Edgar Filing: U S PHYSICAL THERAPY INC /NV

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

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U.S. Physical Therapy, Inc.
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U.S. PHYSICAL THERAPY, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

DATE: Tuesday, May 20, 2003

TIME: 9:00 a.m. (CDT)

PLACE: 1300 West Sam Houston Parkway South, Suite 300, Houston, Texas 77042

MATTERS TO BE VOTED ON:

1. Election of eight directors for a one-year term; and

2. Any other matters that may properly come before the meeting or any
adjournments.

YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE ELECTION
OF THE EIGHT NOMINEES FOR DIRECTOR.

Your Board of Directors has set April 7, 2003, as the record date for the
Annual Meeting. Only holders of common stock of record on that date will be
entitled to notice of and to vote at the Annual Meeting or any adjournments. A
complete list of stockholders will be available for examination at the Annual
Meeting and at our offices at 1300 West Sam Houston Parkway South, Suite 300,
Houston, Texas 77042, for a period of ten days prior to the Annual Meeting.

You are cordially invited to join us at the Annual Meeting. However, to
insure your representation at the Annual Meeting, we request that you return
your signed proxy card at your earliest convenience, whether or not you plan to
attend the Annual Meeting. Your proxy will be returned to you if you are present
at the Annual Meeting and request us to return your proxy card.

By Order of the Board of Directors,

/s/ ROY W. SPRADLIN
Chairman, President and Chief
Executive Officer

Houston, Texas
April 25, 2003

U.S. PHYSICAL THERAPY, INC.
1300 WEST SAM HOUSTON PARKWAY SOUTH, SUITE 300
HOUSTON, TEXAS 77042
(713) 297-7000

PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS

MAY 20, 2003

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ANNUAL MEETING

DATE: Tuesday, May 20, 2003

TIME: 9:00 a.m. (CDT)

PLACE: 1300 West Sam Houston Parkway South, Suite 300, Houston, Texas 77042

AGENDA

One proposal, numbered as Item 1 on the proxy card, for the election of our
eight nominees for directors.

WHO CAN VOTE

All holders of record of our common stock at the close of business on April
7, 2003, are entitled to vote. Holders of our common stock are entitled to one
vote per share at the Annual Meeting.

PROXIES SOLICITED BY

Your vote and proxy are being solicited by our Board of Directors for use
at the Annual Meeting. This Proxy Statement and the enclosed proxy card are
being mailed on behalf of our Board of Directors to all our stockholders
beginning on or about April 25, 2003. Your presence at the Annual Meeting will
not automatically revoke your proxy. You may, however, revoke your proxy at any
time prior to its exercise by delivering to us another proxy bearing a later
date, by attending the Annual Meeting and voting in person, or by filing a
written notice of revocation with Christina Osburn, our Corporate Secretary, at
our principal executive offices, 1300 West Sam Houston Parkway South, Suite 300,
Houston, Texas 77042. If you receive multiple proxy cards, this indicates that
your shares are held in more than one account, such as two brokerage accounts,
and are registered in different names. You should vote each of the proxy cards
to ensure that all of your shares are voted.

PROXIES

Properly executed but unmarked proxies will be voted FOR the election of
our eight nominees as directors. If you "withhold" your vote for any of the
nominees, this will be counted as a vote AGAINST that nominee. If any other
matters are properly brought before the Annual Meeting and you grant the
discretion to vote on other matters, the persons named in the proxy will vote
your shares as directed by a majority of the Board of Directors.

QUORUM

Only shares of our common stock can be voted, with each share entitling its
owner to one vote on all matters. There is no cumulative voting in the election
of directors. The close of business on April 7, 2003 was fixed by the Board of
Directors as the record date for determination of stockholders entitled to vote
at the meeting. The number of shares of our common stock outstanding on that
date was 11,878,371. The presence, in person or by proxy, of at least a majority
of the shares is necessary to constitute a quorum at our Annual Meeting.
Abstentions will be treated as present for determining a quorum at the Annual

Meeting. If a broker holding your shares in "street" name indicates to us on a
proxy card that the broker lacks discretionary authority to vote your shares, we
will not consider your shares as present or entitled to vote for any purpose.

COST OF PROXY SOLICITATION

We will bear the cost of soliciting proxies. Some of our directors,
officers and regular employees may solicit proxies personally or by telephone.
Proxy materials will also be furnished without cost to brokers and other
nominees to forward to the beneficial owners of shares held in their names.

QUESTIONS AND ADDITIONAL INFORMATION

You may call our President, Roy Spradlin, or our Chief Financial Officer,
J. Michael Mullin, or email us at investorrelations@usph.com if you have any
questions. A copy of our Annual Report for the year ended December 31, 2002
accompanies this Proxy Statement. WE HAVE FILED AN ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2002 (THE "FORM 10-K") WITH THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC"). YOU MAY OBTAIN, A COPY OF THE FORM 10-K BY
DOWNLOADING IT FROM OUR WEBSITE AT WWW.USPH.COM, BY WRITING TO U.S. PHYSICAL
THERAPY, INC., 1300 WEST SAM HOUSTON PARKWAY SOUTH, SUITE 300, HOUSTON, TEXAS
77042, ATTENTION: CHRISTINA OSBURN, CORPORATE SECRETARY OR BY EMAILING US AT
INVESTORRELATIONS@USPH.COM.

PLEASE VOTE -- YOUR VOTE IS IMPORTANT

ITEM 1 ELECTION OF DIRECTORS

Eight directors will be elected at the Annual Meeting for one-year terms.
Seven of the nominees are now serving as directors. The nominees for director
are:

DIRECTOR
NOMINEES AGE(A) SINCE POSITION(S) HELD
-------- ------- -------- ----------------

Roy W. Spradlin................. 54 1994 Chairman of the Board, President and
Chief Executive Officer
Mark J. Brookner................ 58 1990 Vice Chairman of the Board
Daniel C. Arnold................ 73 1992 Director
Bruce D. Broussard.............. 40 1999 Director
James B. Hoover................. 48 1993 Director
Marlin W. Johnston.............. 71 1992 Director
Albert L. Rosen................. 79 1992 Director
Jerald L. Pullins............... 61 N/A Nominee

The persons named on the proxy card will vote for all of the nominees for
director listed above unless you withhold authority to vote for one or more of
the nominees. Nominees receiving a plurality vote of the votes cast at the
Annual Meeting will be elected as directors. Abstentions and broker non-votes
will not be treated as a vote for or against any particular nominee and will not
affect the outcome of the election of directors.

All of our nominees have consented to serve as directors. Our Board has no
reason to believe that any of the nominees will be unable to act as a director.
However, if any director is unable to stand for re-election, the Board will
designate a substitute. If a substitute nominee is named, the persons named on
the proxy card will vote for the election of the substitute nominee.

DIRECTOR BIOGRAPHIES

Roy W. Spradlin has served as our Chairman of the Board since May 2001 and
has been President since May 1994. Beginning in May 1994 Mr. Spradlin was
elected our Chief Operating Officer; in August 1995 he was named our Chief
Executive Officer.

Mark J. Brookner has served as our Vice Chairman of the Board since August
1998. Mr. Brookner served as our Chief Financial Officer from April 1992 to
August 1998 and as Secretary and Treasurer during portions of that period.

Daniel C. Arnold is a private investor engaged primarily in managing his
personal investments. During the past five years, he had served on the Board of
Directors of both Parkway Properties, Inc., a real estate investment trust; and
Belco Oil & Gas Corp., an oil and gas exploration and production company. He has
also served as Chairman of the Board of Trustees of Baylor College of Medicine.

Bruce D. Broussard has been the Chief Financial Officer of U.S. Oncology,
Inc., since August 2000. From December 1997 to August 2000, Mr. Broussard was
the Chief Executive Officer of HarborDental Properties. Mr. Broussard served as
the Chief Financial Officer for Regency Health Services, Inc. from 1996 to 1997
and for Sun Health Care Group from 1993 to 1996.

James B. Hoover is the founding managing member of Dauphin Capital
Partners, a health care venture capital firm established in 1998. Prior to 1998
for six years he acted as a General Partner of Welsh, Carson, Anderson & Stowe,
a management buyout firm focused on the acquisition of health care and
information services companies. Mr. Hoover presently serves on the Board of
Directors of Quovadx, Inc., a business solutions software and services provider
to the health care industry, and several privately held health care companies.

Marlin W. Johnston has been a management consultant with Tonn & Associates,
a management consulting firm, since September 1993. During 1992 and 1993, Mr.
Johnston served as a management consultant to the Texas Department of Health and
the Texas Department of Protective and Regulatory Services.

Albert L. Rosen manages his personal investments and retired as President
and General Manager of the San Francisco Giants, a major league baseball team,
in December 1992.

NOMINEE BIOGRAPHY

Jerald L. Pullins joined Service Corporation International (SCI), a
consolidator of funeral homes and related business in 1969. Mr. Pullins managed
a variety of functions, including corporate development, and served in a variety
of operational roles. In 1979, Mr. Pullins joined Merrill Lynch and Co. as CFO
of Merrill Lynch Realty, a national consolidator of residential and commercial
real estate brokers, ultimately being named President and CEO of Merrill Lynch
Mortgage, the primary real estate financing and mortgage-servicing subsidiary
within Merrill Lynch and Co. In 1984, Mr. Pullins formed The Sentinel Group to
acquire and manage funeral, cemetery and insurance operations. Sentinel reached
nearly $80 million in sales before merging with SCI in 1991. Subsequent to the
acquisition of Sentinel, Mr. Pullins rejoined SCI serving as Senior Vice
President of Corporate Development, Executive Vice President of International
Operations and President and COO before retiring in 2002. Mr. Pullins currently
is a private investor engaged primarily in managing his personal investments.

COMMITTEES AND MEETING OF THE BOARD

COMMITTEES

The Board of Directors has the following committees:

- Audit

- Compensation

- Corporate Compliance

Effective May 21, 2002, the Board combined its previously separate Stock
Option Committee with the Compensation Committee. The Board does not have a
standing Nominating Committee; rather, nominations are determined by the Board
itself.
3

NUMBER OF MEETINGS

During 2002 the Board of Directors met seven times, the Audit Committee met
seven times, the Compensation Committee met five times, the Corporate Compliance
Committee met four times and the Stock Option Committee met once. All of the
directors attended at least 75% of all Board of Directors and Committee
meetings. Average attendance by directors at the aggregate number of Board and
committee meetings for which they were scheduled to attend was 94%.

AUDIT COMMITTEE

The Audit Committee currently consists of Messrs. Johnston (Chair), Arnold
and Broussard. The Audit Committee is responsible for, among other things:

- recommending to the Board the selection and discharge of our independent
auditors;

- reviewing the plan, scope and timing of the audit with our auditors and
any other services our auditors are asked to perform;

- reviewing our auditors' annual report on our financial statements
following completion of the audit;

- reviewing quarterly and annual financial reports to the public prior to
release;

- reviewing fees charged by our audit firm;

- reviewing with management and auditors issues relating to internal
accounting controls.

The Board has adopted a written Audit Committee Charter, as amended,
requiring the Audit Committee to consist of at least three members of the Board.
Each member of the Audit Committee is an "independent director" as that term is
defined by Nasdaq Stock Market Rule 4200(a)(14) Audit Committee. The Audit
Committee complies with all existing rules and regulations promulgated by the
SEC and Nasdaq and now in effect.

COMPENSATION COMMITTEE

The current members of the Compensation Committee are Messrs. Arnold
(Chair), Hoover and Rosen. The primary functions of the Compensation Committee
is to recommend to our Board the compensation to be paid to the directors and
our principal officers, including executive compensation plans.

CORPORATE COMPLIANCE COMMITTEE

The Corporate Compliance Committee members are Messrs. Johnston (chairman),
Arnold, Brookner and Broussard. The Corporate Compliance Committee reviews and
assesses the activities and findings of internal audits, reviews reports of
material noncompliance and reviews and approves corrective actions proposed by
management and reports to the Board of Directors the effectiveness of our
compliance program.

COMPENSATION OF DIRECTORS

Each of our independent directors receives $5,000 per quarter for serving
as a member of the Board of Directors. Non-employee directors are also
reimbursed for their out-of-pocket travel and related expenses incurred in
attending Board and committee meetings. Directors who are also our employees or
consultants are not compensated separately for serving on the Board. In May
2002, the five directors, Daniel C. Arnold, Bruce D. Broussard, James B. Hoover,
Marlin W. Johnston and Albert L. Rosen, each received ten-year non-qualified
options to purchase 7,500 shares of our common stock. The exercise price of
these options, which were granted under our 1992 Stock Option Plan, is $18.04
per share, the fair market value of our stock on the date of the grant. The
stock options granted to directors become exercisable in full one year from the
date of grant, unless acceleration of vesting occurs upon a change of control.
All options issued under the 1992 Stock Option Plan expire thirty days after the
termination of the recipient's position with us.
4

Mark J. Brookner received $65,625 for serving as a consultant and as Vice
Chairman of the Board in 2002. Mr. Brookner's consulting arrangement is
described below in the section entitled "Employment and Consulting Agreements."

STOCK OWNERSHIP

STOCK OWNED BY DIRECTORS, DIRECTOR NOMINEES AND OFFICERS

The following table shows the number and percentage of shares of common
stock beneficially owned by our directors, director nominees and executive
officers as of April 7, 2003. Each person has sole voting and investment power
for the shares shown below unless otherwise noted.

PERCENT OF
NUMBER OF RIGHT TO COMMON STOCK
NAME OF BENEFICIAL OWNER SHARES OWNED ACQUIRE(1) OUTSTANDING
------------------------ ------------ ---------- ------------

Roy W. Spradlin................................. 0 445,000 3.6%
Chairman of the Board, President and Chief
Executive Officer
Mark J. Brookner................................ 98,750 75,000 1.5%
Vice Chairman of the Board
Daniel C. Arnold................................ 0 73,169 *
Director
Bruce D. Broussard.............................. 0 9,169 *
Director
James B. Hoover................................. 78,250 103,169 1.5%
Director
Marlin W. Johnston.............................. 15,000 9,167 *
Director
Albert L. Rosen................................. 67,500(2) 37,169 *
Director
Jerald L. Pullins............................... 0 0 *
Director Nominee
J. Michael Mullin............................... 0 64,750 *
Chief Financial Officer
All directors and Executive officers as a group
(8 persons)................................... 259,500 816,593 8.5%

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* Less than 1%

(1) Shares of common stock that can be acquired through stock options
exercisable through June 6, 2003.

(2) Includes 67,500 shares of our common stock held by the Rosen Family Trust.
Mr. Rosen serves as a trustee for the Rosen Family Trust.

STOCK HELD BY PRINCIPAL "BENEFICIAL HOLDERS"

The table shows the ownership of our shares of common stock by persons
known to us to be beneficially own more than 5% of our common stock. The
information is based on the most recent statements filed with the SEC, submitted
to us by those persons, or on other information available to us.

AMOUNT AND NATURE PERCENT OF
NAME AND ADDRESS OF BENEFICIAL COMMON STOCK
OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING
------------------- -------------------- ------------

J. Livingston Kosberg................................. 791,240(1) 6.7%
3040 Post Oak Blvd., Suite 700
Houston, Texas 77056
Cannell Capital, LLC.................................. 874,850(2) 7.4
2500 18 Street
San Francisco, California 94110
George D. Bjurman & Associates........................ 676,185(3) 5.7
10100 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90067
Sloan Financial Corporation........................... 699,900(4) 5.6
Richard C.W. Mauran
31 Burton Ct.
Franklins Row
London, SW 3, England
RS Investments Management Co., LLC.................... 908,500(5) 7.7
388 Market Street, Suite 200
San Francisco, California 94111
FMR Corp. ............................................ 963,500(6) 8.1
82 Devonshire Street
Boston, Massachusetts 02109
Wasatch Advisors...................................... 610,962(7) 5.1
150 Social Hall Avenue, 4th Floor
Salt Lake City, UT 84111

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(1) The reported share amount includes 651,240 shares held by the Livingston
Kosberg Trust, 60,000 shares held by the Kosberg Foundation Charitable
Trust, 50,000 shares held by the Lewis Wilkenfeld Trust and 30,000 shares
held individually in Mr. Kosberg's name. Mr. Kosberg is the trustee and the
income beneficiary of the Livingston Kosberg Trust and the trustee of the
Kosberg Foundation Charitable Trust and the Lewis Wilkenfeld Trust. The
reported share amount excludes 2,340 shares held by Mr. Kosberg's wife for
which Mr. Kosberg disclaims beneficial ownership.

(2) Cannell Capital, LLC has shared voting and shared dispositive power over the
entire number of the shares; J. Carlo Cannell has shared voting and shared
dispositive power over the entire number of shares; The Anegada Fund Limited
has shared voting and dispositive power over 118,950 shares; Tonga Partners,
L.P. has sole voting and sole dispositive power over 347,100 shares;
Pleiades Investment Partners, L.P. has shared voting and shared dispositive
power over 35,700 shares; The Cuttyhunk Fund Limited has shared voting and
shared dispositive power over 262,950 shares; GS Cannell Portfolio, LLC has
shared voting and shared dispositive power over 100,650 shares; George S.
Sarlo 1995 Charitable Remainder Trust has shared voting and shared
dispositive power over 9,500 shares. Mr. Cannell is the managing member of
Cannell Capital, LLC and is the investment advisor of each of the other
named entities.

(3) George D. Bjurman & Associates has sole voting and dispositive power over
the entire number of shares.

(4) Consists of 699,900 shares of our common stock that may be acquired by Sloan
Financial Corporation ("Sloan Financial") upon conversion of our $2,333,000,
8% Convertible Subordinated Notes,

Series C, due June 30, 2004 owned by Sloan Financial. Sloan Financial and
Mr. Mauran possess shared voting and shared dispositive power over the
entire number of shares.

(5) RS Investments Management Co., LLC has shared voting and dispositive power
over the entire number of shares. RS Investment Management, L.P., has shared
voting and dispositive power over 589,200 shares.

(6) FMR Corp. has shared voting and sole dispositive power over the entire
number of shares.

(7) Wasatch Advisors has sole voting and sole dispositive power over the entire
number of shares.

EXECUTIVE OFFICERS

Information about Mr. Spradlin, our Chief Executive Officer, and Mark J.
Brookner, our Vice Chairman, is included under "Election of Directors."
Information about our other executive officer is shown below.

J. Michael Mullin, 51, has served us as Chief Financial Officer since May
1998. From May 1993 through May 1998, Mr. Mullin was President of Imperial
Health Resources, Inc., a management company specializing in management of
subacute units in acute care hospitals.

EXECUTIVE COMPENSATION

The following table shows the compensation we paid during 2002, 2001 and
2000 to Messrs. Spradlin, Mullin and Brookner (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
AWARDS(1)
ANNUAL COMPENSATION ------------
---------------------------------- SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL UNDERLYING
POSITION(S) YEAR SALARY BONUS COMPENSATION OPTIONS(2)
------------------ ------ -------- -------- ------------ ------------

Roy W. Spradlin........................ 2002 $250,000 $ 0 $ 0 50,000
Chairman, President and 2001 250,000 125,000 0 112,500
Chief Executive Officer 2000 220,000 100,000 0 75,000
J. Michael Mullin...................... 2002 $150,000 $ 0 $ 0 20,000
Chief Financial Officer 2001 150,000 40,000 0 60,000
2000 132,000 30,000 0 75,000
Mark J. Brookner....................... 2002 $ 65,625 $ 0 $ 0 0
Vice Chairman 2001 75,000 0 0 0
2000 75,000 0 0 0

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(1) None of the above individuals holds any shares of restricted stock of U.S.
Physical Therapy, Inc.

(2) Reflects shares of common stock underlying options granted, as adjusted for
stock splits, under our 1992 Stock Option Plan.

OPTION GRANTS

The following table contains information with respect to grants of stock
options to the Named Executive Officers during the year ended December 31, 2002.

OPTION GRANTS IN 2002 FISCAL YEAR

INDIVIDUAL GRANTS
----------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES OF
OPTIONS STOCK PRICE APPRECIATION
NUMBER OF GRANTED TO EXERCISE OF FOR OPTION TERM
SECURITIES UNDERLYING EMPLOYEES IN BASE EXPIRATION --------------------------
NAME OPTIONS GRANTED(#)(A) FISCAL YEAR PRICE($/SH) DATE 5%($) 10%($)
---- --------------------- -------------- ----------- ---------- ---------- ------------

Roy W. Spradlin...... 50,000 29% $18.040 5/20/12 $567,263 $1,437,556
J. Michael Mullin.... 20,000 12% $18.040 5/20/12 $226,905 $ 575,022

---------------

(a)The non-qualified stock options, which expire in ten years, were granted
under the 1992 Option Plan and vest one-fifth on each of the first, second,
third, fourth and fifth anniversaries of the date of grant, unless
accelerated vesting occurs upon a change in control. Specifically, vesting
will be accelerated in the event we incur a "change in control" (defined
generally as the acquisition of 50% or more of our outstanding voting stock,
a change in a majority of the Board of Directors or a merger, consolidation
or acquisition of all or substantially all of our assets). The per share
option exercise price equals the fair market value of a share of our common
stock on the date of grant, as determined under the 1992 Option Plan, as
adjusted for stock splits, including two splits in 2001.

OPTION EXERCISES AND HOLDINGS

The following table sets forth the option exercises during fiscal year 2002
and the year-end value of all unexercised in-the-money options held by the Named
Executive Officers.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES

NUMBER OF SECURITIES VALUE OF SECURITIES UNDERLYING
UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END(#)(A) OPTIONS AT FY-END($)(A)(B)
ACQUIRED ON VALUE --------------------------- -------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ------------- ---------------

Roy W. Spradlin...... 175,000 $2,309,471 416,250 271,250 $2,921,875 $1,033,750
J. Michael Mullin.... 18,750 $ 283,125 42,000 173,000 $ 239,342 $ 854,108
Mark J. Brookner..... 105,000 $1,275,455 75,000 0 614,375 0

---------------

(a) Reflects the number of shares of our common stock underlying options
granted under the Executive Option Plan and the 1992 Option Plan and the
exercise or base price of the options, as adjusted for stock splits.
(b) Market value of underlying securities at year-end of $11.15 per share minus
the exercise or base price of in-the-money options at year-end.

EMPLOYMENT AND CONSULTING AGREEMENTS

Mr. Spradlin entered into a second amended and restated employment
agreement with us on February 21, 2001. Under that agreement, Mr. Spradlin is
employed as President and Chief Executive Officer for a term through February
21, 2006. Effective January 1, 2003, Mr. Spradlin's base salary is $325,000 per
year. Additionally, Mr. Spradlin is eligible to receive cash bonuses payable at
the discretion of the Board of Directors and, if eligible, is entitled to
participate in any employee benefit plans adopted by us. Effective December 31,
2002, Mr. Spradlin's Employment Agreement was amended to add a provision that at
Mr. Spradlin's request and at his cost and expense, and assuming no breach by
him of his employment agreement, the Company shall make available, to the extent
it is reasonably available, on commercial terms primary health insurance
coverage for Mr. Spradlin and his family until the earlier of (i) the date of
his 75th birthday or (ii) the date on which there are no longer any persons
surviving who are entitled to such health insurance coverage.

Mr. Spradlin's employment agreement may be terminated by us prior to the
expiration of its term in the event (i) he becomes disabled for 90 consecutive
days or (ii) his employment is terminated for "cause" (as defined in the
agreement). If we incur a "change in control" (as defined in the agreement), Mr.
Spradlin would be entitled to receive a lump sum equal to $500,000, and the term
of his employment agreement would be modified to end one year from the change in
control. In the event Mr. Spradlin's employment agreement is terminated without
"cause", or Mr. Spradlin resigns "for good cause" (as defined in the agreement),
Mr. Spradlin would be entitled to receive a lump sum termination payment equal
to his (i) base compensation for the remainder of the term of the employment
agreement, (ii) the greater of (a) Mr. Spradlin's bonus paid the last fiscal
year prior to termination or resignation or (b) the average of the bonuses paid
over the three fiscal years prior to termination or resignation and (iii) Mr.
Spradlin's accrued but unused vacation days. Under his employment agreement, in
the event of his death, Mr. Spradlin's heirs or beneficiaries would become
entitled to receive a payment equal to one year's annual salary. Mr. Spradlin's
employment agreement further contains a covenant not to compete or solicit
customers and employees during its term and for a two-year period following the
termination of his employment.

Mr. Brookner entered into a five year consulting agreement effective
September 1, 2002, calling for compensation at an annual rate of $50,000 per
year; the agreement contains a provision that at Mr. Brookner's request and at
his cost and expense, the Company shall make available, to the extent it is
reasonably available, on commercial terms primary health insurance coverage for
Mr. Brookner and his family until the earlier of (i) the date of his 75th
birthday or (ii) the date on which there are no longer any persons surviving who
are entitled to such health insurance coverage. Prior to entering the agreement,
Mr. Brookner was paid $75,000 per year as an employee of the Company.

REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

The Board and its Compensation Committee prepared the following report on
our policies with respect to the compensation of executive officers for 2002.
The Board makes all decisions on the compensation of our executive officers
(including stock options) based upon recommendations of the Compensation
Committee.

COMPENSATION OF EXECUTIVE OFFICERS

Our compensation policies are designed to enable us to attract, motivate
and retain experienced and qualified executives. We seek to provide competitive
compensation. Our policy has been to provide a significant component of an
executive officer's compensation through the grant of stock options. We believe
that grants of stock options to executives, as well as to employees generally,
help align the interests of these officers with the interests of our
stockholders.

The following describes in more specific terms the elements of compensation
of executive officers for 2002.

BASE SALARIES

Other than the base salary for our Chief Executive Officer, which is set by
an employment agreement (see "Employment and Consulting Agreements"), base
salaries of executives are initially determined by evaluating the
responsibilities of the position, the experience and knowledge of the individual
and the competitive marketplace for executive talent. Base salaries for
executive officers are reviewed annually by our Compensation Committee and Board
based on, among other things, individual performance and responsibilities.

INCENTIVE COMPENSATION

Based on performance, incentive compensation opportunities are available to
a wide range of our employees. We believe that incentive compensation is
effective in reinforcing both the overall values of our company and our specific
operating goals.

Incentive compensation programs are designed to focus employees' attention
on our key performance goals, to identify the expected levels of performance and
to reward individuals who meet or exceed our expectations. The aggregate amounts
available for incentive awards are determined by our overall financial
performance. The actual awards paid to individual recipients are formulated by
management and approved by the Compensation Committee.

STOCK OPTION AWARDS

Our 1992 Stock Option Plan (the "1992 Option Plan") and the Executive Stock
Option Plan (the "Executive Option Plan") were approved by our Board and
stockholders to align employee and outside directors' interests with
stockholders' interests, to provide incentives to our key employees by
encouraging their ownership of common stock and to aid us in attracting and
retaining key employees, upon whose efforts our success and future growth
depends. While a number of options are outstanding under the Executive Option
Plan, no options were granted under the plan during 2002 or will be granted
under the plan in the future.

Options are granted at the discretion of the Compensation Committee.
Individual grant sizes are determined based on organizational and individual
performance. At the discretion of the Compensation Committee, and based on the
recommendation of management, options may also be used as an incentive for
candidates recruited to fill key positions.

During 2002, we granted options covering a total of 171,550 shares of our
common stock to 66 directors, officers and employees. This includes options
granted under the 1999 Employee Stock Option Plan and options granted to
individuals to induce employment. No options have been granted to the Named
Executive Officers or directors under the 1999 Employee Stock Option Plan or as
inducements of employment. The per share exercise price of all options granted
in 2002 equaled the fair market value of a share of our common stock on the date
of grant.

Stock option grants made to executive officers in 2002 reflect significant
individual performance and contributions relating to our operations and an
incentive to an executive to join us.

OTHER

We have a 401(k) profit sharing plan covering all employees with three
months of service. We did not make any contributions during 2002.

COMPENSATION OF CHIEF EXECUTIVE OFFICER

Under his employment agreements with us (see "Employment and Consulting
Agreements"), Mr. Spradlin received a salary of $250,000 in 2002, $250,000 in
2001, and $220,000 in 2000. He also received bonuses totaling $125,000 in 2001
and $100,000 in 2000. Although Mr. Spradlin participated in our 401(k) Plan from
2000 through 2002, we did not make any matching contributions to the plan during
these years. In addition to cash compensation, Mr. Spradlin was granted 50,000
options to purchase shares of our common stock under the 1992 Option Plan during
2002 and 112,500 during 2001.

In determining the appropriate compensation for Mr. Spradlin, the
Compensation Committee evaluates our overall performance under Mr. Spradlin's
leadership, as well as his individual contributions to key strategic, financial
and development objectives. The Compensation Committee does not utilize any
specific quantitative factors or formulas in reviewing his performance or
compensation.

COMPENSATION DEDUCTIBILITY POLICY

Under Section 162(m) of the Internal Revenue Code of 1986 (the "Code") and
applicable Treasury regulations, no deduction is allowed for annual compensation
in excess of $1 million paid by a publicly traded corporation to its chief
executive officer and the four other most highly compensated officers. Under
those provisions, however, there is no limitation on the deductibility of
"qualified performance-based compensation."

In general, our policy is to maximize the extent of tax deductibility of
executive compensation under the provisions of Section 162(m) so long as doing
so is compatible with the most appropriate methods and approaches for the design
and delivery of compensation to our executive officers.

Respectfully submitted,

Compensation Committee
Daniel C. Arnold, Chairman
James B. Hoover
Albert L. Rosen

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and officers to file with the SEC initial reports of ownership of our equity
securities and to file subsequent reports when there are changes in their
ownership. We believe that during 2002 all Section 16(a) filing requirements
applicable to our directors and officers were complied with on a timely basis.

FIVE YEAR PERFORMANCE GRAPH

The following performance graph compares the cumulative total stockholder
return of our common stock to The Nasdaq Stock Market United States Index and
The Nasdaq Stock Market Healthcare Index for the period from December 31, 1997
through December 31, 2002. The graph assumes that $100 was invested in each of
our common stock and the companies listed on The Nasdaq Stock Market United
States Index and The Nasdaq Stock Market Healthcare Index on December 31, 1997
and that any dividends were reinvested.

COMPARISON OF FIVE YEARS CUMULATIVE TOTAL RETURN
FOR THE YEAR ENDED DECEMBER 31, 2002

(PERFORMANCE GRAPH)

--------------------------------------------------------------------------------------
12/97 12/98 12/99 12/00 12/01 12/02
--------------------------------------------------------------------------------------

U.S. Physical
Therapy, Inc. 100 71 70 199 411 285
The Nasdaq Stock
Market United
States Index 100 141 262 158 125 87
The Nasdaq Stock
Market Healthcare
Index 100 85 68 94 101 87

INDEPENDENT PUBLIC ACCOUNTANTS

Our Board of Directors appointed KPMG LLP as our independent auditors
beginning September 27, 1999.

Representatives of KPMG LLP are expected to be present at the Annual
Meeting. Those representatives will be given an opportunity to make a statement
if they desire to do so and will be available to respond to appropriate
questions.

AUDIT FEES

Audit Fees. Aggregate fees for professional services rendered by KPMG LLP
in connection with the audits of our financial statements and reports for the
fiscal year ended December 31, 2002 were $122,000.

Financial Information Systems Design and Implementation Fees. During the
fiscal year ended December 31, 2002, KPMG LLP rendered no professional services
in connection with the design and implementation of financial information
systems.

All Other Fees. In addition to the fees described above, aggregate fees
for consulting services for our corporate office lease, certain insurance plans
and certain employee compensation plans rendered by KPMG LLP for the fiscal year
ended December 31, 2002, were $14,550.

REPORT OF THE AUDIT COMMITTEE

In connection with the December 31, 2002 financial statements, we reviewed
and discussed our audited financial statements with management. We also
discussed with KPMG LLP the matters required by Statement on Auditing Standards
No. 61.

We received and discussed with them the matters required by Independence
Standards Board Statement No. 1. We discussed the non-audit services provided by
KPMG LLP and related fees and have considered whether those services and fees
are compatible with maintaining auditor independence.

Based upon these reviews and discussions, we recommended to the Board of
Directors that our audited financial statements be included in the Annual Report
on Form 10-K filed with the SEC for the fiscal year ended December 31, 2002.

Respectfully submitted,

The Audit Committee
Marlin W. Johnston, Chairman
Bruce D. Broussard
Daniel C. Arnold

DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS TO BE
PRESENTED AT THE 2004 ANNUAL MEETING OF STOCKHOLDERS

Any proposal intended to be presented by any stockholder for action at the
2004 Annual Meeting of Stockholders must be received us on or before December
31, 2003 in order for the proposal to be considered for inclusion in the proxy
statement and form of proxy relating to the 2004 Annual Meeting. However, we are
not required to include in our proxy statement and form of proxy for the 2004
Annual Meeting any stockholder proposal that does not meet all of the
requirements for inclusion established by the SEC in effect at the time the
proposal is received. In order for any stockholder proposal that is not included
in such proxy statement and form of proxy to be brought before the 2004 Annual
Meeting, such
13

proposal must be received by the Secretary of U.S. Physical Therapy, Inc. at its
principal executive offices at 1300 West Sam Houston Parkway South, Suite 300,
Houston, Texas 77042 by March 10, 2004. If a timely proposal is received, the
Board may exercise any discretion authority granted by the proxies to be
solicited on behalf of the Board in connection with the 2004 Annual Meeting of
stockholders.

OTHER MATTERS

As of the date of this Proxy Statement, our Board of Directors does not
know of any other matters to be presented for action by stockholders at the 2003
Annual Meeting. If, however, any other matters not now known are properly
brought before the meeting, the persons named in the accompanying proxy will
vote the proxy as directed by a majority of the Board of Directors.

By Order of the Board of Directors,

/s/ ROY W. SPRADLIN
Roy W. Spradlin
Chairman, President and Chief
Executive Officer

Houston, Texas
April 25, 2003

U.S. PHYSICAL THERAPY, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- MAY 20, 2003
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

I, the undersigned stockholder of U.S. Physical Therapy, Inc. hereby
appoint Roy W. Spradlin and J. Michael Mullin, and each of them, with full power
of substitution, as my proxies to cast all votes, as designated below, which I
am entitled to cast at the 2003 Annual Meeting of Stockholders to be held on
Tuesday, May 20, 2003, at 9:00 a.m. (CDT), at our offices at 1300 West Sam
Houston Parkway South, Suite 300, Houston, Texas 77042, and at any adjournments,
upon the following matters.

This proxy will be voted as directed by you. UNLESS CONTRARY DIRECTION IS
GIVEN, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED AS
DIRECTED BY A MAJORITY OF THE BOARD OF DIRECTORS AS TO OTHER MATTERS.

The undersigned stockholder hereby acknowledges receipt of the Notice of
Annual Meeting and Proxy Statement, and hereby revokes any proxy or proxies
heretofore given. This proxy may be revoked at any time before its exercise.

(continued and to be signed and dated on reverse side)

(1) Election of eight directors for one-year terms. Nominees: Roy W. Spradlin,
Mark J. Brookner, Daniel C. Arnold, Bruce D. Broussard, James B. Hoover,
Marlin W. Johnston, Albert L. Rosen and Jerald L. Pullins.

[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees listed.
contrary below)

(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, PRINT
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)

--------------------------------------------------------------------------------

(2) As determined by a majority of the Company's Board of Directors, the
proxies are authorized to vote upon such other business as may properly
come before the meeting, or any adjournments.

Please date and sign exactly as name
appears hereon and return in the enclosed
envelope

Date: ------------------------------------
-----------------------------------------

Signature of Stockholder or Authorized
Representative (Only one signature is
required in the case of stock ownership in
the name of two or more persons.)