken into account in the order in which they were
granted. However, because an acceleration provision is not taken into
account before its triggering, an Incentive Stock Option that becomes
exercisable for the first time during a calendar year by operation of such
provision does not affect the application of the $100,000 limitation with
respect to any Incentive Stock Option (or portion thereof) exercised before such
acceleration. The Fair Market Value of the Shares shall be determined
as of the Grant Date.
(c) Leave of
Absence. For purposes of Incentive Stock Options, no leave of
absence may exceed three months, unless the right to reemployment upon
expiration of such leave is provided by statute or contract. If the
period of leave exceeds three months and the Awardee's right to reemployment is
not provided by statute or contract, the Awardee's employment with the Company
shall be deemed to terminate on the first day immediately following such
three-month period, and any Incentive Stock Option granted to the Awardee shall
cease to be treated as an Incentive Stock Option and shall terminate upon the
expiration of the three-month period starting on the date the employment
relationship is deemed terminated.
(d) Transferability. The
Option Agreement must provide that an Incentive Stock Option cannot be
transferable by the Awardee otherwise than by will or the laws of descent and
distribution, and, during the lifetime of such Awardee, must not be exercisable
by any other person. Notwithstanding the foregoing, the
Administrator, in its sole discretion, may allow the Awardee to transfer his or
her Incentive Stock Option to a trust where under Section 671 of the Code and
other Applicable Law, the Awardee is considered the sole beneficial owner of the
Option while it is held in the trust. If the terms of an Incentive
Stock Option are amended to permit transferability, the Option will be treated
for tax purposes as a Nonstatutory Stock Option.
(e) Exercise
Price. The per Share exercise price of an Incentive Stock
Option shall be determined by the Administrator in accordance with Section
8(b)(i) of the Plan.
(f) Ten-Percent
Stockholder. If any Incentive Stock Option is granted to a
Ten-Percent Stockholder, then the Option term shall not exceed five years
measured from the date of grant of such Option.
(g) Other
Terms. Option Agreements evidencing Incentive Stock Options
shall contain such other terms and conditions as may be necessary to qualify as
Incentive Stock Options, to the extent determined desirable by the
Administrator, under the applicable provisions of Section 422 of the
Code.
10. Exercise
of Option.
(a) Procedure for Exercise;
Rights as a Stockholder.
(i) Any
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
and set forth in the respective Award Agreement.
(ii) An Option
shall be deemed exercised when the Company receives (A) written or electronic
notice of exercise (in accordance with the Award Agreement) from the person
entitled to exercise the Option; (B) full payment for the Shares with respect to
which the related Option is exercised; and (C) with respect to Nonstatutory
Stock Options, payment of all applicable withholding taxes.
(iii) Shares
issued upon exercise of an Option shall be issued in the name of the Participant
or, if requested by the Participant, in the name of the Participant and his or
her spouse. Unless provided otherwise by the Administrator or
pursuant to this Plan, until the Shares are issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), no right to vote or receive dividends or any other rights
as a stockholder shall exist with respect to the Shares subject to an Option,
notwithstanding the exercise of the Option.
(iv) The
Company shall issue (or cause to be issued) such Shares as soon as
administratively practicable after the Option is exercised. An Option
may not be exercised for a fraction of a Share.
(b) Effect of Termination of
Service on Options.
(i) Generally. Unless
otherwise provided for by the Administrator, if a Participant ceases to be a
Service Provider, other than upon the Participant's death or Disability, the
Participant may exercise his or her Option within such period as is specified in
the Award Agreement to the extent that the Option is vested on the Termination
Date (but in no event later than the expiration of the term of such Option as
set forth in the Award Agreement). In the absence of a specified time
in the Award Agreement, the vested portion of the Option will remain exercisable
for three months following the Participant's Termination Date. Unless
otherwise provided by the Administrator, if on the Termination Date the
Participant is not vested as to his or her entire Option, the Shares covered by
the unvested portion of the Option will automatically revert to the
Plan. If after the Termination of Service the Participant does not
exercise his or her Option within the time specified by the Administrator, the
Option will automatically terminate, and the Shares covered by such Option will
revert to the Plan.
(ii) Disability of
Awardee. Unless otherwise provided for by the Administrator,
if a Participant ceases to be a Service Provider as a result of the
Participant's Disability, the Participant may exercise his or her Option within
such period as is specified in the Award Agreement to the extent the Option is
vested on the Termination Date (but in no event later than the expiration of the
term of such Option as set forth in the Award Agreement). In the
absence of a specified time in the Award Agreement, the Option will remain
exercisable for twelve months following the Participant's Termination
Date. Unless otherwise provided by the Administrator, if at the time
of Disability the Participant is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option will automatically revert
to the Plan. If the Option is not so exercised within the time
specified herein, the Option will terminate, and the Shares covered by such
Option will automatically revert to the Plan.
(iii) Death of
Awardee. Unless otherwise provided for by the Administrator,
if a Participant dies while a Service Provider, the Option may be exercised
following the Participant's death within such period as is specified in the
Award Agreement to the extent that the Option is vested on the date of death
(but in no event may the Option be exercised later than the expiration of the
term of such Option as set forth in the Award Agreement), by the Participant's
designated beneficiary, provided such beneficiary has been designated before the
Participant's death in a form acceptable to the Administrator. If no
such beneficiary has been designated by the Participant, then such Option may be
exercised by the personal representative of the Participant's estate or by the
person or persons to whom the Option is transferred pursuant to the
Participant's will or in accordance with the laws of descent and
distribution. In the absence of a specified time in the Award
Agreement, the Option will remain exercisable for twelve months following
Participant's death. Unless otherwise provided by the Administrator,
if at the time of death Participant is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option will revert to
the Plan. If the Option is not so exercised within the time specified
herein, the Option will terminate, and the Shares covered by such Option will
revert to the Plan.
11. Stock
Awards.
(a) Stock Award
Agreement. Each Stock Award Agreement shall contain provisions
regarding (i) the number of Shares subject to such Stock Award or a formula for
determining such number; (ii) the purchase price, if any, of the Shares, and the
means of payment for the Shares; (iii) the performance criteria, if any, and
level of achievement versus these criteria that shall determine the number of
Shares granted, issued, retained, or vested, as applicable; (iv) such terms and
conditions on the grant, issuance, vesting, or forfeiture of the Shares, as
applicable, as may be determined from time to time by the Administrator; (v)
restrictions on the transferability of the Stock Award; and (vi) such further
terms and conditions in each case not inconsistent with this Plan as may be
determined from time to time by the Administrator.
(b) Restrictions and Performance
Criteria. The grant, issuance, retention, and vesting of each
Stock Award may be subject to such performance criteria and level of achievement
versus these criteria as the Administrator shall determine, which criteria may
be based on financial performance, personal performance evaluations, or
completion of service by the Awardee.
Notwithstanding
anything to the contrary herein, the performance criteria for any Stock Award
that is intended to satisfy the requirements for "performance-based
compensation" under Section 162(m) of the Code shall be established by the
Administrator based on one or more Qualifying Performance Criteria selected by
the Administrator and specified in writing.
(c) Forfeiture. Unless
otherwise provided for by the Administrator, upon the Awardee's Termination of
Service, the unvested Stock Award and the Shares subject thereto shall be
forfeited, provided that to the extent that the Participant purchased any Shares
pursuant to such Stock Award, the Company shall have a right to repurchase the
unvested portion of such Shares at the original price paid by the
Participant.
(d) Rights as a
Stockholder. Unless otherwise provided by the Administrator,
the Participant shall have the rights equivalent to those of a stockholder and
shall be a stockholder only after Shares are issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) to the Participant. Unless otherwise provided
by the Administrator, a Participant holding Stock Units shall be entitled to
receive dividend payments as if he or she were an actual
stockholder.
12. Stock
Appreciation Rights. Subject to the terms and conditions of
the Plan, a SAR may be granted to a Service Provider at any time and from time
to time as determined by the Administrator in its sole discretion.
(a) Number of
SARs. The Administrator shall have complete discretion to
determine the number of SARs granted to any Service Provider.
(b) Exercise Price and Other
Terms. The per SAR exercise price shall be no less than 100%
of the Fair Market Value per Share on the Grant Date. The
Administrator, subject to the provisions of the Plan, shall have complete
discretion to determine the other terms and conditions of SARs granted under the
Plan.
(c) Exercise of
SARs. SARs shall be exercisable on such terms and conditions
as the Administrator, in its sole discretion, shall determine.
(d) SAR
Agreement. Each SAR grant shall be evidenced by a SAR
Agreement that will specify the exercise price, the term of the SAR, the
conditions of exercise, and such other terms and conditions as the
Administrator, in its sole discretion, shall determine.
(e) Expiration of
SARs. A SAR granted under the Plan shall expire upon the date
determined by the Administrator, in its sole discretion, and set forth in the
SAR Agreement. Notwithstanding the foregoing, the rules of Section
10(b) will also apply to SARs.
(f) Payment of SAR
Amount. Upon exercise of a SAR, the Participant shall be
entitled to receive a payment from the Company in an amount equal to the
difference between the Fair Market Value of a Share on the date of exercise over
the exercise price of the SAR. This amount shall be paid in cash,
Shares of equivalent value, or a combination of both, as the Administrator shall
determine.
13. Cash
Awards. Each Cash Award will confer upon the Participant the
opportunity to earn a future payment tied to the level of achievement with
respect to one or more performance criteria established by the Administrator for
a performance period.
(a) Cash
Award. Each Cash Award shall contain provisions regarding (i)
the performance goal or goals and maximum amount payable to the Participant as a
Cash Award; (ii) the performance criteria and level of achievement versus these
criteria that shall determine the amount of such payment; (iii) the period as to
which performance shall be measured for establishing the amount of any payment;
(iv) the timing of any payment earned by virtue of performance; (v) restrictions
on the alienation or transfer of the Cash Award before actual payment; (vi)
forfeiture provisions; and (vii) such further terms and conditions, in each case
not inconsistent with the Plan, as may be determined from time to time by the
Administrator. The maximum amount payable as a Cash Award that is
settled for cash may be a multiple of the target amount payable, but the maximum
amount payable pursuant to that portion of a Cash Award granted under this Plan
for any fiscal year to any Awardee that is intended to satisfy the requirements
for "performance-based compensation" under Section 162(m) of the Code shall
not exceed $1,000,000.
(b) Performance
Criteria. The Administrator shall establish the performance
criteria and level of achievement versus these criteria that shall determine the
target and the minimum and maximum amount payable under a Cash Award, which
criteria may be based on financial performance or personal performance
evaluations or both. The Administrator may specify the percentage of
the target Cash Award that is intended to satisfy the requirements for
"performance-based compensation" under Section 162(m) of the
Code. Notwithstanding anything to the contrary herein, the
performance criteria for any portion of a Cash Award that is intended to satisfy
the requirements for "performance-based compensation" under Section 162(m) of
the Code shall be a measure established by the Administrator based on one or
more Qualifying Performance Criteria selected by the Administrator and specified
in writing.
(c) Timing and Form of
Payment. The Administrator shall determine the timing of
payment of any Cash Award. The Administrator may specify the form of
payment of Cash Awards, which may be cash or other property, or may provide for
an Awardee to have the option for his or her Cash Award, or such portion thereof
as the Administrator may specify, to be paid in whole or in part in cash or
other property.
(d) Termination of
Service. The Administrator shall have the discretion to
determine the effect of a Termination of Service on any Cash Award due to (i)
disability, (ii) retirement, (iii) death, (iv) participation in a voluntary
severance program, or (v) participation in a work force
restructuring.
14. Other
Provisions Applicable to Awards.
(a) Non-Transferability of
Awards. Unless determined otherwise by the Administrator, an
Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed
of in any manner other than by will or by the laws of descent and distribution,
and may be exercised, during the lifetime of the Participant, only by the
Participant. If the Administrator makes an Award transferable, either
at the time of grant or thereafter, such Award shall contain such additional
terms and conditions as the Administrator deems appropriate, and any transferee
shall be bound by such terms upon acceptance of such transfer.
(b) Qualifying Performance
Criteria. For purposes of this Plan, the term "Qualifying
Performance Criteria" shall mean any one or more of the following performance
criteria, applied to either the Company as a whole or to a business unit,
Affiliate, Related Corporations, or business segment, either individually,
alternatively, or in any combination, and measured either annually or
cumulatively over a period of years, on an absolute basis or relative to a
pre-established target, to previous years' results or to a designated comparison
group, in each case as specified in the Award by the Committee: (i)
cash flow, (ii) earnings (including gross margin, earnings before interest and
taxes, earnings before taxes, and net earnings), (iii) earnings per share, (iv)
growth in earnings or earnings per share, (v) stock price, (vi) return on equity
or average stockholders' equity, (vii) total stockholder return, (viii) return
on capital, (ix) return on assets or net assets, (x) return on investment, (xi)
revenue, (xii) income or net income, (xiii) operating income or net operating
income, (xiv) operating profit or net operating profit, (xv) operating margin,
(xvi) return on operating revenue, (xvii) market share, (xviii) contract awards
or backlog, (xix) overhead or other expense reduction, (xx) growth in
stockholder value relative to the moving average of the S&P 500 Index or a
peer group index, (xxi) credit rating, (xxii) strategic plan development and
implementation, (xxiii) improvement in workforce diversity, (xxiv) EBITDA, and
(xxv) any other similar criteria.
(c) Certification. Before
payment of any compensation under an Award intended to qualify as
"performance-based compensation" under Section 162(m) of the Code, the Committee
shall certify the extent to which any Qualifying Performance Criteria and any
other material terms under such Award have been satisfied (other than in cases
where such relate solely to the increase in the value of the Common
Stock).
(d) Discretionary Adjustments
Pursuant to Section 162(m). Notwithstanding satisfaction or
completion of any Qualifying Performance Criteria, to the extent specified at
the time of grant of an Award to "covered employees" within the meaning of
Section 162(m) of the Code, the number of Shares, Options or other benefits
granted, issued, retained, or vested under an Award on account of satisfaction
of such Qualifying Performance Criteria may be reduced by the Committee on the
basis of such further considerations as the Committee in its sole discretion
shall determine.
(e) Section 409A. Notwithstanding
anything in the Plan to the contrary, it is the Company's intent that all Awards
granted under this Plan comply with Section 409A of the Code, and each
Award shall be interpreted in a manner consistent with that
intention.
15. Adjustments
upon Changes in Capitalization, Dissolution, Merger or Asset
Sale.
(a) Changes in
Capitalization.
(i) The
limitations set forth in Section 3, the number and kind of Shares covered
by each outstanding Award, and the price per Share (but not the total price)
subject to each outstanding Award shall be proportionally adjusted to prevent
dilution or enlargement of rights under the Plan for any change in the
outstanding Common Stock subject to the Plan, or subject to any Award, resulting
from any stock splits, combination or exchange of Shares, consolidation,
spin-off or recapitalization of Shares or any capital adjustment or transaction
similar to the foregoing or any distribution to holders of Common Stock other
than regular cash dividends.
(ii) The
Administrator shall make such adjustment in such manner as it may deem equitable
and appropriate, subject to compliance with Applicable Laws. Any
determination, substitution or adjustment made by the Administrator under this
Section shall be conclusive and binding on all persons. The
conversion of any convertible securities of the Company shall not be treated as
a transaction requiring any substitution or adjustment under this
Section. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of Shares subject to an
Award.
(b) Dissolution or
Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify each Participant as
soon as practicable before the effective date of such proposed
transaction. The Administrator in its discretion may provide for an
Option to be fully vested and exercisable until ten days before such proposed
transaction. In addition, the Administrator may provide that any
restrictions on any Award shall lapse before the proposed transaction, provided
the proposed dissolution or liquidation takes place at the time and in the
manner contemplated. To the extent it has not been previously
exercised, an Award will terminate immediately before the consummation of such
proposed transaction.
(c) Change in
Control. If there is a Change in Control of the Company, as
determined by the Board or a Committee, the Board or Committee, or board of
directors of any surviving entity or acquiring entity may, in its discretion,
(i) provide for the assumption, continuation or substitution (including an award
to acquire substantially the same type of consideration paid to the stockholders
in the transaction in which the Change in Control occurs) of, or adjustment to,
all or any part of the Awards; (ii) accelerate the vesting of all or any part of
the Options and SARs and terminate any restrictions on all or any part of the
Stock Awards or Cash Awards; (iii) provide for the cancellation of all or any
part of the Awards for a cash payment to the Participants; and (iv) provide for
the cancellation of all or any part of the Awards as of the closing of the
Change in Control; provided, that the Participants are notified that they must
exercise or redeem their Awards (including, at the discretion of the Board or
Committee, any unvested portion of such Award) at or before the closing of the
Change in Control.
16. Amendment
and Termination of the Plan.
(a) Amendment and
Termination. The Administrator may amend, alter, or
discontinue the Plan or any Award Agreement, but any such amendment shall be
subject to approval of the stockholders of the Company in the manner and to the
extent required by Applicable Law.
(b) Effect of Amendment or
Termination. No amendment, suspension, or termination of the
Plan shall materially impair the rights of any Award, unless agreed otherwise
between the Participant and the Administrator. Termination of the
Plan shall not affect the Administrator's ability to exercise the powers granted
to it hereunder with respect to Awards granted under the Plan before the date of
such termination.
(c) Effect of the Plan on Other
Arrangements. Neither the adoption of the Plan by the Board or
a Committee nor the submission of the Plan to the stockholders of the Company
for approval shall be construed as creating any limitations on the power of the
Board or any Committee to adopt such other incentive arrangements as it or they
may deem desirable, including the granting of restricted stock or stock options
otherwise than under the Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.
17. Designation
of Beneficiary.
(a) An
Awardee may file a written designation of a beneficiary who is to receive the
Awardee's rights pursuant to Awardee's Award or the Awardee may include his or
her Awards in an omnibus beneficiary designation for all rights under the
Awardee's Awards and all benefits under the Plan. To the extent that
Awardee has completed a designation of beneficiary such beneficiary designation
shall remain in effect with respect to any Award hereunder until changed by the
Awardee to the extent enforceable under Applicable Law.
(b) The
Awardee may change such designation of beneficiary at any time by written
notice. If an Awardee dies and no beneficiary is validly designated
under the Plan who is living at the time of such Awardee's death, the Company
shall allow the executor or administrator of the estate of the Awardee to
receive the Awardee's rights under the Awardee's Awards and all benefits under
the Plan, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its discretion, may allow the spouse
or one or more dependents or relatives of the Awardee to receive the Awardee's
rights under the Awardee's Awards and all benefits under the Plan to the extent
permissible under Applicable Law.
18. No Right
to Awards or to Service. No person shall have any claim or
right to be granted an Award and the grant of any Award shall not be construed
as giving an Awardee the right to continue in the service of the Company or its
Affiliates. Further, the Company and its Affiliates expressly reserve
the right, at any time, to dismiss any Service Provider or Awardee at any time
without liability or any claim under the Plan, except as provided herein or in
any Award Agreement entered into hereunder.
19. Preemptive
Rights. No Shares will be issued under the Plan in violation
of any preemptive rights held by any stockholder of the Company.
20. Legal
Compliance. No Share will be issued pursuant to an Award under
the Plan unless the issuance and delivery of such Share, as well as the exercise
of such Award, if applicable, will comply with Applicable
Laws. Issuance of Shares under the Plan shall be subject to the
approval of counsel for the Company with respect to such
compliance. Notwithstanding anything in the Plan to the contrary, the
Plan is intended to comply with the requirements of Section 409A of the Code and
shall be interpreted in a manner consistent with that intention.
21. Inability
to Obtain Authority. To the extent the Company is unable to or
the Administrator deems that it is not feasible to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
the Company shall be relieved of any liability with respect to the failure to
issue or sell such Shares as to which such requisite authority shall not have
been obtained.
22. Reservation
of Shares. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
23. Notice. Any
written notice to the Company required by any provisions of this Plan shall be
addressed to the Secretary of the Company and shall be effective when
received.
24. Governing
Law; Interpretation of Plan and Awards.
(a) This Plan
and all determinations made and actions taken pursuant hereto shall be governed
by the substantive laws, but not the choice of law rules, of the state of New
York.
(b) If any
provision of the Plan or any Award granted under the Plan is declared to be
illegal, invalid, or otherwise unenforceable by a court of competent
jurisdiction, such provision shall be reformed, if possible, to the extent
necessary to render it legal, valid, and enforceable, or otherwise deleted, and
the remainder of the terms of the Plan and Award shall not be affected except to
the extent necessary to reform or delete such illegal, invalid, or unenforceable
provision.
(c) The
headings preceding the text of the sections hereof are inserted solely for
convenience of reference, and shall not constitute a part of the Plan, nor shall
they affect its meaning, construction or effect.
(d) The terms
of the Plan and any Award shall inure to the benefit of and be binding upon the
parties hereto and their respective permitted heirs, beneficiaries, successors,
and assigns.
(e) All
questions arising under the Plan or under any Award shall be decided by the
Administrator in its total and absolute discretion. If the
Participant believes that a decision by the Administrator with respect to such
person was arbitrary or capricious, the Participant may request arbitration with
respect to such decision. The review by the arbitrator shall be
limited to determining whether the Administrator's decision was arbitrary or
capricious. This arbitration shall be the sole and exclusive review
permitted of the Administrator's decision, and the Awardee shall as a condition
to the receipt of an Award be deemed to waive explicitly any right to judicial
review.
25. Limitation
on Liability. The Company and any Affiliate or Related
Corporation that is in existence or hereafter comes into existence shall not be
liable to a Participant, an Employee, an Awardee, or any other persons as
to:
(a) The Non-Issuance of
Shares. The non-issuance or sale of Shares as to which the
Company has been unable to obtain from any regulatory body having jurisdiction
the authority deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any shares hereunder; and
(b) Tax
Consequences. Any tax consequence expected, but not realized,
by any Participant, Employee, Awardee or other person due to the receipt,
exercise or settlement of any Option or other Award granted
hereunder.
26. Unfunded
Plan. Insofar as it provides for Awards, the Plan shall be
unfunded. Although bookkeeping accounts may be established with
respect to Awardees who are granted Stock Awards under this Plan, any such
accounts will be used merely as a bookkeeping convenience. The
Company shall not be required to segregate any assets that may at any time be
represented by Awards, nor shall this Plan be construed as providing for such
segregation, nor shall the Company or the Administrator be deemed a trustee of
stock or cash to be awarded under the Plan. Any liability of the
Company to any Participant with respect to an Award shall be based solely upon
any contractual obligations that may be created by the Plan; no such obligation
of the Company shall be deemed secured by any pledge or other encumbrance on any
property of the Company. Neither the Company nor the Administrator
shall be required to give any security or bond for the performance of any
obligation that may be created by this Plan.
IN
WITNESS WHEREOF, the Company, by its duly authorized officer, has executed this
Plan, effective as of November 15, 2006.
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PRIMEDEX
HEALTH SYSTEMS, INC.
By: /s/ Howard G. Berger,
M.D.
Its: Chief
Executive Officer and President
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AMENDMENT
NO. 1 TO THE 2006 EQUITY INCENTIVE PLAN
RadNet,
Inc. (the "Company") hereby amends its 2006 Equity Incentive Plan (the "Plan"),
retroactively effective as of the Plan’s original adoption, as
follows:
The
second sentence of Section 3(b) of the Plan is hereby amended in its entirety to
read as follows:
Notwithstanding
anything to the contrary in the Plan, the limitations set forth in this Section
3(b) shall (i) not apply to any Award that is not intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, or (ii) be subject to adjustment under Section 15 of the Plan only to the
extent that such adjustment will not affect the status of any Award intended to
qualify as "performance-based compensation" under Section 162(m) of the
Code.
The
Company has caused this Amendment No. 1 to be signed on the date indicated
below, to be effective as indicated above.
|
Dated: August
7, 2008
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RADNET,
INC.
By: /s/ Howard G. Berger,
M.D.
Its: Chief
Executive Officer and President
|
▼ DETACH HERE ▼
PROXY
RADNET,
INC.
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR
THE ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON JUNE 5, 2009
The
undersigned hereby appoints [Mark Stolper] and [Jeffrey Linden], or any one of
them, and each with full power of substitution, to act as attorneys and proxies
for the undersigned to attend the Annual Meeting of Stockholders of the Company
to be held at The Olympic Collection, 11301 Olympic Blvd., Los Angeles,
California on June 5, 2009 at 10:00 a.m. (Pacific Time) and any adjournments or
postponements thereof, to cast on behalf of the undersigned all votes that the
undersigned is entitled to cast at such meeting and otherwise to represent the
undersigned at the meeting with all powers possessed by the undersigned if
personally at the meeting. The undersigned acknowledges receipt from the Company
prior to the execution of this proxy of a Notice of Annual Meeting of
Stockholders and a Proxy Statement, the terms of which are incorporated herein
by reference, and revokes any proxy heretofore given in respect to such
meeting.
THE
VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST AS INSTRUCTED
HEREIN. IF THIS PROXY IS EXECUTED BUT NO INSTRUCTION IS GIVEN, THE
VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST "FOR" PROPOSALS 1, 2,
3, 4 AND 5.
Please
consider the issues discussed in the proxy statement and cast your vote by
completing, dating, signing and mailing the proxy card in the postage-paid
envelope included with the proxy statement.
Stockholders
holding shares with a broker, bank or other nominee may also be eligible to vote
via the Internet or to vote telephonically if their broker, bank or other
nominee participates in the proxy voting program provided by Broadridge
Financial Solutions, Inc. Please consult the
instruction form received from your broker or bank.
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SEE
REVERSE
SIDE
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(Continued,
and to be marked, dated and signed, on the reverse side.)
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SEE
REVERSE
SIDE
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RADNET,
INC.
Your
vote is important. Please vote immediately.
ANNUAL
MEETING OF STOCKHOLDERS OF RADNET, INC.
JUNE
5, 2009
▼ DETACH HERE ▼
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x
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Please mark votes as in this
example.
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THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS NO. 1, 2, 3, 4 and
5.
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1.
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To
elect the following seven persons (except as marked to the contrary) as
directors of the Company for a one-year term, or until their successors
are duly elected and qualified:
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FOR
ALL
o
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WITHHOLD
ALL
o
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FOR
ALL
EXCEPT
o
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Howard G. Berger,
M.D. Marvin
S. Cadwell
John V. Crues, III,
M.D.
Norman R. Hames
Lawrence L.
Levitt
Michael L. Sherman, M.D.
David L. Swartz
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To
withhold authority to vote for any nominee mark "For All Except" and write
the nominee’s name on the line below.
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2.
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To
amend our 2006 Equity Incentive Plan to allow for a stock option exchange
for eligible employees, consultants and directors, including the
cancellation of certain stock options held by our current employees,
consultants and directors.
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FOR
o
|
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AGAINST
o
|
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ABSTAIN
o
|
|
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|
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|
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3.
|
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To
amend our 2006 Equity Incentive Plan to increase the number of shares
available to 5,500,000.
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FOR
|
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AGAINST
o
|
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ABSTAIN
o
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4.
|
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To
ratify the selection of Ernst & Young LLP as the Company’s independent
registered public accounting firm for the year ending December 31,
2009.
|
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FOR
o
|
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AGAINST
o
|
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ABSTAIN
o
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|
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|
|
|
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5.
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To
transact any other business that may properly come before the meeting or
any adjournment or postponement of the meeting.
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FOR
|
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AGAINST
o
|
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ABSTAIN
|
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|
|
|
|
|
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|
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|
o
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MARK
HERE IF YOUR ADDRESS HAS CHANGED AND PROVIDE
YOUR NEW ADDRESS IN THE
BLANK SPACE TO THE RIGHT.
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THIS PROXY IS REVOCABLE AND WILL BE
VOTED AS DIRECTED BY THE UNDERSIGNED BELOW. Where no choice
is specified, this proxy card will be voted FOR such proposal where no vote is
specified.
Date: _____________________________,
2009
__________________________________________________
Signature(s)
of Stockholder(s)
(See
Instructions Below.)
Please
sign your name(s) exactly as shown on this proxy card and date in the blank
provided. For joint accounts, each joint owner should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title as such. If the signer is a corporation or partnership, please sign in
full corporate or partnership name by a duly authorized officer of
partner.
Thank you
for voting.