<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
HORIZON/CMS HEALTHCARE CORPORATION
--------------------------------------------------------------------------------
(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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
PRELIMINARY COPY DATED AUGUST 15, 1995
HORIZON/CMS HEALTHCARE CORPORATION
6001 INDIAN SCHOOL ROAD, N.E., SUITE 530
ALBUQUERQUE, NEW MEXICO 87110
(505) 881-4961
August , 1995
TO OUR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders of
Horizon/CMS Healthcare Corporation ("Horizon" or the "Company") to be held in
Albuquerque, New Mexico on Wednesday, September 27, 1995. The annual meeting
will be held at the Albuquerque Marriott Hotel, 2102 Louisiana Avenue, N.E.,
Albuquerque, New Mexico 87110, at 1:30 p.m. (Albuquerque time).
At the meeting, the matters described in the attached Notice of Annual
Meeting of Stockholders and Proxy Statement will be discussed and an update on
current Company activities will be provided. Also, stockholders will have an
opportunity to present any questions concerning the Company.
The enclosed Proxy Statement contains detailed information concerning the
Annual Meeting. Please give this information careful consideration.
Whether or not you plan to attend, it is important that your shares are
represented at the Annual Meeting. ACCORDINGLY, PLEASE PROMPTLY COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
I hope you will join us on September 27.
Sincerely,
Neal M. Elliott
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
PRELIMINARY COPY DATED AUGUST 15, 1995
HORIZON/CMS HEALTHCARE CORPORATION
6001 INDIAN SCHOOL ROAD, N.E., SUITE 530
ALBUQUERQUE, NEW MEXICO 87110
(505) 881-4961
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, SEPTEMBER 27, 1995
To the Stockholders:
Notice is hereby given that the 1995 Annual Meeting of Stockholders (the
"Annual Meeting") of Horizon/CMS Healthcare Corporation ("Horizon" or the
"Company") will be held on Wednesday, September 27, 1995, at 1:30 p.m., local
time, at the Albuquerque Marriott Hotel, 2102 Louisiana Avenue, N.E.,
Albuquerque, New Mexico 87110, for the following purposes:
1. To approve the amendment to the Company's Restated Certificate of
Incorporation to delete the restriction on committees of the Board of
Directors approving the issuance of capital stock of the Company;
2. To elect four Class 2 Directors to serve until the 1998 Annual Meeting
of Stockholders, two Class 3 Directors to serve until the 1996 Annual
Meeting of Stockholders and one Class 1 Director to serve until the 1997
Annual Meeting of Stockholders;
3. To approve the amendment to the Horizon Healthcare Corporation Employee
Stock Option Plan to provide for immediate vesting of outstanding options
upon death;
4. To approve the Horizon/CMS Healthcare Corporation 1995 Stock Incentive
Plan;
5. To approve the amendment to the Horizon Healthcare Corporation Stock
Option Plan for Non-Employee Directors to provide for immediate vesting
of outstanding options upon the occurrence of certain events;
6. To approve the Horizon/CMS Healthcare Corporation 1995 Non-Employee
Directors' Stock Option Plan;
7. To ratify the appointment of Arthur Andersen LLP as independent auditors
for the Company for the fiscal year ending May 31, 1996; and
8. To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) or postponement(s) thereof.
The Board of Directors of Horizon has fixed the close of business on August
23, 1995, as the record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting, and only stockholders of record at
such time will be entitled to notice of and to vote at the Annual Meeting. A
complete list of Horizon stockholders entitled to vote at the Annual Meeting
will be available for examination during ordinary business hours at the
principal offices of Horizon, 6001 Indian School Road, N.E., Suite 530,
Albuquerque, New Mexico 87110, for ten days prior to the Annual Meeting. The
list will also be available for inspection by stockholders at and during the
time of the Annual Meeting.
A form of Proxy and a Proxy Statement containing more detailed information
with respect to the matters to be considered at the Annual Meeting accompany
this notice. You are cordially invited to attend the Annual Meeting in person,
but if you are unable to do so, please complete, sign, date and promptly return
the enclosed Proxy in the enclosed, pre-addressed, postage-paid envelope. If you
attend the Annual Meeting and desire to revoke your Proxy and vote in person you
may do so. In any event, a Proxy may be revoked at any time before it is voted.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH OF THE ABOVE
PROPOSALS.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS BEING
SOLICITED BY THE BOARD OF DIRECTORS, WHETHER OR NOT YOU PLAN TO ATTEND THE
ANNUAL MEETING. AN ADDRESSED RETURN ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED
IN THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE.
By Order of the Board of Directors,
Scot Sauder
SECRETARY
Albuquerque, New Mexico
August , 1995
<PAGE>
PRELIMINARY COPY DATED AUGUST 15, 1995
HORIZON/CMS HEALTHCARE CORPORATION
6001 INDIAN SCHOOL ROAD, N.E., SUITE 530
ALBUQUERQUE, NEW MEXICO 87110
(505) 881-4961
------------------------
PROXY STATEMENT
------------------------
GENERAL INFORMATION
The enclosed proxy is solicited by and on behalf of the Board of Directors
(the "Board of Directors" or the "Board") of Horizon/CMS Healthcare Corporation
("Horizon" or the "Company") for use at the 1995 Annual Meeting of Stockholders
(the "Annual Meeting") to be held on Wednesday, September 27, 1995, at 1:30
p.m., local time, at the Albuquerque Marriott Hotel, 2102 Louisiana Avenue,
N.E., Albuquerque, New Mexico 87110, or at any adjournment(s) or postponement(s)
thereof.
The Company's annual report to stockholders and Annual Report on Form 10-K
for the year ended May 31, 1995, including financial statements, are being
mailed herewith to all stockholders entitled to vote at the Annual Meeting. The
annual report to stockholders and such Form 10-K do not constitute a part of the
proxy soliciting material. On or about August , 1995, a copy of this Proxy
Statement and a form of Proxy will first be mailed to stockholders of record as
of August 23, 1995.
RECORD DATE; SHARES ENTITLED TO VOTE
The Board of Directors has fixed the close of business on August 23, 1995 as
the record date for determining the holders of outstanding shares of the
Company's Common Stock, par value $.001 per share ("Common Stock"), entitled to
notice of and to vote at the Annual Meeting, or at any adjournment(s) or
postponement(s) thereof. As of August 23, 1995, there were shares of
Common Stock outstanding, each share of which is entitled to one vote. The
Common Stock is the only class of outstanding securities of the Company entitled
to notice of and to vote at the Annual Meeting.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company. Proxies may be
solicited by mail, telecopy, telegraph or telex, or by directors, officers and
regular employees of the Company in person or by telephone. The Company has
retained Georgeson & Company Inc. to assist in the solicitation of proxies at a
cost of approximately $12,000, plus out-of-pocket expenses. The Company will
also reimburse brokerage houses and other custodians, nominees and fiduciaries
for their reasonable out-of-pocket expenses for forwarding soliciting material
to the beneficial owners of Common Stock.
REVOCATION AND VOTING OF PROXIES
Any stockholder giving a proxy may revoke it at any time by delivering
written notice of such revocation to the Secretary of the Company before such
proxy is voted, by a written revocation or a duly executed proxy bearing a later
date or by attending the Annual Meeting and voting in person. Otherwise, if
received in time, properly completed proxies will be voted at the Annual Meeting
in accordance with the instructions specified thereon. Unless otherwise
instructed or unless authority to vote is withheld, proxies will be voted "FOR"
the amendment to the Restated Certificate of Incorporation, "FOR" the election
of the nominees to the Board, "FOR" the amendment to the Horizon Healthcare
Corporation Employee Stock Option Plan, "FOR" adoption of the Horizon/CMS
Healthcare Corporation 1995 Stock Incentive Plan, "FOR" the amendment to the
Horizon Healthcare Corporation Stock Option Plan for Non-Employee Directors,
"FOR" the adoption of the Horizon/CMS Healthcare Corporation 1995 Non-Employee
Directors' Stock Option Plan, "FOR" ratification of the appointment of Arthur
Andersen LLP and, in accordance with the judgment of the persons named in the
proxy, on such other matters as may properly come before such meeting or any
adjournment(s) or postponement(s) thereof.
Votes cast at the Annual Meeting will be tabulated by persons duly appointed
to act as inspectors of election. The inspectors of election for the Annual
Meeting will treat shares represented by a properly signed and returned proxy as
present at the Annual Meeting for purposes of determining a
<PAGE>
quorum, without regard to whether the proxy is marked as voting or abstaining.
Likewise, the inspectors of election will treat shares represented by "broker
non-votes" as present for purposes of determining a quorum. "Broker non-votes"
occur with respect to a proxy representing shares held in record name by brokers
or nominees as to which (i) instructions have not been received from the
beneficial owners or persons entitled to vote and the broker or nominee does not
have discretionary voting power under applicable national securities exchange
rules or the instrument under which it serves in such capacity and (ii) the
record holder has indicated on the proxy card or has otherwise notified Horizon
that it does not have authority to vote such shares on that matter.
PROPOSAL 1 -- APPROVE THE AMENDMENT TO THE RESTATED
CERTIFICATE OF INCORPORATION -- DELETING RESTRICTION
ON ABILITY OF COMMITTEES OF THE BOARD TO APPROVE THE ISSUANCE OF CAPITAL
STOCK
The Board of Directors has adopted an amendment to the Restated Certificate
of Incorporation of the Company, as amended (the "Restated Certificate of
Incorporation"), to delete the restriction on committees of the Board
authorizing the issuance of capital stock of the Company (the "Charter
Amendment") and has recommended that the stockholders of the Company approve
such Charter Amendment. The Charter Amendment would delete the underlined
language of Section 4 of Article VII of the Restated Certificate of
Incorporation set forth below and would restate such Section 4 without such
language:
4. The Board of Directors may, by resolution passed by 80% of the
then authorized number of directors, designate one or more committees,
each committee to consist of one or more of the directors of the
corporation, to exercise such powers and authority of the Board of
Directors in the management of the business and affairs of the
corporation as the directors may authorize in such resolution; PROVIDED,
HOWEVER, that no such committee shall have any power or authority to
amend this Amended and Restated Certificate of Incorporation, to
recommend to the stockholders a merger, consolidation or dissolution of
this corporation or a sale, lease or exchange of all or substantially
all of the corporation's assets or any amendment to the bylaws of this
corporation, or to declare a dividend or to authorize the issuance of
shares of the corporation's capital stock. The Board of Directors may by
the affirmative vote of 80% of the then authorized number of directors,
fill any vacancies on any committee or remove any member thereof, either
with or without cause, at any time.
The underlined language is an uncommon provision that prohibits the Board
from delegating to a committee the authority to issue shares of capital stock.
This provision creates an ambiguity as to whether the Board may delegate any
responsibilities relating to stock issuances. In the context of an underwritten
public offering, for instance, it is common practice to delegate the pricing,
the setting of the terms of the underwriting agreement and other details to a
pricing committee. Under the present provision it is unclear whether the Board
may establish such a committee and delegate it such authority. Under Section
141(c) of the Delaware General Corporation Laws (the "DGCL"), a board of
directors may allow the delegation to committees of the authority to authorize
the issuance of shares of capital stock. Due to the current provision in the
Restated Certificate of Incorporation, however, the Board has had to convene, in
its entirety, even after approving the parameters of an offering, to approve the
pricing and other terms of such offering. In addition, Horizon from time to time
acquires facilities and businesses for stock, and this restriction limits the
responsiveness of the Company and results in greater expense.
The affirmative vote of the holders of at least 66 2/3% of the outstanding
shares of Common Stock entitled to vote at the Annual Meeting is required to
approve the Charter Amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE CHARTER AMENDMENT.
2
<PAGE>
PROPOSAL 2 -- ELECTION OF DIRECTORS
Four Class 2 Directors, two Class 3 Directors and one Class 1 Director are
nominated for election at the Annual Meeting. The Company's Restated Certificate
of Incorporation divides the Board of Directors into three classes, designated
as Classes 1, 2 and 3, the terms of office of which are currently scheduled to
expire on the dates of the Company's Annual Meetings of Stockholders in 1997,
1995 and 1996 respectively. Each class is required to be as nearly equal in
number of directors as possible.
Neal M. Elliott, Michael A. Jeffries, Gerard M. Martin and Raymond N. Noveck
have been nominated for election to serve in Class 2 and, if elected, will serve
until the Company's 1998 Annual Meeting of Stockholders and until their
respective successors have been elected and qualified. Messrs. Jeffries, Martin
and Noveck each currently serves as a Class 2 director of the Company. Mr.
Elliott has been nominated for election to serve in Class 2 and, if elected,
will serve until the Company's 1998 Annual Meeting of Stockholders and until his
successor has been elected and qualified. Mr. Elliott currently serves as a
Class 3 director of the Company but is being reclassified as a Class 2 director
in order to comply with the requirement of the Company's Restated Certificate of
Incorporation that each class shall be as nearly equal in number as possible.
Pursuant to the Amended and Restated Agreement and Plan of Merger, dated as
of May 23, 1995 (the "Merger Agreement"), by and among the Company, a wholly
owned subsidiary of the Company and Continental Medical Systems, Inc. ("CMS"),
the Company agreed to elect Rocco A. Ortenzio, Robert A. Ortenzio, Russell L.
Carson, Bryan C. Cressey, and LeRoy S. Zimmerman (the "CMS Appointees") as
directors of the Company until the Annual Meeting and to nominate them at the
Annual Meeting for election to serve in Class 3. In order to comply with the
requirement of the Company's Restated Certificate of Incorporation that the
number of directors be divided into each of three classes as equally as
possible, the CMS Appointees were distributed among the three classes. Russell
L. Carson was elected a Class 1 director, Bryan C. Cressey was elected a Class 2
Director and Rocco A. Ortenzio, Robert A. Ortenzio and LeRoy S. Zimmerman were
elected Class 3 Directors. In order to comply with the terms of the Merger
Agreement, all CMS Appointees must be nominated for Class 3 Directorships, and
therefore, Messrs. Carson and Cressey now must be reclassified. Consequently,
Messrs. Carson and Cressey have been nominated to serve as Class 3 Directors,
and, as such, if elected, will serve until the Company's 1996 Annual Meeting of
Stockholders and until their respective successors have been elected and
qualified. Messrs. Rocco A. Ortenzio, Robert A. Ortenzio and Zimmerman already
serve as Class 3 Directors and therefore will not be up for reelection until the
1996 annual meeting.
Messrs. McCord and Elliott currently are both Class 3 Directors.
Reclassifying Messrs. Carson and Cressey to Class 3, however, will result in the
number of directors not being distributed as equally as possible among the three
classes, as required by the Restated Certificate of Incorporation. Consequently,
the Board of Directors of the Company has nominated Messrs. McCord and Elliott
for election to Class 1 and Class 2, respectively. Mr. McCord, if elected, will
serve until the Company's 1997 Annual Meeting of Stockholders and until his
successor has been elected and qualified.
The remaining six directors named below will not be required to stand for
election at the Annual Meeting because their present terms expire in 1996 or
1997 and because they do not have to be reclassified. A plurality of the votes
cast in person or by proxy by the holders of Common Stock is required to elect a
director. Accordingly, under Delaware law, the Restated Certificate of
Incorporation, and the Amended and Restated Bylaws, as amended, abstentions and
broker non-votes have no effect on the election of directors. Stockholders may
not cumulate their votes in the election of directors.
A plurality of the votes cast in person or by proxy by the holders of Common
Stock is required to elect a director. Accordingly, abstentions and "broker
non-votes" will have no effect on the outcome of the election assuming a quorum
is present or represented by Proxy at the Annual Meeting. Unless otherwise
instructed or unless authority to vote is withheld, the enclosed Proxy will be
voted "FOR" the election of the nominees listed below. Although the Board of
Directors does not contemplate that
3
<PAGE>
any of the nominees will be unable to serve, if such a situation arises prior to
the Annual Meeting, the persons named in the enclosed Proxy will vote for the
election of such other person(s) as may be nominated by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION
OF THE NOMINEES.
The following table sets forth the names, ages and principal occupations of
the nominees and directors and the length of continuous service as a director of
the Company. Unless otherwise noted, nominees currently serve as directors in
the same class to which they are being nominated.
<TABLE>
<CAPTION>
NOMINEES PRINCIPAL OCCUPATION DIRECTOR
AND DIRECTORS AND DIRECTORSHIPS AGE SINCE
-------------------------------- ---------------------------------------------------------------- --- -----------
<S> <C> <C> <C>
CLASS 2 NOMINEES
Neal M. Elliott(1).............. President, Chief Executive Officer ............................. 55 1986
and Chairman of the Board of
Directors of the Company
Michael A. Jeffries............. Senior Vice President -- Operations ............................ 45 1992
and Director of the Company
Gerard M. Martin................ Trustee, Health and Rehabilitation ............................. 60 1994
Properties Trust; Director of the Company
Raymond N. Noveck............... President, Strategic Systems, Inc.; ............................ 52 1987
Director of the Company
CLASS 3 NOMINEES
Russell L. Carson(2)............ General Partner of Welsh, Carson, .............................. 52 1995
Anderson & Stowe, New York;
Director of the Company.
Bryan C. Cressey(3)............. Member, Golder, Thoma, Cressey ................................. 46 1995
and Rauner, Inc., Chicago;
Director of the Company.
CLASS 3 DIRECTORS
Robert A. Ortenzio.............. Executive Vice President and ................................... 38 1995
Director of the Company
Rocco A. Ortenzio............... Consultant to the Company; Vice ................................ 62 1995
Chairman of the Board of Directors
of the Company
LeRoy S. Zimmerman.............. Partner, Eckert, Seamans, Cherin & ............................. 60 1995
Mellott, Harrisburg, Pennsylvania;
Director of the Company.
CLASS 1 NOMINEE
Frank M. McCord(1).............. Chairman and Chief Executive Officer, .......................... 64 1986
Cascade Savings Bank in Everett,
Washington; Director of the Company
CLASS 1 DIRECTORS
Klemett L. Belt, Jr............. Executive Vice President and ................................... 51 1986
Director of the Company
Charles H. Gonzales............. Senior Vice President -- Subsidiary ............................ 39 1992
Operations and Director of the Company
Barry M. Portnoy................ Partner, Sullivan & Worcester, Boston, ......................... 49 1994
Massachusetts; Director of the Company
<FN>
------------------------
(1) Currently serves as a Class 3 Director.
(2) Currently serves as a Class 1 Director.
(3) Currently serves as a Class 2 Director.
</TABLE>
4
<PAGE>
NEAL M. ELLIOTT, the Company's President, Chief Executive Officer and
Chairman of the Board, has served in those capacities since July 1986. Mr.
Elliott, a certified public accountant, worked for Price Waterhouse & Co. prior
to joining The Hillhaven Corporation ("Hillhaven") as Controller in 1969. In
1970, Mr. Elliott became Vice President of Finance for Hillhaven and served as
such until 1984. From 1984 to 1986, Mr. Elliott served as President of the
long-term care group of National Medical Enterprises, Inc., a health care
company then affiliated with Hillhaven. Mr. Elliott is a director of LTC
Properties, Inc., a real estate investment trust which invests in health care
related real estate.
KLEMETT L. BELT, JR., has served as Executive Vice President and a Director
of the Company since July 1986. Mr. Belt also served as Chief Financial Officer
and Treasurer of the Company from 1986 to September 1994. A certified public
accountant, Mr. Belt served five years as an Assistant Regional Audit Director
for the Department of Health, Education and Welfare. He was a Senior Manager for
KPMG Peat Marwick from 1978 to 1983, when he joined Hillhaven as Vice President
of Finance, a position he held from 1983 to July 1986.
ROCCO A. ORTENZIO, the Company's Vice-Chairman of the Board, was Chairman of
the Board and Chief Executive Officer of CMS from July 1986 to July 1995. He
became a Director of the Company in July 1995. He was also President of CMS from
July 1986 to May 1989. Rocco A. Ortenzio was the founder of Rehab Hospital
Services Corporation ("RHSC") and served as President and Director from 1979
until June 1986. Mr. Ortenzio is also a director of AMSCO International
(formerly The American Sterilizer Company) and Quorum Health Group, Inc.
ROBERT A. ORTENZIO has been an Executive Vice President and a Director of
the Company since July 1995. He is also President and Chief Operating Officer of
CMS, and has served in those capacities since May 1989 and April 1988,
respectively. He joined CMS as a Senior Vice President in February 1986. Prior
thereto, he was a Vice President of RHSC. Robert A. Ortenzio is also a director
of American Oncology Resources, Inc. and OccuSystems, Inc. Mr. Ortenzio is the
son of Rocco A. Ortenzio.
RUSSELL L. CARSON is a general partner of Welsh, Carson, Anderson & Stowe, a
private investment partnership located in New York City which was formed in
March 1979 to make investments in small to medium sized companies. He became a
Director of the Company in July 1995 and served as a director of CMS from 1986
to 1995. Mr. Carson is also a director of American Oncology Resources, Inc.,
AMSCO International, Quorum Health Group, Inc., Health Management Systems, Inc.,
Healthwise of America, Inc. and MedAlliance, Incorporated.
BRYAN C. CRESSEY is a founding member of Golder, Thoma, Cressey and Rauner,
Inc., a venture capital firm located in Chicago, Illinois, which was established
in 1980 to make investments in small to medium sized companies. He became a
Director of the Company in July 1995 and served as a director of CMS from 1986
to 1995. Mr. Cressey is also a director of Paging Network, Inc., Cable Design
Technologies and Golf Enterprises, Inc.
CHARLES H. GONZALES, the Company's Senior Vice President -- Subsidiary
Operations has served in such position since January 1992. He became a Director
of the Company in January 1992. From September 1986 to January 1992, Mr.
Gonzales, a certified public accountant, served as Senior Vice President of
Government Programs for the Company. From June 1984 to September 1986, Mr.
Gonzales was National Director of Reimbursement for Hillhaven.
MICHAEL A. JEFFRIES, the Company's Senior Vice President of Operations, has
served the Company in such position since June 1989. He became a Director of the
Company in January 1992. Mr. Jeffries has 15 years of experience in the
long-term health care field. From 1984 to 1989, he served as Senior Vice
President of Operations for the Central Division of Beverly Enterprises, Inc.,
an operator of long-term health care facilities. From 1983 to 1984 Mr. Jeffries,
a certified public accountant, held the positions of Vice President of
Operations and Assistant to the President of Beverly Enterprises, Inc.
GERARD M. MARTIN was the controlling shareholder of Greenery Rehabilitation
Group, Inc. ("Greenery") and served as Chairman of the Board and Chief Executive
Officer of Greenery from
5
<PAGE>
1985 until the consummation of the Greenery merger with the Company in February
1994. He became a Director of the Company in 1994. Mr. Martin is a member of the
Board of Trustees of Health and Rehabilitation Properties Trust ("HRP") and a
director and controlling shareholder of HRPT Advisors, Inc. (which acts as
advisor to HRP).
FRANK M. MCCORD is the Chairman and Chief Executive Officer of Cascade
Savings Bank in Everett, Washington, a position he has held since March 1990.
From 1987 until that date, Mr. McCord served such bank as a member of the Board
of Directors and the Executive, Loan and Audit Committees. From 1956 to 1986,
Mr. McCord, a certified public accountant, was an accountant with KPMG Peat
Marwick. He became a Director of the Company in October 1986.
RAYMOND N. NOVECK, a certified public accountant, has served as the
President of Strategic Systems, Inc., a provider of audiotex health and medical
information since January 1990. He became a Director of the Company in July
1987. From July 1989 through December 1989, Mr. Noveck was Senior Vice President
of Kimberly Quality Care, a provider of home health care, temporary nursing
personnel and related medical services. Prior to that, he was Executive Vice
President of Lifetime Corporation, a home health care company, from June 1987
through July 1989.
BARRY M. PORTNOY is a member of the Board of Trustees of HRP and a director
and controlling shareholder of HRPT Advisors, Inc. He became a Director of the
Company in 1994. Since 1978, Mr. Portnoy has been a partner in the law firm of
Sullivan & Worcester, Boston, Massachusetts, which served as legal counsel for
Greenery, and serves as legal counsel for HRP, HRPT Advisors, Inc. and Mr.
Martin.
LEROY S. ZIMMERMAN has been a partner in the law firm of Eckert, Seamans,
Cherin & Mellott, located in Harrisburg, Pennsylvania, since 1989. He became a
Director of the Company in July 1995 and served as a director of CMS from 1994
to 1995. Mr. Zimmerman was the Attorney General of the Commonwealth of
Pennsylvania from 1981 to 1989. Mr. Zimmerman became a director of Super Rite
Corporation in January 1995.
6
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS, MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth at July 31, 1995 certain information with
respect to the beneficial ownership of Common Stock by all directors, nominees,
each of the Named Officers in the Summary Compensation Table below and directors
and executive officers of the Company as a group. At July 31, 1995, there were
50,464,910 shares of Common Stock outstanding. The Company is not aware of any
other persons that owns in excess of five percent of the outstanding shares of
Common Stock.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED(1)
--------------------------------
NUMBER PERCENT
OF SHARES OF CLASS
----------------- --------
<S> <C> <C>
NON-EMPLOYEE DIRECTORS AND NOMINEES
Russell L. Carson.................................................................. 119,804(2) *
Bryan C. Cressey................................................................... 36,967(3) *
Gerard M. Martin................................................................... 607,000 1.2
Frank M. McCord.................................................................... 22,744(4) *
Raymond N. Noveck.................................................................. 91,567(5) *
Rocco A. Ortenzio.................................................................. 2,939,523(6) 5.7
Barry M. Portnoy................................................................... 50,041(7) *
LeRoy S. Zimmerman................................................................. 1,518(8) *
NAMED OFFICERS AND EMPLOYEE DIRECTORS
Neal M. Elliott.................................................................... 1,449,611(9)(10) 2.9
Klemett L. Belt, Jr................................................................ 633,481(11) 1.3
Robert A. Ortenzio................................................................. 1,553,853(12) 3.1
Michael A. Jeffries................................................................ 27,618(13) *
Charles H. Gonzales................................................................ 54,870(8)(10) *
Ernest A. Schofield................................................................ 19,389(8) *
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (14 PERSONS)............................. 6,610,891(14) 12.5%
<FN>
------------------------
* Less than 1%.
(1) Under the regulations of the Securities and Exchange Commission (the
"SEC"), shares are deemed to be "beneficially owned" by a person if he
directly or indirectly has or shares the power to vote or dispose of such
shares, whether or not he has any pecuniary interest in such shares, or if
he has the right to acquire the power to vote or dispose of such shares
within 60 days, including the right to acquire such power through the
exercise of any option, warrant or right. Except where otherwise noted,
each person included in the table has sole voting and investment power with
respect to the shares beneficially owned.
(2) Includes 1,943 shares held in a trust of which Mr. Carson is a trustee and
5,060 shares that may be acquired within 60 days upon the exercise of stock
options.
(3) Includes 5,060 shares that may be acquired within 60 days upon the exercise
of stock options.
(4) Includes 4,400 shares held by Mr. McCord's wife and 16,668 shares that may
be acquired within 60 days upon the exercise of stock options.
(5) Includes 31,668 shares that may be acquired within 60 days upon the
exercise of stock options.
(6) Includes 1,136,068 shares that may be acquired within 60 days upon the
exercise of stock options and 126,103 shares that may be acquired within 60
days pursuant to a conversion right, [add Warrants?] and 1,173,447 shares
that are held of record by two corporations that are majority owned and
controlled by Mr. Ortenzio (one of the corporations is Liberty Investments,
Inc. ("Liberty"), which owns of record 997,095 shares). Rocco A. Ortenzio
shares voting and disposition power with respect to the shares that are
held of record by the two corporations.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
(7) All of such shares may be acquired within 60 days upon the exercise of
stock options granted to Mr. Portnoy as a part of the merger of Greenery
with and into Horizon.
(8) All of such shares may be acquired within 60 days upon the exercise of
stock options.
(9) Excludes 228,394 shares held in trust for the benefit of Mr. Elliott's
children. Mr. Elliott's brother is the trustee under such trust, and Mr.
Elliott disclaims beneficial ownership of such shares. Includes 5,000
shares held by a partnership, the partners of which are various members of
Mr. Elliott's family; 2,000 shares held by a partnership, the partners of
which are Mr. Elliott and his brother; and 266,668 shares that may be
acquired within 60 days upon the exercise of stock options. Mr. Elliott
shares voting and investment power with respect to all shares held by such
partnerships.
(10) Excludes 36,364 shares held by Schlegel peopleCare Heritage Horizon
Foundation, of which Messrs. Elliott and Gonzales serve as directors.
(11) Excludes 32,138 shares held in trust for the benefit of Mr. Belt's
children. Mr. Belt's sister-in-law is the trustee under such trust, and Mr.
Belt disclaims beneficial ownership of such shares. Includes 120,000 shares
that may be acquired within 60 days upon the exercise of stock options.
(12) Includes 377,413 shares that may be acquired within 60 days upon the
exercise of stock options and 997,095 shares held by Liberty. Robert A.
Ortenzio is a director of Liberty, and, as such, has shared power to vote
Liberty's shares, which shares are also included in the shares reported as
beneficially owned by Rocco A. Ortenzio in this table.
(13) Includes 26,668 shares that may be acquired within 60 days upon the
exercise of stock options and 50 shares held by Mr. Jeffries'
step-daughter.
(14) Includes 2,111,154 shares that may be acquired within 60 days upon the
exercise of stock options and 126,103 shares that may be acquired within 60
days upon the exercise of a conversion right [Rocco Warrant].
</TABLE>
DIRECTORS' MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held seven meetings during fiscal 1995. Each director
attended at least 75% of the total meetings of the Board of Directors and any
committee on which such director served.
The Company had the following standing committees during fiscal 1995:
AUDIT COMMITTEE. The Audit Committee met two times during fiscal 1995 and
consisted of Messrs. Noveck, Martin and McCord. In July 1995, Mr. Zimmerman
replaced Mr. Noveck on the Audit Committee. The Audit Committee recommends to
the Board of Directors the appointment of the Company's independent auditors,
reviews with the independent auditors the general scope of their audit, reviews
proposed audit fees, supervises audit related matters, reviews fiscal year-end
audit results and reviews internal financial controls of the Company.
COMPENSATION COMMITTEE. The Compensation Committee met one time during
fiscal 1995 and consisted of Messrs. Noveck and McCord. The Compensation
Committee reviews the Company's compensation program and policies for its
executive officers each year and recommends and approves the compensation of
executive officers.
STOCK OPTION COMMITTEE. The Stock Option Committee met six times during
fiscal 1995 and consisted of Messrs. Martin, McCord, Noveck and Portnoy. The
Stock Option Committee administers the Company's stock option plans.
EXECUTIVE COMMITTEE. During fiscal 1995, the Board created an Executive
Committee consisting of Messrs. Elliott and Noveck. In July 1995, the Board
created a new Executive Committee consisting of Messrs. Elliott, Belt, Rocco A.
Ortenzio, Robert A. Ortenzio and Noveck. The new Executive Committee has the
authority to approve acquisitions and dispositions within certain limitations
and to perform such other duties as designated by the Board.
8
<PAGE>
In July 1995, the Board combined the functions of the Compensation and the
Stock Option Committees into a Compensation/Stock Option Committee, which
currently consists of Messrs. McCord, Carson, Cressey and Portnoy.
There is no standing nominating committee of the Board of Directors of the
Company.
COMPENSATION/STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Upon consummation of the Horizon merger with Greenery, Horizon sold to HRP
for cash the leasehold improvements of three Greenery facilities in Connecticut
that Horizon determined not to operate on a long-term basis. Horizon agreed to
operate these facilities for a specified period on behalf of Connecticut
Subacute Corporation II ("Tenant"), an entity wholly owned by Messrs. Martin and
Portnoy. HRP now leases these previous Greenery facilities to Tenant. Horizon
continues to manage these facilities for Tenant for a management fee equal to 7%
of net patient revenues for a period that will extend for up to five years from
the date of the merger, subject to the Tenant's right to terminate upon certain
conditions. The management fee was negotiated at arms' length, and Horizon
believes that the amount of the fee is competitive with prevailing market rates
based upon the management obligations involved. Under the terms of the agreement
with HRP, Horizon guarantees Tenant's lease obligations under the leases and
provides Tenant the working capital reasonably required for the operation of
such facilities, including operating deficits, should they occur. For the fiscal
year ended May 31, 1995, Horizon made working capital advances of apprxomately
$ and was paid a management fee of $1,494,810 by Tenant.
As previously disclosed to stockholders, in connection with the consummation
of the Greenery merger, the Company leased from HRP, a real estate investment
trust, of which Messrs. Portnoy and Martin serve as trustees, five facilities
located in Massachusetts and one in Pennsylvania, and HRP holds purchase money
indebtedness of approximately $9.4 million on two facilities located in
Michigan. HRP granted to the Company options to purchase any or all of the
leased facilities, which may be exercised at a rate of not more than one
facility in any twelve-month period, commencing on January 1, 1994 and
continuing through December 31, 2003. On December 31, 1995, the Company
exercised its option to purchase its leased facility in Slidell, Louisiana for
the option price of $24.5 million. The Company paid HRP $5 million in cash and
HRP provided ten-year purchase money financing of $19.5 million, bearing
interest at an annual rate of 11% per annum.
In connection with the Greenery merger and as previously disclosed to
stockholders, B&G Partners Limited Partnership ("B&G"), an entity owned and/or
controlled by Messrs. Martin and Portnoy, made and delivered to the Company, as
successor to Greenery, its promissory note in the original principal amount of
$20 million (the "B&G Note") in exchange for certain non-operating assets of
Greenery. Interest accrues on the B&G Note at the lesser of 8% or 2.25% over the
6-month London Inter-Bank Offered Rate. Interest is payable semi-annualy.
One-half of the payment of the B&G Note is guaranteed by each of Mr. Martin and
Mr. Portnoy. The balance of the B&G Note as of August 10, 1995 was approximately
$10,653,000. During fiscal 1995, Messrs. Portnoy and Martin paid approximately
$2,347,490 in principal on the B&G Note by transferring shares of Common Stock
to the Company and surrendering options to purchase shares of Common Stock. In
addition, during fiscal 1995, B&G and Messrs. Martin and Portnoy paid about
$720,849 in interest by transfering shares of Commmon Stock to the Company and
making cash payments. [Valuation of options to be confirmed.]
Effective at the time of the merger with Greenery, the Company entered into
a consulting agreement with Mr. Martin. Under the terms of the consulting
agreement, Mr. Martin will serve as a consultant to the Company for a term of
seven years, which began on February 11, 1994, the effective date of the merger.
Mr. Martin's initial responsibilities have included consulting with the
Company's senior management regarding the businesses and operations of Greenery.
The Company will pay Mr. Martin for his consulting services during the term of
the agreement at an annual rate of $175,000. Unless the consulting agreement is
terminated as provided for therein, Mr. Martin's compensation thereunder will
continue for the full term of the agreement notwithstanding his earlier death or
9
<PAGE>
disability. Mr. Martin is required under the terms of the agreement to devote up
to 25% of his business time to his duties under the consulting agreement. He may
without restriction participate in the business activities of HRP and its
affiliates and he may pursue other business activities and opportunities unless
those business activities and opportunities would be directly and materially
detrimental to the businesses formerly operated by Greenery. In addition, until
February 11, 1997, Mr. Martin is obligated under the consulting agreement not to
initiate or expand any traumatic brain injury rehabilitation business, upon
certain terms and conditions and subject to certain exceptions. Mr. Martin may
terminate the consulting agreement at any time and the Company may terminate Mr.
Martin's engagement for cause (as defined). In the event of any such termination
by Mr. Martin or the Company, the Company will be obligated to pay Mr. Martin
all accrued and unpaid compensation due under the consulting agreement, on a
prorated basis, and all unreimbursed expenses and other amounts payable to Mr.
Martin pursuant to the terms and conditions of any health insurance programs,
disability plans and deferred compensation plans of the Company in which Mr.
Martin is entitled to participate.
CERTAIN TRANSACTIONS AND OTHER MATTERS
As previously disclosed to stockholders, on October 11, 1993, Albuquerque
Centre Ltd., Co., a New Mexico limited liability company ("Albuquerque Centre"),
bought the Albuquerque Centre Building in which Horizon leases space for its
corporate offices. The members of Albuquerque Centre are Klemett L. Belt, Jr.,
Executive Vice President of Horizon, and his wife (together, 30.67% interest),
Charles H. Gonzales, Senior Vice President of Horizon (5.34% interest), the
adult children of Neal M. Elliott, Chairman and Chief Executive Officer of
Horizon (33.33% interest),and two unrelated parties (together, 30.67% interest).
Mr. Elliott was a member of Albuquerque Centre until he transferred his 33.33%
interest to his adult children in March 1995.
At the time of purchase of the Albuquerque Centre Building, the previous
owner assigned, as with all other leases, Horizon's lease to Albuquerque Centre.
In turn, Albuquerque Centre assumed the previous owner's duties under Horizon's
lease. Effective June 1, 1994, the Board of Directors of the Company authorized
the Company to enter into a new office building lease with Albuquerque Centre
(the "Office Lease"). Under the Office Lease, the Company leased 39,269 square
feet from Albuquerque Centre for office usage and 1,701 square feet for
inventory space. Rent for the office space is about $13.37 per square foot per
year, which the Company believes is at or below market rent for comparable
contiguous space in Albuquerque. Rent for the inventory space is about $6.00 per
square foot per year. Thus, under the terms of the Office Lease, Horizon was
obligated to pay Albuquerque Centre annual rent of about $535,000, plus its
proportionate share of the Albuquerque Centre Building's common operating
expenses. The lease expires on July 31, 2001. During fiscal 1995, Horizon paid
approximately $589,300 in rental payments to Albuquerque Centre. On June 1,
1995, the Company and Albuquerque Centre entered into an Addendum to the Office
Lease (the "Office Lease Addendum"). Under the terms of the Office Lease
Addendum, the Company leased an additional 10,548 square feet from Albuquerque
Centre. Rent for the new space under the Office Lease Addendum is about $15.90
per square foot per year. Thus, the Company now leases 49,817 square feet, or
about 64% of the net rentable space in the Albuquerque Centre Building.
On December 30, 1994, the Board of Directors of the Company approved the
Company's purchase of usage of a Cessna/Citation III aircraft from AMI Aviation
II, L.L.C., a Delaware limited liability company ("AMI II"). Neal M. Elliott
owns 99% of the membership interests of AMI II. Under the aircraft usage
agreement, the Company will purchase a minimum of 20 hours usage per month for
$44,600 per month for a five year period, and will pay $1,500 per hour for usage
over 20 hours in a month plus a monthly maintenance reserve of $250 per hour of
usage. The Company believes that the amounts payable under this agreement are
comparable to those it would pay to other third party vendors of similar
aircraft services.
The Company leases approximately 40,000 square feet of office and clinic
space located in and around Mechanicsburg, Pennsylvania under leases with
various partnerships (the "Office Leases").
10
<PAGE>
The annual rent under the Office Leases is approximately $427,000 per year,
payable in equal monthly installments. Rocco A. Ortenzio, Robert A. Ortenzio and
other members of their families are partners in all of these partnerships.
Mr. Rocco Ortenzio agreed to become a director and Vice Chairman of
Horizon's Board of Directors following the merger, and to provide consulting
services to Horizon on an hourly basis at a rate of $300 per hour. See "--
Employment and Consulting Agreements." Mr. Rocco Ortenzio's employment agreement
with CMS, under which he agreed to serve as CMS's Chairman and Chief Executive
Officer, provided for a base salary of $400,000 per year and also provided for
additional bonus compensation of 3% of CMS's consolidated pre-tax income
(excluding extraordinary gains, losses or charges) in excess of $2.5 million per
fiscal year. Pursuant to such agreement, if a "change in control" of CMS
occurred and within one year thereafter Mr. Rocco Ortenzio's services were
terminated for any reason other than for "cause" or if he terminated his
employment for "good reason" (as these terms are defined in his employment
agreement), his bonus payments would continue until December 31, 1998, the
remainder of the contract term, and CMS would also be obligated to pay him an
amount equal to his cash compensation for the preceding three years or, if less,
three times his average annual cash compensation for the five fiscal years prior
to the change in control. The merger constituted a change in control for
purposes of this employment agreement.
In evaluating the merger, the Horizon Board of Directors and CMS Board of
Directors recognized that Mr. Rocco Ortenzio's bonus arrangement would,
following the Merger, require that CMS's current operations continue to be
accounted for separately, which would be impractical in light of the companies'
plans to realize many of the significant opportunities presented by the merger
by combining certain aspects of their respective businesses. Accordingly, in
order to remove the impediment that these contractual obligations might
otherwise have on future operations, Mr. Rocco Ortenzio agreed on the value to
be ascribed to the provisions relating to the termination without cause of his
employment arrangements with CMS, including the bonus, in connection with the
merger. The terms of the agreement provide that following the merger Rocco A.
Ortenzio would cease to be an employee of CMS and would receive $3.7 million in
satisfaction of the change in control provisions described above and would also
receive up to $11.6 million in lieu of a bonus for periods after such merger and
for his agreement to enter into a mutually acceptable non-compete agreement,
provided that an independent third party agreed that the present value of the
bonus and the non-compete agreement equaled or exceeded such amount. The present
value of Rocco A. Ortenzio's future bonus payments was determined by projecting
the future operating results of CMS through the remaining term of his employment
agreement. These projections included an average annual revenue growth of
approximately 7% with an improvement in the operating margin over the term of
the agreement of approximately 10%. The projections also took into account the
anticipated future benefit of CMS's recent restructuring measures as well as the
anticipated future benefit to be derived by CMS as a result of the merger. The
projections contemplate that CMS will minimize its interest expense by using
substantially all excess cash it generates to repay indebtedness, including
continued open market repurchases of its Senior Subordinated Notes. Under these
assumptions Rocco A. Ortenzio's potential bonus is approximately $14.5 million.
An independent benefits consultant actuarially valued and discounted (at 7.50%)
this amount to a current value of approximately $12.2 million.
[Discussion of non-compete agreement and warrants to come.]
In addition, pursuant to his existing employment arrangements with CMS,
Rocco A. Ortenzio's outstanding unvested options to purchase 800,000 shares of
CMS Common Stock (which by virtue of the CMS merger converted into options to
purchase shares of Common Stock) became fully vested. Horizon has agreed that
Rocco Ortenzio's existing term life insurance policy will be converted into a
whole life policy pursuant to a split-dollar arrangement with CMS.
In December 1992, CMS loaned Rocco A. Ortenzio $2,362,500 to fund the
exercise of stock options and $2,185,787 to fund the payment of federal
withholding taxes in connection with such option exercises. Also in December
1992, CMS loaned Robert A. Ortenzio $529,791 to fund the payment of
11
<PAGE>
federal withholding taxes in connection with the exercise of stock options. All
of the above loans bear interest at the applicable federal rate, as adjusted
every six months, and are payable on demand or, if earlier, upon the sale of CMS
stock (Common Stock, as a result of the merger with CMS) acquired upon exercise
of the options to which the loans relate. As of July 31, 1995, no principal
payments had been made on the loans. The tax loans relating to options exercised
under the CMS 1986 Stock Option Plan are authorized under that plan. The
remaining loans were authorized by the CMS Board as an inducement for Rocco A.
Ortenzio to exercise his non-qualified options during calendar year 1992 so
Rocco A. Ortenzio and CMS could avoid possible adverse tax consequences relating
to such option exercises under proposed tax legislation contemplated at the time
for adoption in calendar year 1993.
During fiscal 1995, CMS was a party to various contracts with Commercial
Construction Company, Inc. ("CCI") and companies affiliated with CCI
(collectively, the "CCI Companies") pursuant to which CCI acted as general
contractor for the construction of one of CMS's rehabilitation hospitals and
whereby CMS purchased various other development and maintenance services,
equipment, furniture and supplies for its rehabilitation facilities. The CCI
Companies are wholly owned by John Ortenzio, who is the son of Rocco A. Ortenzio
and brother of Robert A. Ortenzio. In fiscal 1995, CMS made payments to the CCI
Companies aggregating approximately $7,684,000 under these contracts. The
payments covered the CCI Companies' costs of construction materials and labor,
upgrades of existing facilities, construction sub-contractor fees, costs of
hospital equipment provided, service fees, overhead and profits. The payments
relate to construction services at one hospital and fees for services provided
at 34 hospitals.
LeRoy S. Zimmerman, a director of the Company, is a partner in the law firm
of Eckert, Seamans, Cherin & Mellott, which provides legal services to the
Company. The Company now leases approximately 14,000 square feet of office space
located in Mechanicsburg, Pennsylvania from Mr. Zimmerman. The annual rental
under the lease is approximately $152,000 per year, payable in equal monthly
installments.
Each director and each officer of the Company who is subject to Section 16
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is
required by Section 16(a) of the Exchange Act to report to the SEC by a
specified date, his transactions in the Company's securities. During fiscal
1995, Mr. Schofield filed his Initial Statement of Beneficial Ownership of
Securities on Form 3 after the due date for such report. Mr. Elliott failed to
report his gift of 17,500 shares of Common Stock to a charitable remainder trust
of which Mr. Elliott and his wife hold a remainder beneficial interest on his
otherwise timely filed Form 5 for fiscal 1995. Such gift was reported on an
amended Form 5 subsequent to the due date for such report.
12
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended May 31,
1995, 1994 and 1993, of the Chief Executive and those persons who were, for the
fiscal year ended May 31, 1995, the other four most highly compensated executive
officers of the Company (the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
--------------
ANNUAL COMPENSATION SECURITIES
------------------------------------ UNDERLYING ALL OTHER
NAME & SALARY OPTIONS/(SARS) COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) BONUS ($) (SHS.)(2) ($)(3)
---------------------------------------------- --------- ------------ ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Neal M. Elliott............................... 1995 $ 487,500 $ 100,000 100,000 $ 163,264
Chairman of the Board, President 1994 433,750 50,000 100,000 140,508
and Chief Executive Officer 1993 379,000 0 0 104,806
Klemett L. Belt, Jr........................... 1995 $ 268,750 $ 60,000 40,000 $ 83,436
Executive Vice President 1994 242,500 50,000 30,000 102,030
1993 216,700 0 0 55,585
Michael A. Jeffries........................... 1995 $ 218,750 $ 50,000 40,000 $ 8,876
Senior Vice President -- Operations 1994 183,750 40,000 25,000 7,484
1993 132,500 25,000 0 4,580
Charles H. Gonzales........................... 1995 $ 178,750 $ 40,000 40,000 $ 8,106
Senior Vice President -- Subsidiary 1994 151,250 30,000 25,000 7,525
Operations 1993 123,300 19,500 0 2,785
Ernest A. Schofield........................... 1995 $ 140,000 $ 25,000 25,000 $ 5,939
Senior Vice President, Treasurer 1994 105,500 20,000 15,000 4,830
and Chief Financial Officer 1993 89,625 17,000 8,000 3,346
<FN>
------------------------
(1) Amounts shown include cash compensation earned by the Named Officers,
including amounts deferred at the election of any of such officers.
(2) No grants of stock appreciation rights have been made.
(3) For fiscal 1995, all other compensation includes:
(i) Amounts accrued for retirement benefits for Messrs. Elliott and Belt,
in the amounts of $138,981 and $56,421, respectively, pursuant to the
terms of their respective employment agreements (see "Employment
Agreements" below).
(ii) Company matching of employee contributions under a deferred
compensation arrangement as follows: Mr. Elliott -- $19,500; Mr. Belt
-- $10,750 ; Mr. Jeffries -- $5,469; Mr. Gonzales -- $7,150; and Mr.
Schofield -- $5,600.
(iii) Payments under an officers' medical plan: Mr. Elliott -- $2,533; Mr.
Belt -- $14,825; Mr. Jeffries -- $2,897; Mr. Gonzales -- $626 and Mr.
Schofield -- $35.
(iv) Dollar value of life insurance premiums paid by the Company with
respect to term group life insurance for Mr. Elliott -- $2,250; Mr.
Belt -- $1,440; Mr. Jeffries -- $510; Mr. Gonzales -- $330 and Mr.
Schofield -- $304.
</TABLE>
13
<PAGE>
OPTION GRANTS
The following is information with respect to grants of options in fiscal
1995 pursuant to the Company's Employee Stock Option Plan to the Named Officers.
No stock appreciation rights were granted under those plans in fiscal 1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------ ANNUAL RATE OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTION/SARS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (2)
OPTION/SARS EMPLOYEES IN OR BASE EXPIRATION ----------------------
NAME GRANTED (#)(1) FISCAL 1995 PRICE ($/SH.) DATE 5% 10%
------------------------------- --------------- --------------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Neal M. Elliott................ 100,000 8.65% $ 23.75 3/13/2005 $1,493,625 $3,785,138
Klemett L. Belt, Jr............ 40,000 3.46% 23.75 3/13/2005 597,450 1,514,055
Michael A. Jeffries............ 40,000 3.46% 23.75 3/13/2005 597,450 1,514,055
Charles H. Gonzales............ 40,000 3.46% 23.75 3/13/2005 597,450 1,514,055
Ernest A. Schofield............ 25,000 2.16% 23.75 3/13/2005 373,406 946,285
<FN>
------------------------------
(1) No grants of stock appreciation rights have been made. Options granted to
the Named Officers vest in one-third increments annually beginning on the
first anniversary of the date of grant.
(2) The dollar amounts under these columns represent the potential realizable
value of each grant of options assuming that the market price of the Common
Stock appreciates in value from the date of grant to the expiration date at
the 5% and 10% annual rates of return prescribed by the SEC. These
calculations are not intended to forecast possible future appreciation, if
any, of the price of Common Stock.
</TABLE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information concerning each exercise of stock
options during fiscal 1995 by the Named Officers and with respect to the
unexercised options to purchase Common Stock granted under the Company's
Employee Stock Option Plan to the Named Officers and held by them at May 31,
1995.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS OPTIONS/SARS
SHARES AT MAY 31, 1995(#) AT MAY 31, 1995($)(1)
ACQUIRED ON VALUE REALIZED -------------------------- --------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------------- ------------ --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Neal M. Elliott............. -- -- 233,334 166,666 $3,063,671 $ 433,329
Klemett L. Belt, Jr......... -- -- 110,000 60,000 1,488,500 130,000
Michael A. Jeffries......... -- -- 18,334 56,666 180,471 108,329
Charles H. Gonzales......... -- -- 46,536 56,666 545,792 108,329
Ernest A. Schofield......... -- -- 11,723 37,666 115,157 88,994
<FN>
------------------------------
(1) Dollar values are calculated based on the difference between the option
exercise price and the closing price of the Common Stock on the NYSE
Composite Tape on May 31, 1995 ($18.25).
</TABLE>
DIRECTORS COMPENSATION
Non-employee directors of the Company receive an annual retainer of $10,000,
payable quarterly. The Company also maintains a non-qualified stock option plan
for its non-employee directors (the "Directors Plan"). The Directors Plan
provides for the annual issuance to each non-employee director of a
non-qualified option to purchase 4,000 shares of Common Stock. The Directors
Plan is currently administered by the Board; however, the Board may appoint a
committee consisting of not less than two Board members to administer the
Directors Plan. Options granted under the Directors Plan generally are for a
term of ten years and vest in three equal annual installments commencing one
year after the date of grant. The options are not assignable or transferable.
Options are granted with an exercise price equal to the closing trading price of
the Common Stock on the New York Stock Exchange on the date of grant or on the
next trading day in the event the Common Stock is not traded on the date of
grant.
14
<PAGE>
As discussed under Proposal 6 herein, the stockholders will be asked at the
Annual Meeting to approve the Horizon/CMS Healthcare Corporation 1995
Non-Employee Directors' Stock Option Plan (the "1995 Directors Plan"). If
approved, no further awards will be granted under the Directors Plan on or after
the date of the Annual Meeting. Under the 1995 Directors Plan, each non-employee
director in office at the date of each annual meeting or elected at such meeting
shall receive a non-statutory stock option exercisable for 7,000 shares of
Common Stock, with a purchase price per share equal to the fair market value on
the date of grant, valid for a term of ten years and vesting in one-third
increments on each of the subsequent three anniversaries of the date of grant.
The options are not transferable except by will, laws of descent and
distribution or by a qualified domestic relations order. See "Proposal 6 -- To
Approve the Horizon/CMS Healthcare Corporation 1995 Non-Employee Directors'
Stock Option Plan" below.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has employment agreements with Messrs. Elliott and Belt, which
automatically renew on January 1 of each year for an additional year, subject to
earlier termination by the Company and Messrs. Elliott and Belt, respectively,
under certain conditions. The agreements currently provide for annual salaries
to Messrs. Elliott and Belt of $385,000 and $220,000, respectively, subject to
annual increases to be determined at the discretion of the Compensation
Committee. In September 1994, the Compensation Committee increased the base
salaries of Messrs. Elliott and Belt for fiscal 1995 to $500,000 and $275,000,
respectively, and provided them with bonuses for the fiscal 1995 in the amounts
of $100,000 and $60,000, respectively. Each of the employment agreements provide
for maximum retirement benefits of 50% of the individual's highest annual base
salary during the employment period, reduced by all amounts payable under
federal social security or any Company retirement plan. The actual retirement
benefit payable is equal to 5% of the individual's highest annual salary
multiplied by the number of years of service to the Company. Each agreement also
provides for a death benefit to the surviving spouse or minor children in an
amount equal to one-half of the retirement benefit payable at the death of the
individual (whether before or after retirement). Each employment agreement also
provides for disability benefits in an amount equal to 50% of the annual base
salary at the time of any disability, reduced by any disability insurance
benefits paid. Under each employment agreement, disability payments are payable
until recovery from the disability or until the individual reaches age 65. Each
agreement provides that, upon termination of the agreement by the Company
without cause, or by Mr. Elliott or Mr. Belt with cause (which includes a change
in control of the Company followed by a material limitation of the individual's
duties and powers or demotion or removal from the Board of Directors), Mr.
Elliott or Mr. Belt, as the case may be, shall receive severance pay in an
amount equal to two years of the individual's annual base salary then in effect.
In addition to such severance compensation, all options, warrants, stock bonuses
and similar awards held by the individual shall immediately vest. Upon
termination by Horizon for cause or termination by the individual without cause,
Mr. Elliott or Mr. Belt, as the case may be, receives no severance compensation.
Robert A. Ortenzio, the President and Chief Operating Officer of CMS, became
Executive Vice President of Horizon and a member of its Board of Directors in
July of 1995. At that time, he entered into an employment agreement with Horizon
containing terms and conditions (including current salary of at least $431,000
per year) substantially similar to those in his previous employment agreement
with CMS. This agreement was in lieu of his existing arrangements and agreements
with CMS. The agreement provides for a retirement benefit equal to 5% of Robert
A. Ortenzio's highest annual base salary during his employment by Horizon
multiplied by his number of years of service, determined as described below.
This retirement benefit is subject to a maximum of 50% of Robert A. Ortenzio's
highest annual base salary during his employment with Horizon, reduced by all
amounts payable under federal social security or any Horizon retirement plan.
For purposes of this calculation, Robert A. Ortenzio will be granted full credit
for service retroactive to March 1986. The Employment Agreement also provides
for a death benefit to his surviving spouse or minor children in an amount equal
to one-half of the retirement benefit payable at his death (whether before or
after retirement).
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In addition, the agreement provides for disability benefits in an amount equal
to 50% of the annual base salary at the time of any disability, reduced by any
disability insurance benefits paid. Under the agreement, disability payments
will be payable until recovery from the disability or until he reaches age 65.
The agreement provides that, upon termination of the agreement (i) by Horizon
without cause, (ii) by Robert A. Ortenzio after 18 months following the
effective time of the merger with CMS or (iii) by Robert A. Ortenzio prior to
such date but after a material diminution or limitation of his duties and powers
or demotion or removal from the Board of Directors, or in certain other
circumstances, Robert A. Ortenzio will receive severance pay generally equal to
the aggregate of his cash compensation for the preceeding three years. In
addition to such severance compensation, all options, warrants, stock bonuses
and similar awards held by Robert A. Ortenzio will immediately vest. Upon
termination by Horizon for cause or termination by Robert A. Ortenzio under
other circumstances, Robert A. Ortenzio will receive no severance compensation.
[Rocco A. Ortenzio consulting agreement description to come.]
COMPENSATION/STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company has been and plans in the foreseeable future to continue an
aggressive expansion program to provide a foundation in the upcoming years for
the Company's long-term performance. The Company's success in implementing this
expansion program and the Company's overall strategic business plan depends in
large part on the Company's ability to attract and retain qualified, highly
motivated executive officers and key employees.
The Company's historic executive compensation policies have been designed to
provide recognition and reward for the Company's successful performance and an
individual executive's responsibility and contribution to such performance.
Traditionally, the measure of such contributions by this Committee has not been
tied to specific performance criteria but instead has been measured
subjectively. The Company attempts to provide its executives with compensation
opportunities that are competitive, particularly in terms of base salary, with
that provided to executives who hold comparable positions in other companies in
the health care industry. The peer group used by this Committee in comparing
compensation is a group of health care companies consisting of the companies
named under the heading "Shareholder Return Performance Presentation."
This Committee does not currently intend to award compensation that would
result in a limitation on the deductibility of a portion of such compensation
pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"); however, this Committee may in the future decide to authorize
compensation in excess of the limits of Section 162(m) if it determines that
such compensation is in the best interests of the Company.
During fiscal 1995, the Compensation Committee in particular considered the
significant increase in management responsibilities and work load created as a
result of the merger with Greenery, the peopleCARE acquisition, the attempted
acquisition of Hillhaven and the other recent acquisitions consummated by the
Company. Additional considerations included the contributions and potential of
each member of senior management, the base salary and bonuses of the executive
officers over the past three years and anticipated increases in management
responsibility in the future.
During fiscal 1995, the Stock Option Committee in particular considered the
operating performance of the Company over the prior fiscal year, the significant
increase in management responsibilities and work load created as a result of the
merger with Greenery, the peopleCARE acquisition, the Company's continued
expansion of its long-term care business, the Company's continued expansion of
its specialty health care services in both existing businesses and new lines of
business and the attempted acquisition of Hillhaven. The Stock Option Committee
also considered the contributions and potential of each member of senior
management, the base salary and bonuses of the executive officers over the past
three years and anticipated increases in management responsibility in the
future.
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The base salary and bonus of and stock options granted to Mr. Elliott, Chief
Executive Officer of the Company, are based on the above described policies and
acknowledgment of Mr. Elliott's over-all responsibility for implementation of
the Company's substantial growth and strategic business plan. In fiscal 1995,
the Compensation Committee determined to increase Mr. Elliott's base salary from
$450,000 per year to $500,000 per year and to award him a $100,000 bonus and
options to purchase 100,000 shares of Common Stock in light of the considerable
increases in Mr. Elliott's responsibilities resulting from the merger with
Greenery, the peopleCARE acquisition, the attempted acquisition of Hillhaven and
other recent acquisitions consummated by the Company.
COMPENSATION/STOCK OPTION COMMITTEE
Frank M. McCord
Russell L. Carson
Bryan C. Cressey
Barry M. Portnoy
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STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The performance graph shown below was prepared using data from the Standard
and Poor's Compustat Database for use in this Proxy Statement. As required by
applicable rules of the SEC, the graph was prepared based upon the following
assumptions:
1. $100 was invested in Common Stock, the S&P 500 Composite Index and the
Peer Group (as defined below) on June 1, 1990.
2. Peer Group investment is weighted based on the market capitalization of
each individual company within the Peer Group at the beginning of each year.
3. Dividends are reinvested on the ex-dividend dates.
The companies that comprise the Company's Peer Group are as follows: Beverly
Enterprises, Inc., Manor Care, Inc., Genesis Health Ventures, Inc., GranCare,
Inc., Health Care Retirement Corporation, The Hillhaven Corporation, Integrated
Health Services, Inc. and Living Centers of America, Inc. (collectively, the
"Peer Group").
HORIZON HEALTHCARE CORPORATION
COMPARATIVE TOTAL RETURNS
JUNE 1, 1990 -- MAY 31, 1995
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG HORIZON HEALTHCARE CORPORATION, S&P 500 INDEX AND PEER GROUP**
(INFORMATION COMPILED AND PREPARED BY ZACK'S INVESTMENT RESEARCH, INC.)
[GRAPHIC]
<TABLE>
<CAPTION>
6/01/90 5/31/91 5/31/92 5/31/93 5/31/94 5/31/95
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Horizon Healthcare Corporation............. $ 100.00 $ 171.43 $ 228.57 $ 514.29 $ 947.62 $ 695.24
S&P 500 Composite Index.................... $ 100.00 $ 111.79 $ 122.81 $ 137.06 $ 142.90 $ 171.75
Peer Group................................. $ 100.00 $ 180.72 $ 168.60 $ 254.86 $ 315.08 $ 344.67
</TABLE>
Assumes $100 invested on June 1, 1990 (or an intervening date if the Peer
Group company was not traded at such date) in Common Stock, the S&P 500 Index
and Peer Group.
* Total Return assumes the reinvestment of dividends.
** Fiscal year ending May 31.
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PROPOSAL 3 -- TO APPROVE THE AMENDMENT TO THE HORIZON HEALTHCARE CORPORATION
EMPLOYEE STOCK OPTION PLAN
At the Annual Meeting, the stockholders will be asked to approve an
amendment (the "Employee Amendment") to the Company's Employee Stock Option
Plan, as amended (the "Employee Plan"), to provide for immediate vesting of all
outstanding options under the Employee Plan held by an optionee who is subject
to Section 16 of the Exchange Act (a "Section 16 Person") upon the death of such
optionee. The Amendment was unanimously approved by the Board on September 12,
1994.
If the Horizon/CMS Healthcare Corporation 1995 Stock Incentive Plan is
approved by the stockholders of the Company at the Annual Meeting (see Proposal
4 below), then the Company will terminate the Employee Plan and no additional
options will be granted thereunder on or after the date of the Annual Meeting.
Below is a summary of the primary features of the Employee Amendment and the
Employee Plan. A copy of the Employee Amendment is attached hereto as Appendix
A, and a copy of the Employee Plan is available upon a stockholder's written
request to the Company at 6001 Indian School Road, N.E., Suite 530, Albuquerque,
New Mexico 87110, Attention: Secretary.
DESCRIPTION OF THE EMPLOYEE AMENDMENT
Prior to the Employee Amendment, options granted under the Employee Plan
vest over a three year term, with one-third vesting on each anniversary of the
date of grant. Unlike many option plans, however, the Employee Plan did not
provide for immediate vesting upon the death of the optionee. Instead, the
Employee Plan provided that, upon the death of an optionee, an option granted
under the Employee Plan could be exercised by the optionee's executors,
administrators, heirs or distributees, as the case may be, at any time within
one year after the date of such death, but only as to the number of shares the
optionee was entitled to exercise as of the date of his or her death.
The Employee Amendment provides that, in the event of the death of an
optionee who is not a Section 16 Person, all of such optionee's outstanding
options under the Employee Plan, whether vested or not, will become immediately
exercisable in full. Pursuant to the Employee Plan, each such option will remain
exercisable until the earlier of the expiration date of such option or the
expiration of one year after the date of the optionee's death. If the
stockholders approve the Employee Amendment at the Annual Meeting, an optionee
who is a Section 16 Person will be treated in the same manner as an optionee who
is not a Section 16 Person upon his or her death. The full vesting of stock
options upon an employee's death is a provision commonly found in the stock
option plans of other publicly held corporations.
NUMBER OF SHARES SUBJECT TO THE EMPLOYEE PLAN
The number of shares of Common Stock issuable pursuant to the Employee Plan,
together with the number of shares subject to all other Company plans, cannot
exceed 10% of the total number of authorized shares of the Company. Shares
subject to expired options are not counted against the number of shares
available under the Employee Plan.
ADMINISTRATION
The Employee Plan is administered by a committee appointed by the Board from
among its non-employee members (the "Administrative Committee"). The
Administrative Committee has full authority, subject to the terms of the
Employee Plan, to establish rules and regulations for the proper administration
of the Employee Plan and to determine the employees to whom options will be
granted, the number of shares to be covered by each option, and the term of each
option.
ELIGIBILITY
Options under the Employee Plan may be granted to management and other key
employees of the Company (including employees who are directors of the Company)
who, in the judgment of the Administrative Committee, will perform services of
special importance to the Company in the management, operation and development
of its business.
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OPTION AWARDS
Under the terms of the Employee Plan, the Administrative Committee
determines the number of shares to be covered by an option granted to an
eligible employee. Options granted under the Employee Plan are not intended to
constitute "incentive stock options" within the meaning of section 422 of the
Code. The exercise price for shares purchased pursuant to an option granted
under the Employee Plan is the closing trading price of the shares of Common
Stock subject to the option on the date the option is granted or on the next
business day on which a trade occurs if a trade does not occur on the date of
grant. No option is exercisable after the expiration of ten years from the date
it is granted or such shorter period of time as may be determined by the
Administrative Committee at the time of grant.
EXERCISE OF OPTIONS
As described above, options under the Employee Plan generally vest in
one-third increments upon each of the first, second and third anniversaries of
the date of grant.
TERMINATION OF EMPLOYMENT
Options granted under the Employee Plan are not transferable by the option
holder except by will or by the laws of descent and distribution. Options are
exercisable during the lifetime of the optionee only while he or she is an
employee of the Company or, except in the event of death or disability, within
sixty days after his or her employment with the Company terminates. If an
optionee's employment terminates by reason of disability, the option is
exercisable until the earlier of the date which is one year after the date of
such termination or the expiration of the original term of such option, but only
as to the number of shares the optionee was entitled to exercise as of the date
of such termination of employment. If the employment of an optionee who is not a
Section 16 Person terminates by reason of death, the option will become fully
vested and may be exercised until the earlier of the expiration date of such
option or the expiration of one year after the date of the optionee's death. If
the Employee Amendment is approved, optionees who are Section16 Persons will be
treated in the same manner as optionees who are not Section 16 Persons in the
event of death.
FEDERAL INCOME TAX ASPECTS OF THE EMPLOYEE PLAN
As a general rule, no federal income tax is imposed on the optionee upon the
grant of an option under the Employee Plan and the Company is not entitled to a
tax deduction by reason of such a grant. Generally, upon the exercise of an
option such as those under the Employee Plan, the optionee will be treated as
receiving compensation taxable as ordinary income in the year of exercise in an
amount equal to the excess of the fair market value of the shares on the date of
exercise over the option price paid for such shares. Upon such exercise, the
Company may generally claim a deduction for compensation paid at the same time
and in the same amount as compensation income is recognized to the optionee
assuming any federal income tax withholding requirements are satisfied. Upon a
subsequent disposition of the shares received upon exercise of such an option,
any appreciation after the date of exercise should qualify as capital gain. If
the shares received upon the exercise of such an option are transferred to the
optionee subject to certain restrictions, then the taxable income realized by
the optionee, unless the optionee elects otherwise, and the Company's tax
deduction (assuming any federal income tax withholding requirements are
satisfied) should be deferred and should be measured at the fair market value of
the shares at the time the restrictions lapse. The restrictions imposed on
officers, directors and 10% shareholders by Section 16(b) of the Exchange Act is
such a restriction during the period prescribed thereby if other shares have
been purchased by such an individual within six months of the exercise of an
option.
The Employee Plan is not qualified under section 401(a) of the Code.
The comments set forth in the above paragraphs are only a summary of certain
of the Federal income tax consequences relating to the Employee Plan. No
consideration has been given to the effects of state, local, or other tax laws
on the Employee Plan or an optionee.
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INAPPLICABILITY OF ERISA
Based upon current law and published interpretations, the Company does not
believe the Employee Plan is subject to any of the provisions of the Employee
Retirement Income Security Act of 1974.
DISCONTINUANCE OR AMENDMENT
The Administrative Committee at any time, and from time to time, may suspend
or discontinue the Employee Plan or amend it in any respect as permitted by
applicable law, provided that no amendment, modification, or termination may
adversely affect the rights of any holder of an outstanding option, or any
unexercised portion thereof, without the optionee's consent.
VOTE REQUIRED
The proposal to approve the Employee Amendment requires the affirmative vote
of the holders of a majority of the Common Stock present or represented by proxy
and entitled to vote at the Annual Meeting. Under Delaware law, an abstention
would have the same effect as a vote against the proposal, but a broker non-vote
would not be counted for purposes of determining whether a majority had been
achieved.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE EMPLOYEE AMENDMENT.
PROPOSAL 4 -- TO APPROVE THE HORIZON/CMS HEALTHCARE CORPORATION
1995 STOCK INCENTIVE PLAN
At the Annual Meeting, the stockholders will be asked to approve the
Horizon/CMS Healthcare Corporation 1995 Stock Incentive Plan (the "1995 Plan"),
a copy of which is attached hereto as Appendix B. The 1995 Plan was unanimously
approved by the Board on August , 1995, subject to stockholder approval at the
Annual Meeting. The 1995 Plan is designed to enable the Company and its
subsidiaries to provide a means to attract able employees and to provide a means
whereby those employees upon whom the responsibilities of the successful
administration and management of the Company rest, and whose present and
potential contributions to the welfare of the Company are of importance, can
acquire and maintain stock ownership, thereby strengthening their concern for
the welfare of the Company and their desire to remain in its employ. A further
purpose of the 1995 Plan is to provide such employees with additional incentive
and reward opportunities designed to enhance the profitable growth of the
Company. Accordingly, the 1995 Plan provides for granting (a) "incentive stock
options" as defined in Section 422 of the Code, (b) stock options that do not
constitute incentive stock options ("non-statutory stock options"), and (c)
shares of the Company's Common Stock, which are subject to forfeiture under the
circumstances specified by the administrative committee of the 1995 Plan at the
time of award of such shares ("restricted stock").
Below is a summary of the terms of the 1995 Plan. Such summary is qualified
in its entirety by reference to the full text of the 1995 Plan, which is
attached hereto as Appendix B.
NUMBER OF SHARES SUBJECT TO THE 1995 PLAN
The aggregate maximum number of shares authorized to be issued under the
1995 Plan pursuant to grants of stock options or restricted stock is 5,000,000
shares of Common Stock. The aggregate maximum number of shares of Common Stock
which may be the subject of stock options or restricted stock awards granted to
any one individual during the term of the 1995 Plan may not exceed 5,000,000
shares. In each case, these numbers may be adjusted upon a reorganization, stock
split, recapitalization, or other change in the Company's capital structure.
ADMINISTRATION
The 1995 Plan is administered by a committee (the "Committee") appointed by
the Board, constituted so as to comply with Rule 16b-3 under the Exchange Act,
and constituted solely of two or
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<PAGE>
more outside directors. No member of the Committee is eligible to receive a
stock option or an award of restricted stock under the 1995 Plan, and no person
who has received a stock option or an award of restricted stock under the 1995
Plan in the preceding year may serve on the Committee.
The Committee has full authority, subject to the terms of the 1995 Plan, to
establish rules and regulations for the proper administration of the 1995 Plan,
to select the persons to whom awards of stock options or restricted stock are
granted, and to set the date of grant and the other terms of the awards. When
granted awards, the Committee considers such factors as an employee's duties and
present and potential contributions to the Company's success.
ELIGIBILITY
All of the employees of the Company and its subsidiaries (including an
employee who may also be a director of any such company) are eligible to
participate in the 1995 Plan. The selection of employees, from among those
eligible, who will receive stock options or restricted stock awards. or any
combination thereof, is within the discretion of the Committee.
TERM OF 1995 PLAN
If approved, the 1995 Plan will be effective as of August , 1995, the date
of its adoption by the Board. No further awards may be granted under the 1995
Plan after August , 2005, and the 1995 Plan will terminate thereafter once all
awards have been satisfied or expired. The Board of Directors may, however,
terminate the 1995 Plan at any time without prejudice to the holders of any then
outstanding options.
STOCK OPTIONS
a. TERM OF OPTION. The term of option will be as specified by the
Committee at the date of grant (but no more than 10 years in the case of
incentive stock options). The effect of an employee's termination of employment
by reason of death, retirement, disability or otherwise will be specified in the
option contract which evidences each option grant.
b. OPTION PRICE. The option price will be determined by the Committee and
(i) in the case of the incentive stock options, will be no less than the fair
market value of the shares on the date that the option is granted, and (ii) in
the case of non-statutory stock options, will be no less than 50% of the fair
market value of the shares on the date that the option is granted.
c. SPECIAL RULES FOR CERTAIN STOCKHOLDERS. If an incentive stock option is
granted to an employee who then owns, directly or by attribution under the Code,
shares possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or a subsidiary, the term of the option will
not exceed five years, and the option price will be least 110% of the fair
market value of the shares on the date that the option if granted.
d. SIZE OF GRANT. The number of shares for which an option is granted to
an employee will be determined by the Committee.
e. STATUS OF OPTION. The status of each grant of options as an incentive
stock option or non-statutory stock option will be designated by the Committee
at the time of grant. If, however, the aggregate fair market value (determined
as of the date of grant) of shares with respect to which incentive stock options
become exercisable for the first time by an employee exceeds $100,000 in any
calendar year, the options with respect to the excess shares will be
non-statutory stock options.
f. PAYMENT. The option price upon exercise may, at the discretion of the
Committee, be paid by an employee in cash, other shares of Common Stock owned by
the employee, or by a combination of cash and Common Stock. Additionally, stock
appreciation rights may be granted to eligible employees, in conjunction with
incentive stock options or non-statutory stock options. Stock appreciation
rights give the holder, among other things, the right to a payment in cash,
Common Stock, or a combination thereof, in an amount equal to the difference
between the fair market value of the Common Stock at the date of exercise and
the option exercise price. The 1995 Plan also allows the Committee, in its
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discretion, to direct the Company to loan to an optionee the funds necessary to
pay all or any portion of the option exercise price and related tax withholding
obligations owed by the optionee to the Company upon exercise of an option.
g. OPTION CONTRACT. All options will be evidenced by a written contract
containing provisions consistent with the 1995 Plan and such other provisions as
the Committee deems appropriate.
h. TRANSFERABILITY. No option is transferable other than by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order, and only the employee or his guardian or legal representative may
exercise any option during the employee's lifetime.
RESTRICTED STOCK
a. FORFEITURE. Pursuant to a restricted stock award, shares of Common
Stock will be issued or delivered to the employee at the time the award is made
without any payment to the Company (other than for any payment amount determined
by the Committee in its discretion or the possible requirement that the par
value per share be paid), but such shares will be subject to certain
restrictions on the disposition thereof and certain obligations to forfeit such
shares to the Company as may be determined in the discretion of the Committee.
The restrictions on disposition may lapse based on (i) the Company's attainment
of targets established by the Committee that are based on (1) the price of a
share of Common Stock, (2) the Company's earnings per share, (3) the Company's
market share, (4) the market share of a business unit of the Company designated
by the Committee, (5) the Company's sales, (6) the sales of a business unit of
the Company designated by the Committee, or (7) the return on stockholders'
equity achieved by the Company, (ii) the employee's tenure with the Company, or
(iii) a combination of both factors. Upon the issuance to an employee of shares
of Common Stock pursuant to a restricted stock award, except for the foregoing
restrictions, such employee will have all the rights of a stockholder of the
Company with respect to such shares, including the right to vote such shares and
to receive all dividends and other distributions paid with respect to such
shares. The Committee will determine the effect of the termination of employment
of a recipient of restricted stock (by reason of retirement, disability, death
or otherwise) prior to the lapse of any applicable restrictions.
b. TRANSFERABILITY. If restricted stock is voluntarily or involuntarily
transferred by the employee at any time before it becomes nonforfeitable, such
restricted stock is immediately forfeited and canceled.
c. OTHER TERMS AND CONDITIONS. The Committee may establish other terms and
conditions for the issuance of restricted stock under the 1995 Plan.
CORPORATE CHANGE
The 1995 Plan provides that, upon a Corporate Change (as hereinafter
defined), the Committee may accelerate the vesting of options, cancel options
and make payments in respect thereof in cash, adjust the outstanding options as
appropriate to reflect such Corporate Change, or provide that each option shall
thereafter be exercisable for the number and class of securities or property
that the optionee would have been entitled to had the option already been
exercised. Upon the occurrence of a Corporate Change, the Committee may fully
vest any restricted stock awards then outstanding and, upon such vesting, all
restrictions applicable to such restricted stock will terminate. The 1995 Plan
provides that the Corporate Change occurs (a) if the Company is dissolved and
liquidated, (b) if the Company is not the surviving entity in any merger or
consolidation, (c) if the Company sells, leases or exchanges or agrees to sell,
lease or exchange all or substantially all of its assets, (d) if any person,
entity or group acquires or gains ownership or control of more than 50% of all
outstanding shares of the Company's voting stock or (e) if after a contested
election of directors, the persons who were directors before such election cease
to constitute a majority of the Board of Directors.
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AMENDMENTS
The Board of Directors may from time to time amend the 1995 Plan; however,
no amendment which modifies the class of eligible employees, increased the
number of shares of Common Stock authorized or available under the 1995 Plan,
extends the duration of the 1995 Plan, changes the minimum option exercise
price, or materially increases the benefits accruing to employees may be adopted
without the prior approval of the stockholders of the Company.
FEDERAL INCOME TAX ASPECTS OF THE 1995 PLAN
NON-STATUTORY STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. As general rule,
no federal income tax is imposed on the optionee upon the grant of a
non-statutory stock option such as those under the 1995 Plan (whether or not
including a stock appreciation right) and the Company is not entitled to a tax
deduction by reason of such grant. Generally, upon the exercise of a
non-statutory stock option, the optionee will be treated as receiving
compensation taxable as ordinary income in the year of exercise in an amount
equal to the excess of the fair market value of the shares on the date of
exercise over the option price paid for such shares. In the case of the exercise
of a stock appreciation right, the optionee will be treated as receiving
compensation taxable as ordinary income in the year of exercise in an amount
equal to the cash received plus the fair market value of the shares distributed
to the optionee. Upon the exercise of a non-statutory stock option or a stock
appreciation right, and subject to the application of Section 162(m) of the Code
as discussed below, the Company may claim a deduction for compensation paid at
the same time and in the same amount as compensation income is recognized to the
optionee assuming any federal income tax withholding requirements are satisfied.
Upon a subsequent disposition of the shares received upon exercise of a
non-statutory stock option or a stock appreciation right, any appreciation after
the date of exercise should qualify as capital gain. If the shares received upon
the exercise of an option or a stock appreciation right are transferred to the
optionee subject to certain restrictions, then the taxable income realized by
the optionee, unless the optionee elects otherwise, and the Company's tax
deduction (assuming any federal income tax withholding requirements are
satisfied) should be deferred and should be measured at the fair market value of
the shares at the time the restrictions lapse. The restrictions imposed on
officers, directors and 10% shareholders by Section 16(b) of the Exchange Act is
such a restriction during the period prescribed thereby if other shares have
been purchased by such an individual within six months of the exercise of a
non-statutory stock option or stock appreciation right.
INCENTIVE STOCK OPTIONS. The incentive stock options under the 1995 Plan
are intended to constitute "incentive stock options" within the meaning of
Section 422 of the Code. Incentive stock options are subject to special federal
income tax treatment. No federal income tax is imposed on the optionee upon the
grant or the exercise of an incentive stock option if the optionee does not
dispose of shares acquired pursuant to the exercise within the two-year period
beginning on the date the option was granted or within the one-year period
beginning on the date the option was exercised (collectively, the "holding
period"). In such event, the Company would not be entitled to any deduction for
federal income tax purposes in connection with the grant or exercise of the
option or the disposition of the shares so acquired. With respect to an
incentive stock option, the difference between the fair market value of the
stock on the date of exercise and the exercise price must be included in the
optionee's alternative minimum taxable income. However, if the optionee
exercises an incentive stock option and disposes of the shares received in the
same year and the amount realized is less than the fair market value of the
shares on the date of exercise, the amount included in alternative minimum
taxable income will not exceed the amount realized over the adjusted basis of
the shares.
Upon disposition of the shares received upon exercise of an incentive stock
option after the holding period, any appreciation of the shares above the
exercise price constitute capital gain. If an optionee disposes of shares
acquired pursuant to his or her exercise of an incentive stock option prior to
the end of the holding period, the optionee will be treated as having received,
at the time of disposition, compensation taxable as ordinary income. In such
event, and subject to the application of Section 162(m) of the Code as discussed
below, the Company may claim a deduction for compensation
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paid at the same time and in the same amount as compensation is treated as
received by the optionee. The amount treated as compensation is the excess of
the fair market value of the shares at the time of exercise (or in the case of a
sale which a loss would be recognized, the amount realized on the sale if less)
over the exercise price; any amount realized in excess of the fair market value
of the shares at the time of exercise would be treated as short-term or
long-term capital gain, depending on the holding period of the shares.
RESTRICTED STOCK. An employee who has been granted restricted stock under
the 1995 Plan will not realize taxable income at the time of grant, and the
Company will not be entitled to a deduction at that time, assuming that the
restrictions constitute a substantial risk of forfeiture for federal income tax
purposes. Upon expiration of the forfeiture restrictions (i.e., as shares become
vested), the holder will realize ordinary income in an amount equal to the
excess of the fair market value of the shares at such time over the amount,if
any, paid for such shares, and, subject to the application of Section 162(m) of
the Code as discussed below, the Company will be entitled to a corresponding
deduction. Dividends paid to the holder during the period that the forfeiture
restrictions apply will also be compensation to the employee and deductible as
such by the Company. Notwithstanding the foregoing, the recipient of restricted
stock may elect to be taxed at the time of grant of the restricted stock based
upon the fair market value of the shares on the date of the award, in which case
(a) subject to Section 162(m) of the Code, the Company will be entitled to a
deduction at the same time and in the same amount, (b) dividends paid to the
recipient during the period the forfeiture restrictions apply will be taxable as
dividends and will not be deductible by the Company, and (c) there will be no
further federal income tax consequences when the forfeiture restrictions lapse.
SECTION 162(M) OF THE CODE. Section 162(m) of the Code, which was enacted
in 1993, precludes a public corporation from taking a deduction in 1994 or
subsequent taxable years for compensation in excess of $1 million paid to is
chief executive officer or any of its four other highest-paid officers. However,
compensation that qualifies under Section 162(m) of the Code as
"performance-based" is specifically exempt from the deduction limit. The
Internal Revenue Service issued proposed regulations implementing this
legislation in December 1993 and amended the proposed regulations in December
1994. The regulations have not yet become final. Based on Section 162(m) of the
Code and the proposed regulations thereunder, the Company's ability to deduct
compensation income generated in connection with the exercise of stock options
granted under the 1995 Plan that have an exercise price equal to or greater than
the fair market value of the shares on the date of grant should not be limited
by Section 162(m) of the Code. However, Section 162(m) of the Code could limit
the Company's deduction with respect to compensation income generated in
connection with the exercise of an option that had an exercise price less than
the fair market value of the shares on the date of grant. The 1995 Plan has been
designed to provide flexibility with respect to whether restricted stock awards
will qualify as performances-based compensation under Section 162(m) of the Code
and, therefore, be exempt from the deduction limit. If the forfeiture
restrictions relating to a restricted stock award are based solely upon the
satisfaction of one of the performance criteria set forth in the 1995 Plan, then
the Company believes that the compensation expenses relating to such an award
will be deduction by the Company if the restricted stock becomes vested.
However, compensation expenses deductions relating to restricted stock awards
will be subject to the Section 162(m) deduction limitation if the restricted
stock becomes vested based upon any other criteria set forth in such award (such
as the occurrence of a Corporate Change or vesting based upon continued
employment with the Company).
The 1995 Plan is not qualified under section 401(a) of the Code.
The comments set forth in the above paragraphs are only a summary of certain
of the Federal income tax consequences relating to the 1995 Plan. No
consideration has been given to the effects of state, local, or other tax laws
on the 1995 Plan or award recipients.
INAPPLICABILITY OF ERISA
Based upon current law and published interpretations, the Company does not
believe the 1995 Plan is subject to any of the provisions of the Employee
Retirement Income Act of 1974.
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ACQUISITIONS
Options may be granted in substitution for options held by officers and
employees of other corporations who are about to, or who have, become employees
of the Company or a subsidiary corporation as a result of a merger,
consolidation, acquisition of assets, or similar transaction by the Company or a
subsidiary. The terms, including the option price, of the substitute options so
granted may vary from the terms set forth in the 1995 Plan to such extent as the
Committee may deem appropriate to conform, in whole or in part, to the
provisions of the options in substitution for which they are granted.
OTHER COMPANY STOCK OPTION PLANS FOR EMPLOYEES
The Company currently has in effect an Employee Stock Option Plan which
provides for the issuance of stock options to employees. If the 1995 Plan is
approved by the stockholders of the Company at the Annual Meeting, then the
Company will terminate the Employee Stock Option Plan and no additional awards
will be made thereunder on or after the date of the Annual Meeting. CMS had in
place a 1986 Stock Option Plan, 1993 Non-Qualified Stock Option Plan and a 1994
Stock Option Plan. Horizon intends to terminate such plans and no additional
awards will be made thereunder.
VOTE REQUIRED
The proposal to approve the 1995 Plan requires the affirmative vote of the
holders of a majority of the Common Stock present or represented by proxy and
entitled to vote at the Annual Meeting. Under Delaware law, an abstention would
have the same effect as a vote against this proposal, but a broker non-vote
would not be counted for purposes of determining whether a majority had been
achieved.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE 1995 PLAN.
PROPOSAL 5 -- TO APPROVE THE AMENDMENT TO THE STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS
At the Annual Meeting, the stockholders will be asked to approve an
amendment (the "Director Amendment") to the Company's Stock Option Plan for the
Non-Employee Directors (the "Directors Plan") to provide for immediate vesting
of all of an optionee's outstanding options under the Directors Plan upon the
occurrence of certain events, specifically the death or disability of the
optionee. The Director Amendment was unanimously approved by the Board on August
, 1995, subject to stockholder approval at the Annual Meeting.
If the 1995 Non-Employee Directors' Stock Option Plan is approved by the
stockholders of the Company at the Annual Meeting (see Proposal 6 below), then
the Company will terminate the Directors Plan and no additional options will be
granted thereunder on or after the date of the Annual Meeting.
Below is a summary of the primary features of the Amendment and the
Directors Plan. A copy of the Director Amendment is attached hereto as Appendix
C, and a copy of the Directors Plan is available upon a stockholder's written
request to the Company at 6001 Indian School Road, N.E., Suite 530, Albuquerque,
New Mexico 87110, Attention: Secretary.
DESCRIPTION OF THE AMENDMENT
Prior to the Director Amendment, options granted under the Directors Plan
vest over a three year term, with one-third vesting on each anniversary of the
date of grant. Unlike may options plans, however, the Directors Plan currently
does not provide for immediate vesting upon the death or disability of the
optionee. Instead, the Directors Plan currently provides that, upon the death of
an optionee, an option granted under the Directors Plan could be exercised by
the optionee's executors, administrators, heirs or distributees, as the case may
be, at any time within one year after the date of such death, but only as to the
number of shares the optionee was entitled to exercise as of the date of his or
her death. The Directors Plan currently does not provide for the full and
immediate vesting of
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unvested options upon an optionee's death, nor does it contain any special
vesting or exercise provisions in the case an optionee's membership on the Board
of Directors terminates by reason of disability.
The Director Amendment would provide that, in the event an optionee's
membership on the Board of Directors terminates by reason of death or
disability, all of such optionee's outstanding options under the Directors Plan,
whether vested or not, would become immediately exercisable in full and would
remain exercisable for the shorter of one year after such event or the
expiration date of the options. This provision is commonly found in the stock
option plans of other publicly-held corporations.
DESCRIPTION OF THE DIRECTORS PLAN
The Board of Directors believes that employee benefit plans are essential
components of the compensation package offered to attract, retain, and motivate
non-employee directors of the Company (the "Non-Employee Directors"). Shares
issuable pursuant to the Directors Plan may be authorized but unissued shares or
reacquired shares, and the Company may purchase shares required for this
purpose. The number of shares of Common Stock issuable pursuant to the Directors
Plan, together with the number of shares subject to the Employee Stock Option
Plan and the Company's Employee Stock Purchase Plan, cannot exceed 10% of the
total number of authorized shares of the Company. Shares subject to expired
options are not counted against the number of shares available under the
Directors Plan.
ADMINISTRATION
The Directors Plan is administered by the Board of Directors or by an
administrative committee appointed by the Board from among its members and
consisting of at least two persons (the "Administrator").
The Administrator has full authority, subject to the terms of the Directors
Plan, to establish rules and regulations for the proper administration of the
Directors Plan.
ELIGIBILITY
Only Non-Employee Directors are eligible to receive options under the
Directors Plan.
OPTION AWARDS
Under the terms of the Directors Plan, each Non-Employee Director receives
an annual grant of a non-statutory stock option to acquire 4,000 shares of
Common Stock. The exercise price for shares purchased pursuant to an option
granted under the Directors Plan is the closing trading price of the shares of
Common Stock subject to the option on the date the option is granted or on the
next business day on which a trade occurs if a trade does not occur on the date
of grant.
EXERCISE OF OPTIONS
As described above, the Directors Plan currently provides that options vest
in one-third increments upon each of the first, second and third anniversaries
of the date of grant.
TERMINATION OF EMPLOYMENT
A vested option is not exercisable if the person exercising the option has
not been a Non-Employee Director at all times during the period beginning with
the date of grant of the option and ending on a date no more than 60 days prior
to the date of such exercise.
Under the current terms of the Directors Plan, vested options may also be
exercised for the shorter of one year after the date of death of a Non-Employee
Director or the expiration of such option. Except as discussed below, an option
may be exercised at any time up to the expiration or termination of the option.
The term of each option is not more than ten years from the date of grant.
Options are not transferrable other than by will or the laws of the descent and
distribution. If the Director Amendment is approved, then, if an optionee's
membership on the Board of Directors is terminated be
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reason of death or disability, all of such optionee's outstanding options may be
exercised in full by the optionee or the optionee's legal representative at any
time prior to the earlier of (a) one year following the date of the optionee's
death or disability, as applicable, or (b) the expiration date of such option.
FEDERAL INCOME TAX ASPECTS OF THE DIRECTORS PLAN
A Non-Employee Director will not recognize any taxable income at the time an
option is granted under the Directors Plan. Ordinary income will be recognized
by a Non-Employee Director at the time of exercise in an amount equal to the
excess of the fair market value of the shares of Common Stock on the date of
exercise over the option price for such shares. However, if other shares of
Common Stock have been purchased by a Non-Employee Director within six months of
the exercise of an option, recognition of the income attributable to such
exercise may under certain circumstances be postponed for a period of up to six
months from the date of such purchase of such other shares of Common Stock due
to liability to suit under Section 16(b) of the Exchange Act. If applicable, one
effect of any such postponement would be to measure the amount of the
Non-Employee Director's taxable income by reference to the fair market value of
such shares at the time such liability to suit under Section 16(b) of the
Exchange Act no longer exists (rather than at the earlier date of the exercise
of the option). Upon a Non-Employee Director's exercise of an option granted
under the Directors Plan, the Company may claim a deduction for compensation
paid at the same time and in the same amount as ordinary income is recognized by
the Non-Employee Director.
The Directors Plan is not qualified under section 401(a) of the Code.
The comments set forth in the above paragraphs are only a summary of certain
of the Federal income tax consequences relating to the Directors Plan. No
consideration has been given to the effects of state, local, or other tax laws
on the Directors Plan or an optionee.
INAPPLICABILITY OF ERISA
Based upon current law and published interpretations, the Company does not
believe the Directors Plan is subject to any of the provisions of the Employee
Retirement Income Security Act of 1974.
DISCONTINUANCE OR AMENDMENT
The Board of Directors at any time, and from time to time, may suspend or
discontinue the Directors Plan or amend it and any outstanding options in any
respect as permitted by applicable law, provided that no amendment,
modification, or termination may adversely affect the rights of any holder of an
outstanding option, or any unexercised portion thereof, without the optionee's
consent, and provided further that the Board of Directors generally may not
amend the Directors Plan more than once every six months.
DURATION
The Board may terminate the Directors Plan by resolutions at any time.
Options outstanding on the date of the termination of the Directors Plan will
remain in effect in accordance with their terms.
VOTE REQUIRED
The proposal to approve the Director Amendment requires the affirmative vote
of the holders of a majority of the Common Stock present or represented by proxy
and entitled to vote at the Annual Meeting. Under Delaware law, an abstention
would have the same effect as a vote against this proposal, but a broker
non-vote would not be counted for purposes of determining whether a majority had
been achieved.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE DIRECTOR AMENDMENT.
PROPOSAL 6 -- TO APPROVE THE 1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
At the Annual Meeting, the stockholders will be asked to approve the 1995
Non-Employee Directors' Stock Option Plan (the "1995 Directors Plan"), a copy of
which is attached hereto as
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Appendix D. The 1995 Directors Plan is intended to promote the interests of the
Company and its stockholders by helping to award and retain highly qualified
independent directors, and allowing them to develop a sense of proprietorship
and personal involvement in the development and financial success of the
Company. Accordingly, pursuant to the 1995 Directors Plan, options for shares of
Common Stock are automatically granted to eligible Non-Employee Directors. No
person exercises any discretion with respect to persons eligible to receive
grants of options under the 1995 Directors Plan or the amount of grants
thereunder.
Below is a summary of the terms of the 1995 Directors Plan. Such summary is
qualified in its entirety by reference to the full text of 1995 Directors Plan,
which is attached hereto as Appendix D.
NUMBER OF SHARES SUBJECT TO THE 1995 DIRECTORS PLAN
The aggregate maximum number of shares authorized to be issued under the
1995 Directors Plan pursuant to grants of stock options is 700,000 shares of
Common Stock (which amount is subject to adjustment upon a reorganization, stock
split, recapitalization, or other change in the Company's capital structure).
ELIGIBILITY
Only Non-Employee Directors are eligible to receive options under the 1995
Directors Plan.
TERM OF THE 1995 DIRECTORS PLAN
If approved by the stockholders of the Company at the Annual Meeting, the
1995 Directors Plan will be effective as of September 27, 1995. No further
awards may be granted under the 1995 Directors Plan after September 26, 2005,
and the 1995 Directors Plan will terminate thereafter once all awards have been
satisfied or expired. The Board of Directors may, however, terminate the 1995
Directors Plan at any time without prejudice to the holders of any then
outstanding options.
OPTION GRANTS
As of the date of the annual meeting of the stockholders of the Company in
each year that the 1995 Directors Plan is in effect, each Non-Employee Director
then in office or elected to the Board of Directors on such date will receive a
non-statutory stock option exercisable for 7,000 shares of Common Stock (which
amount is subject to adjustment upon a reorganization, stock split,
recapitalization, or other change in the Company's capital structure). The
purchase price of Common Stock issued under each such option will be the fair
market value of the shares on the date that the option is granted. Options
granted under the 1995 Directors Plan will be for a term of ten years from the
date of grant. Except as described below, all options granted under the 1995
Directors Plan will vest in one-third increments after each full year of service
as a director of the Company following the date of grant. Options granted under
the 1995 Directors Plan are not transferable by the option holder except by will
or by the laws of descent and distribution or pursuant to a qualified domestic
relations order. Options are exercisable during the lifetime of the Non-Employee
Director only while he or she is serving as a director of the Company or, except
in the event of death or disability, within three months after he or she first
ceases to serve as a director of the Company. If a Non-Employee Director dies or
becomes disabled while he or she is serving as a director of the Company, the
option will become fully vested and is exercisable for a one-year period
thereafter. The option price upon exercise may be paid by a Non-Employee
Director in cash, other shares of Common Stock owned by the Non-Employee
Director, or by a combination of cash and Common Stock.
CORPORATE CHANGE
Upon a Corporate Change (as hereinafter defined), all options outstanding
under the 1995 Directors Plan will become fully vested and shall thereafter be
exercisable for the number and class of securities or property that the optionee
would have been entitled to had the option already been exercised. The 1995
Directors Plan provides that a Corporate Change occurs (a) if the Company is
dissolved and liquidated, (b) if the Company is not the surviving entity in any
merger or consolidation, (c) if the Company sells, leases or exchanges or agrees
to sell, lease or exchange all or substantially all of its assets, (d) if any
person, entity or group acquires or gains ownership or control of more than 50%
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of the outstanding shares of the Company's voting stock or (e) if after a
contested election of directors, the persons who were directors before such
election cease to constitute a majority of the Board of Directors.
AMENDMENTS
The Board of Directors may from time to time amend the 1995 Directors Plan;
however, no amendment which modifies the class of eligible optionees, increases
the number of shares of Common Stock authorized or available under the 1995
Directors Plan, extends the duration of the 1995 Directors Plan, or materially
increases the benefits accruing to optionees may be adopted without the prior
approval of the stockholders of the Company.
FEDERAL INCOME TAX ASPECTS OF THE 1995 DIRECTORS PLAN
A Non-Employee Director will not recognize any taxable income at the time an
option is granted under the 1995 Directors Plan. Ordinary income will be
recognized by a Non-Employee Director at the time of exercise in an amount equal
to the excess of the fair market value of the shares of Common Stock on the date
of exercise over the option price for such shares. However, if other shares of
Common Stock have been purchased by a Non-Employee Director within six months of
the exercise of an option, recognition of the income attributable to such
exercise may under certain circumstances be postponed for a period of up to six
months from the date of such purchase of such other shares of Common Stock due
to liability to suit under Section 16(b) of the Exchange Act. If applicable, one
effect of any such postponement would be to measure the amount of the
Non-Employee Director's taxable income by reference to the fair market value of
such shares at the time such liability to suit under Section 16(b) of the
Exchange Act no longer exists (rather than at the earlier date of the exercise
of the option). Upon a Non-Employee Director's exercise of an option granted
under the 1995 Directors Plan, the Company may claim a deduction for
compensation paid at the same time and in the same amount as ordinary income is
recognized by the Non-Employee Director.
The 1995 Directors Plan is not qualified under section 401(a) of the Code.
The comments set forth in the above paragraphs are only a summary of certain
of the Federal income tax consequences relating to the 1995 Directors Plan. No
consideration has been given to the effects of state, local, or other tax laws
on the 1995 Directors Plan or an optionee.
INAPPLICABILITY OF ERISA
Based upon current law and published interpretations, the Company does not
believe the 1995 Directors Plan is subject to any of the provisions of the
Employee Retirement Income Security Act of 1974.
OTHER COMPANY STOCK OPTION PLANS FOR NON-EMPLOYEE DIRECTORS
The Company currently has in effect the Directors Plan which provides for
the annual issuance of stock options to Non-Employee Directors. If the 1995
Directors Plan is approved by the stockholders of the Company at the Annual
Meeting, then the Company will terminate the Directors Plan and no additional
awards will be made thereunder on or after the date of the Annual Meeting. CMS
had in place a 1989 Non-Employee Directors' Stock Option Plan and a 1992 CEO
Stock Option Plan. Horizon intends to terminate such plans and no additional
awards will be made thereunder.
VOTE REQUIRED
The proposal to approve the 1995 Directors Plan requires the affirmative
vote of the holders of a majority of the Common Stock present or represented by
proxy and entitled to vote at the Annual Meeting. Under Delaware law, an
abstention would have the same effect as a vote against this proposal, but a
broker non-vote would not be counted for purposes of determining whether a
majority had been achieved.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE 1995 DIRECTORS PLAN.
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PROPOSAL 7 -- TO RATIFY THE APPOINTMENT OF AUDITORS
The Board of Directors has selected Arthur Andersen LLP, independent public
accountants, who have served as auditors for the Company since their appointment
in November 1991, to serve again as the auditors of the Company for the fiscal
year ending May 31, 1996. Ratification of this appointment shall be effective
upon receiving the affirmative vote of the holders of a majority of the Common
Stock present or represented by proxy and entitled to vote at the Annual
Meeting. Under Delaware law, an abstention would have the same effect as a vote
against this proposal, but a broker non-vote would not be counted for purposes
of determining whether a majority had been achieved.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
OF SUCH APPOINTMENT OF AUDITORS.
In the event the appointment is not ratified, the Board of Directors will
consider the appointment of other independent auditors. A representative of
Arthur Andersen LLP is expected to attend the Annual Meeting and will have the
opportunity to make a statement, if such representative desires to do so, and
will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Any stockholder who wishes to submit a proposal for inclusion in the proxy
material and for presentation at the Company's 1996 Annual Meeting of
Stockholders must forward such proposal to the Secretary of the Company at the
address indicated on the first page of this Proxy Statement, so that the
Secretary receives it no later than April , 1996.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for action at the Annual Meeting. However, if any other matters
properly come before the Annual Meeting or any adjournment(s) or postponement(s)
thereof, it is intended that the enclosed proxy will be voted in accordance with
the judgment of the persons named in the proxy.
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APPENDIX A
AMENDMENT NO. 3 TO
HORIZON HEALTHCARE CORPORATION
EMPLOYEE STOCK OPTION PLAN
WHEREAS, HORIZON/CMS HEALTHCARE CORPORATION (the "Company") has heretofore
adopted the HORIZON HEALTHCARE CORPORATION EMPLOYEE STOCK OPTION PLAN (the
"Plan"); and
WHEREAS, the Company desires to amend the Plan in certain respects;
NOW, THEREFORE, the Plan shall be amended as follows:
1. The first sentence of Section 9(b) of the Plan is hereby deleted and
replaced with the following two sentences:
"An Option issued pursuant to the Plan shall be exercisable in
accordance with the following schedule: the option is exercisable with
respect to one-third of the aggregate number of Shares covered by the
option one year after the date of grant, an additional one-third two
years after the date of grant, and the final one-third three years after
the date of grant; provided, that in the event of death of an optionee,
all outstanding options of such optionee shall immediately vest in their
entirety and shall be and become immediately exercisable. The foregoing
proviso shall be effective (i) as of September 12, 1994, as to optionees
other than optionees who are subject to Section 16 of the Securities
Exchange Act of 1934, as amended, and (ii) as of the date of approval by
the stockholders of Employer of the amendment to the Plan which includes
such proviso, as to optionees who are subject to Section 16 of the
Securities Exchange Act of 1934, as amended."
2. As amended hereby, the Plan is specifically ratified and reaffirmed.
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APPENDIX B
HORIZON/CMS HEALTHCARE CORPORATION
1995 STOCK INCENTIVE PLAN
I. PURPOSE
The purpose of the HORIZON/CMS HEALTHCARE CORPORATION 1995 STOCK INCENTIVE
PLAN (the "Plan") is to provide a means through which HORIZON/CMS HEALTHCARE
CORPORATION, a Delaware corporation (the "Company"), and its subsidiaries may
attract able persons to enter the employ of the Company and to provide a means
whereby those employees upon whom the responsibilities of the successful
administration and management of the Company rest, and whose present and
potential contributions to the welfare of the Company are of importance, can
acquire and maintain stock ownership, thereby strengthening their concern for
the welfare of the Company and their desire to remain in its employ. A further
purpose of the Plan is to provide such employees with additional incentive and
reward opportunities designed to enhance the profitable growth of the Company.
Accordingly, the Plan provides for granting Incentive Stock Options, options
which do not constitute Incentive Stock Options, Restricted Stock Awards, or any
combination of the foregoing, as is best suited to the circumstances of the
particular employee as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
(a) "AWARD" means, individually or collectively, any Option or Restricted
Stock Award.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended. Reference in
the Plan to any section of the Code shall be deemed to include any amendments or
successor provisions to such section and any regulations under such section.
(d) "COMMITTEE" means not less than two members of the Board who are
selected by the Board as provided in Paragraph IV(a).
(e) "COMMON STOCK" means the common stock, par value $.001 per share, of the
Company.
(f) "COMPANY" means Horizon/CMS Healthcare Corporation.
(g) "DIRECTOR" means an individual elected to the Board by the stockholders
of the Company or by the Board under applicable corporate law who is serving on
the Board on the date the Plan is adopted by the Board or is elected to the
Board after such date.
(h) An "EMPLOYEE" means any person (including a Director) in an employment
relationship with the Company or any parent or subsidiary corporation (as
defined in section 424 of the Code).
(i) "FAIR MARKET VALUE" means, as of any specified date, the mean of the
high and low sales prices of the Common Stock (i) reported by the National
Market System of NASDAQ on that date or (ii) if the Common Stock is listed on a
national stock exchange, reported on the stock exchange composite tape on that
date; or, in either case, if no prices are reported on that date, on the last
preceding date on which such prices of the Common Stock are so reported. If the
Common Stock is traded over the counter at the time a determination of its fair
market value is required to be made hereunder, its fair market value shall be
deemed to be equal to the average between the reported high and low or closing
bid and asked prices of Common Stock on the most recent date on which Common
Stock was publicly traded. In the event Common Stock is not publicly traded at
the time a determina-tion of its value is required to be made hereunder, the
determination of its fair market value shall be made by the Committee in such
manner as it deems appropriate.
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(j) "HOLDER" means an employee who has been granted an Award.
(k) "INCENTIVE STOCK OPTION" means an incentive stock option within the
meaning of section 422 of the Code.
(l) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(m) "OPTION" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Common Stock and Options which
do not constitute Incentive Stock Options to purchase Common Stock.
(n) "OPTION AGREEMENT" means a written agreement between the Company and a
Holder with respect to an Option.
(o) "PLAN" means the Horizon Healthcare Corporation 1995 Stock Incentive
Plan, as amended from time to time.
(p) "RESTRICTED STOCK AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
(q) "RESTRICTED STOCK AWARD" means an Award granted under Paragraph VIII of
the Plan.
(r) "RULE 16B-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as
such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
(s) "STOCK APPRECIATION RIGHT" shall have the meaning assigned to such term
in Paragraph VII(d) of the Plan.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective upon the date of its adoption by the Board,
provided the Plan is approved by the shareholders of the Company within twelve
months thereafter. Notwithstanding any provision in the Plan, in any Option
Agreement or in any Restricted Stock Agreement, no Option shall be exercisable
and no Restricted Stock Award shall vest prior to such shareholder approval. No
further Awards may be granted under the Plan after ten years from the date the
Plan is adopted by the Board. The Plan shall remain in effect until all Awards
granted under the Plan have been satisfied or expired.
IV. ADMINISTRATION
(a) COMPOSITION OF COMMITTEE. The Plan shall be administered by a committee
which shall be (i) appointed by the Board, (ii) constituted so as to permit the
Plan to comply with Rule 16b-3, and (iii) constituted solely of two or more
"outside directors," within the meaning of section 162(m) of the Code and
applicable interpretive authority thereunder. No member of the Committee shall
be eligible to receive an Award under the Plan and no person who has received an
Award in the preceding year shall be eligible to serve on the Committee.
(b) POWERS. Subject to the express provisions of the Plan, the Committee
shall have authority, in its discretion, to determine which employees shall
receive an Award, the time or times when such Award shall be made, whether an
Incentive Stock Option or nonqualified Option shall be granted, and the number
of shares to be subject to each Option or Restricted Stock Award. In making such
determinations the Committee shall take into account the nature of the services
rendered by the respective employees, their present and potential contribution
to the Company's success and such other factors as the Committee in its
discretion shall deem relevant.
(c) ADDITIONAL POWERS. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan, this shall include the power to construe the Plan and
the respective agreements executed hereunder, to prescribe rules and regulations
relating to the Plan, and to determine the terms, restrictions and provisions of
the
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agreement relating to each Award, including such terms, restrictions and
provisions as shall be requisite in the judgment of the Committee to cause
designated Options to qualify as Incentive Stock Options, and to make all other
determinations necessary or advisable for administering the Plan. The Committee
may correct any defect or supply any omission or reconcile any inconsistency in
the Plan or in any agreement relating to an Award in the manner and to the
extent it shall deem expedient to carry it into effect. The determinations of
the Committee on the matters referred to in this Paragraph IV shall be
conclusive.
V. GRANT OF OPTIONS AND RESTRICTED STOCK AWARDS;
SHARES SUBJECT TO THE PLAN
(a) STOCK GRANT AND AWARD LIMITS. The Committee may from time to time grant
Awards to one or more employees determined by it to be eligible for
participation in the Plan in accordance with the provisions of Paragraph VI.
Subject to Paragraph IX, the aggregate number of shares of Common Stock that may
be issued under the Plan shall not exceed 5,000,000 shares. Shares shall be
deemed to have been issued under the Plan only (i) to the extent actually issued
and delivered pursuant to an Award, or (ii) to the extent an Award is settled in
cash. To the extent that an Award lapses or the rights of its Holder terminate,
any shares of Common Stock subject to such Award shall again be available for
the grant of an Award to the extent permitted under Rule 16b-3. Notwithstanding
any provision in the Plan to the contrary, the maximum number of shares of
Common Stock that may be subject to Awards granted to any one individual during
the term of the Plan as provided in Paragraph III hereof may not exceed
5,000,000 (subject to adjustment in the same manner as provided in Paragraph IX
hereof with respect to shares of Common Stock subject to Awards then
outstanding). The limitation set forth in the preceding sentence shall be
applied in a manner which will permit compensation generated in connection with
the exercise of Options and Stock Appreciation Rights to constitute
"performance-based" compensation for purposes of section 162(m) of the Code,
including, without limitation, counting against such maximum number of shares,
to the extent required under section 162(m) of the Code and applicable
interpretive authority thereunder, any shares subject to Options or Stock
Appreciation Rights that are cancelled or repriced.
(b) STOCK OFFERED. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Common Stock or Common Stock previously
issued and outstanding and reacquired by the Company.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
employees. Awards may not be granted to any Director who is not an employee. An
Award may be granted on more than one occasion to the same person, and, subject
to the limitations set forth in the Plan, such Award may include an Incentive
Stock Option, an Option which is not an Incentive Stock Option, a Restricted
Stock Award, or any combination thereof.
VII. STOCK OPTIONS
(a) OPTION PERIOD. The term of each Option shall be as specified by the
Committee at the date of grant.
(b) LIMITATIONS ON EXERCISE OF OPTION. An Option shall be exercisable in
whole or in such installments and at such times as determined by the Committee.
(c) SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS. To the extent that the
aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Common Stock with respect to which Incentive Stock
Options granted after 1986 are exercisable for the first time by an individual
during any calendar year under all incentive stock option plans of the Company
and its parent and subsidiary corporations exceeds $100,000, such Incentive
Stock Options shall be treated as
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options which do not constitute Incentive Stock Options. The Committee shall
determine, in accordance with applicable provisions of the Code, Treasury
Regulations and other administrative pronouncements, which of a Holder's
Incentive Stock Options will not constitute Incentive Stock Options because of
such limitation and shall notify the Holder of such determination as soon as
practicable after such determination. No Incentive Stock Option shall be granted
to an individual if, at the time the Option is granted, such individual owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or of its parent or subsidiary corporation, within the
meaning of section 422(b)(6) of the Code, unless (i) at the time such Option is
granted the option price is at least 110% of the Fair Market Value of the Common
Stock subject to the Option and (ii) such Option by its terms is not exercisable
after the expiration of five years from the date of grant.
(d) OPTION AGREEMENT. Each Option shall be evidenced by an Option Agreement
in such form and containing such provisions not inconsistent with the provisions
of the Plan as the Committee from time to time shall approve, including, without
limitation, provisions to qualify an Incentive Stock Option under section 422 of
the Code. Each Option Agreement shall provide that the Option may not be
exercised, subject to Paragraph IX, earlier than six months from the date of
grant and shall specify the effect of termination of employment on the
exercisability of the Option. An Option Agreement may provide for the payment of
the option price, in whole or in part, by the delivery of a number of shares of
Common Stock (plus cash if necessary) having a Fair Market Value equal to such
option price. Moreover, an Option Agreement may provide for a "cashless
exercise" of the Option by establishing procedures whereby the Holder, by a
properly-executed written notice, directs (i) an immediate market sale or margin
loan respecting all or a part of the shares of Common Stock to which he is
entitled upon exercise pursuant to an extension of credit by the Company to the
Holder of the option price, (ii) the delivery of the shares of Common Stock from
the Company directly to a brokerage firm, and (iii) the delivery of the option
price from sale or margin loan proceeds from the brokerage firm directly to the
Company. In addition, an Option Agreement may authorize the Committee, in its
discretion and on such terms and conditions as the Committee in its sole
discretion may prescribe, to direct the Company to loan to the Holder the funds
necessary to pay all or any portion of the option price and related tax
withholding obligations owned by the Holder to the Company upon exercise of the
Option; provided, however, that (i) the Holder shall have personal liability to
make the payments required under such loan and (ii) such loan shall be
structured so that it will not constitute a "below-market loan" within the
meaning of section 7872 of the Code. Further, an Option Agreement may provide
for the surrender of the right to purchase shares under the Option in return for
a payment in cash or shares of Common Stock or a combination of cash and shares
of Common Stock equal in value to the excess of the Fair Market Value of the
shares with respect to which the right to purchase is surrendered over the
option price therefor ("Stock Appreciation Rights"), on such terms and
conditions as the Committee in its sole discretion may prescribe; provided, that
with respect to Stock Appreciation Rights granted to employees who are subject
to Section 16 of the 1934 Act, except as provided in Subparagraph IX(c) hereof,
the Committee shall retain final authority (i) to determine whether a Holder
shall be permitted, or (ii) to approve an election by a Holder, to receive cash
in full or partial settlement of Stock Appreciation Rights. In the case of any
such Stock Appreciation Right that is granted in connection with an Incentive
Stock Option, such right shall be exercisable only when the Fair Market Value of
the Common Stock exceeds the price specified therefor in the Option or the
portion thereof to be surrendered. The terms and conditions of the respective
Option Agreements need not be identical.
(e) OPTION PRICE AND PAYMENT. The price at which a share of Common Stock
may be purchased upon exercise of an Option shall be determined by the Committee
but, subject to adjustment as provided in Paragraph IX, (i) in the case of an
Incentive Stock Option, such purchase price shall not be less than the Fair
Market Value of a share of Common Stock on the date such Option is granted and
(ii) in the case of an Option that does not constitute an Incentive Stock
Option, such purchase price shall not be less than 50% of the Fair Market Value
of a share of Common Stock on the date such Option is granted. The Option or
portion thereof may be exercised by delivery of an irrevocable notice of
exercise to the Company. The purchase price of the Option or portion thereof
shall be paid in full in
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the manner prescribed by the Committee. Separate stock certificates shall be
issued by the Company for those shares acquired pursuant to the exercise of an
Incentive Stock Option and for those shares acquired pursuant to the exercise of
any Option which does not constitute an Incentive Stock Option.
(f) SHAREHOLDER RIGHTS AND PRIVILEGES. The Holder shall be entitled to all
the privileges and rights of a shareholder only with respect to such shares of
Common Stock as have been purchased under the Option and for which certificates
of stock have been registered in the Holder's name.
(g) OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
CORPORATIONS. Options and Stock Appreciation Rights may be granted under the
Plan from time to time in substitution for stock options held by individuals
employed by corporations who become employees as a result of a merger or
consolidation of the employing corporation with the Company or any subsidiary,
or the acquisition by the Company or a subsidiary of the assets of the employing
corporation, or the acquisition by the Company or a subsidiary of stock of the
employing corporation with the result that such employing corporation becomes a
subsidiary.
VIII. RESTRICTED STOCK AWARDS
(a) FORFEITURE RESTRICTIONS TO BE ESTABLISHED BY THE COMMITTEE. Shares of
Common Stock that are the subject of a Restricted Stock Award shall be subject
to restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances (the
"Forfeiture Restrictions"). The Forfeiture Restrictions shall be determined by
the Committee in its sole discretion, and the Committee may provide that the
Forfeiture Restrictions shall lapse upon (i) the attainment of targets
established by the Committee that are based on (1) the price of a share of
Common Stock, (2) the Company's earnings per share, (3) the Company's market
share, (4) the market share of a business unit of the Company designated by the
Committee, (5) the Company's sales, (6) the sales of a business unit of the
Company designated by the Committee, or (7) the return on stockholders' equity
achieved by the Company, (ii) the Holder's continued employment with the Company
for a specified period of time, or (iii) a combination of any two or more of the
factors listed in clauses (i) and (ii) of this sentence. Each Restricted Stock
Award may have different Forfeiture Restrictions, in the discretion of the
Committee. The Forfeiture Restrictions applicable to a particular Restricted
Stock Award shall not be changed except as permitted by Paragraph VIII(b) or
Paragraph IX.
(b) OTHER TERMS AND CONDITIONS. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Holder of such Restricted Stock Award. The Holder shall have the
right to receive dividends with respect to Common Stock subject to a Restricted
Stock Award, to vote Common Stock subject thereto and to enjoy all other
shareholder rights, except that (i) the Holder shall not be entitled to delivery
of the stock certificate until the Forfeiture Restrictions have expired, (ii)
the Company shall retain custody of the stock until the Forfeiture Restrictions
have expired, (iii) the Holder may not sell, transfer, pledge, exchange,
hypothecate or otherwise dispose of the stock until the Forfeiture Restrictions
have expired, and (iv) a breach of the terms and conditions established by the
Committee pursuant to the Restricted Stock Agreement, shall cause a forfeiture
of the Restricted Stock Award. At the time of such Award, the Committee may, in
its sole discretion, prescribe additional terms, conditions or restrictions
relating to Restricted Stock Awards, including, but not limited to, rules
pertaining to the termination of employment (by retirement, disability, death or
otherwise) of a Holder prior to expiration of the Forfeitures Restrictions. Such
additional terms, conditions or restrictions shall be set forth in a Restricted
Stock Agreement made in conjunction with the Award.
(c) PAYMENT FOR RESTRICTED STOCK. The Committee shall determine the amount
and form of any payment for Common Stock received pursuant to a Restricted Stock
Award, provided that in the absence of such a determination, a Holder shall not
be required to make any payment for Common Stock received pursuant to a
Restricted Stock Award, except to the extent otherwise required by law.
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(d) AGREEMENTS. At the time any Award is made under this Paragraph VIII,
the Company and the Holder shall enter into a Restricted Stock Agreement setting
forth each of the matters contemplated hereby and such other matters as the
Committee may determine to be appropriate. The terms and provisions of the
respective Restricted Stock Agreements need not be identical.
IX. RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting Common Stock or the rights thereof, the dissolution or liquidation of
the Company or any sale, lease, exchange or other disposition of all or any part
of its assets or business or any other corporate act or proceeding.
(b) The shares with respect to which Options may be granted are shares of
Common Stock as presently constituted, but if, and whenever, prior to the
expiration of an Option theretofore granted, the Company shall effect a
subdivision or consolidation of shares of Common Stock or the payment of a stock
dividend on Common Stock without receipt of consideration by the Company, the
number of shares of Common Stock with respect to which such Option may
thereafter be exercised (i) in the event of an increase in the number of
outstanding shares shall be proportionately increased, and the purchase price
per share shall be proportionately reduced, and (ii) in the event of a reduction
in the number of outstanding shares shall be proportionately reduced, and the
purchase price per share shall be proportionately increased.
(c) If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"), the number and
class of shares of Common Stock covered by an Option theretofore granted shall
be adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the Holder would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the Holder had been the holder of record of the number of
shares of Common Stock then covered by such Option. If (i) the Company shall not
be the surviving entity in any merger or consolidation (or survives only as a
subsidiary of an entity other than a previously wholly owned subsidiary of the
Company), (ii) the Company sells, leases or exchanges or agrees to sell, lease
or exchange all or substantially all of its assets to any other person or entity
(other than a wholly-owned subsidiary of the Company), (iii) the Company is to
be dissolved and liquidated, (iv) any person or entity, including a "group" as
contemplated by Section 13(d)(3) of the 1934 Act, acquires or gains ownership or
control (including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power), or
(v) as a result of or in connection with a contested election of directors, the
persons who were directors of the Company before such election shall cease to
constitute a majority of the Board (each such event is referred to herein as a
"Corporate Change"), no later than (x) ten days after the approval by the
shareholders of the Company of such merger, consolidation, reorganization, sale,
lease or exchange of assets or dissolution or such election of directors or (y)
thirty days after a Corporate Change of the type described in clause (iv), the
Committee, acting in its sole discretion without the consent or approval of any
Holder, shall effect one or more of the following alternatives, which may vary
among individual Holders and which may vary among Options held by any individual
Holder: (1) accelerate the time at which Options then outstanding may be
exercised so that such Options may be exercised in full for a limited period of
time on or before a specified date (before or after such Corporate Change) fixed
by the Committee, after which specified date all unexercised Options and all
rights of Holders thereunder shall terminate, (2) require the mandatory
surrender to the Company by selected Holders of some or all of the outstanding
Options held by such Holders (irrespective of whether such Options are then
exercisable under the provisions of the Plan) as of a date, before or after such
Corporate Change, specified by the Committee, in which event the Committee shall
thereupon cancel such Options and pay to each Holder an amount of cash per share
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equal to the excess, if any, of the amount calculated in Subparagraph (d) below
(the "Change of Control Value") of the shares subject to such Option over the
exercise price(s) under such Options for such shares, (3) make such adjustments
to Options then outstanding as the Committee deems appropriate to reflect such
Corporate Change (provided, however, that the Committee may determine in its
sole discretion that no adjustment is necessary to Options then outstanding) or
(4) provide that the number and class of shares of Common Stock covered by an
Option theretofore granted shall be adjusted so that such Option shall
thereafter cover the number and class of shares of stock or other securities or
property (including, without limitation, cash) to which the Holder would have
been entitled pursuant to the terms of the agreement of merger, consolidation or
sale of assets and dissolution if, immediately prior to such merger,
consolidation or sale of assets and dissolution, the Holder had been the holder
of record of the number of shares of Common Stock then covered by such Option.
(d) For the purposes of clause (2) in Subparagraph (c) above, the "Change of
Control Value" shall equal the amount determined in clause (i), (ii) or (iii),
whichever is applicable, as follows: (i) the per share price offered to
shareholders of the Company in any such merger, consolidation, sale of assets or
dissolution transaction, (ii) the price per share offered to shareholders of the
Company in any tender offer or exchange offer whereby a Corporate Change takes
place, or (iii) if such Corporate Change occurs other than pursuant to a tender
or exchange offer, the fair market value per share of the shares into which such
Options being surrendered are exercisable, as determined by the Committee as of
the date determined by the Committee to be the date of cancellation and
surrender of such Options. In the event that the consideration offered to
shareholders of the Company in any transaction described in this Subparagraph
(d) or Subparagraph (c) above consists of anything other than cash, the
Committee shall determine the fair cash equivalent of the portion of the
consideration offered which is other than cash.
(e) In the event of changes in the outstanding Common Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph IX,
any outstanding Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee at its discretion as to the number and
price of shares of Common Stock or other consideration subject to such Awards.
In the event of any such change in the outstanding Common Stock, the aggregate
number of shares available under the Plan may be appropriately adjusted by the
Committee, whose determination shall be conclusive.
(f) Any adjustment provided for in the above Subparagraphs shall be subject
to any required shareholder action.
(g) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Common Stock subject to Awards theretofore granted or the purchase
price per share, if applicable.
(h) Plan provisions to the contrary notwithstanding, with respect to any
Restricted Stock Awards outstanding at the time a Corporate Change as described
in Subparagraph (c) above occurs, the Committee may, in its discretion and as of
a date determined by the Committee, fully vest any or all Common Stock awarded
to the Holder pursuant to such Restricted Stock Award and then outstanding and,
upon such vesting, all restrictions applicable to such Restricted Stock Award
shall terminate as of such date. Any action by the Committee pursuant to this
Subparagraph may vary among individual Holders and may vary among the Restricted
Stock Awards held by any individual Holder.
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X. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares of Common Stock for which Awards have not theretofore been
granted. The Board shall have the right to alter or amend the Plan or any part
thereof from time to time; provided that no change in any Award theretofore
granted may be made which would impair the rights of the Holder without the
consent of the Holder, and provided, further, that the Board may not, without
approval of the shareholders, amend the Plan:
(a) to increase the maximum number of shares of Common Stock which may be
issued on exercise or surrender of Options or pursuant to Restricted Stock
Awards, except as provided in Paragraph IX;
(b) to change the minimum Option price;
(c) to change the class of employees eligible to receive Awards or
materially increase the benefits accruing to employees under the Plan;
(d) to extend the maximum period during which Awards may be granted under
the Plan;
(e) to modify materially the requirements as to eligibility for
participation in the Plan; or
(f) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b-3.
XI. MISCELLANEOUS
(a) NO RIGHT TO AN AWARD. Neither the adoption of the Plan nor any action
of the Board or of the Committee shall be deemed to give an employee any right
to be granted an Option, a right to a Restricted Stock Award, or any other
rights hereunder except as may be evidenced by an Option Agreement or a
Restricted Stock Agreement duly executed on behalf of the Company, and then only
to the extent and on the terms and conditions expressly set forth therein. The
Plan shall be unfunded. The Company shall not be required to establish any
special or separate fund or to make any other segregation of funds or assets to
assure the payment of any Award.
(b) NO EMPLOYMENT RIGHTS CONFERRED. Nothing contained in the Plan shall (i)
confer upon any employee any right with respect to continuation of employment
with the Company or any subsidiary or (ii) interfere in any way with the right
of the Company or any subsidiary to terminate his or her employment at any time.
(c) OTHER LAWS; WITHHOLDING. The Company shall not be obligated to issue
any Common Stock pursuant to any Award granted under the Plan at any time when
the shares covered by such Award have not been registered under the Securities
Act of 1933 and such other state and federal laws, rules or regulations as the
Company or the Committee deems applicable and, in the opinion of legal counsel
for the Company, there is no exemption from the registration requirements of
such laws, rules or regulations available for the issuance and sale of such
shares. No fractional shares of Common Stock shall be delivered, nor shall any
cash in lieu of fractional shares be paid. The Company shall have the right to
deduct in connection with all Awards any taxes required by law to be withheld
and to require any payments required to enable it to satisfy its withholding
obligations.
(d) NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan shall
be construed to prevent the Company or any subsidiary from taking any corporate
action which is deemed by the Company or such subsidiary to be appropriate or in
its best interest, whether or not such action would have an adverse effect on
the Plan or any Award made under the Plan. No employee, beneficiary or other
person shall have any claim against the Company or any subsidiary as a result of
any such action.
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(e) RESTRICTIONS ON TRANSFER. An Award shall not be transferable otherwise
than by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder. An
Award shall be exercisable during the lifetime of a Holder only by such Holder
or the Holder's guardian or legal representative.
(f) RULE 16B-3. It is intended that the Plan and any grant of an Award made
to a person subject to Section 16 of the 1934 Act meet all of the requirements
of Rule 16b-3. If any provision of the Plan or any such Award would disqualify
the Plan or such Award under, or would otherwise not comply with, Rule 16b-3,
such provision or Award shall be construed or deemed amended to conform to Rule
16b-3.
(g) GOVERNING LAW. THIS PLAN SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE.
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APPENDIX C
AMENDMENT NO. 1
TO
HORIZON HEALTHCARE CORPORATION
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
WHEREAS, HORIZON/CMS HEALTHCARE CORPORATION (the "Company") has heretofore
adopted the HORIZON HEALTHCARE CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS (the "Plan"); and
WHEREAS, the Company desires to amend the Plan in certain respects;
NOW, THEREFORE, the Plan shall be amended as follows:
1. Subject to the provisions of paragraph 2 hereof, Article VII of the Plan
shall be deleted in its entirety and the following shall be substituted
therefor:
"ARTICLE VII
EXERCISE AND TERM OF OPTIONS
Except as otherwise provided below, (a) Options granted under the
Plan shall vest in accordance with the following rules: one-third upon
the first anniversary of the date of grant, one-third upon the second
anniversary of the date of grant, and one-third upon the third
anniversary of the date of grant, and (b) a vested Option shall not be
exercisable (1) unless the person exercising the Option has been, at all
times during the period beginning with the date of grant of the Option
and ending on a date no more than 60 days prior to the date of such
exercise, a Non-Employee Director and (2) unless payment is made in
accordance with Article VIII hereunder. If a Non-Employee Director's
membership on the Board terminates by reason of disability, such
Non-Employee Director's Options may be exercised in full by such
Non-Employee Director (or such Non-Employee Director's estate or the
person who acquires such Options by will or the laws of descent and
distribution or otherwise by reason of the death of such Non-Employee
Director) at any time during the period of one year following such
termination. If a Non-Employee Director dies while a member of the
Board, such Non-Employee Director's estate, or the person who acquires
such Non-Employee Director's Options by will or the laws of descent and
distribution or otherwise by reason of the death of such Non-Employee
Director, may exercise such Options in full at any time during the
period of one year following the date of such Non-Employee Director's
death.
Any other provision of the Plan notwithstanding, no Option shall be
exercised after the date ten years from the date of grant of such
Option."
2. This amendment to the Plan shall be effective with respect to all
options outstanding under the Plan on or after September , 1994, provided that
it is approved by the stockholders of the Company at the 1995 Annual Meeting of
Stockholders.
3. As amended hereby, the Plan is specifically ratified and reaffirmed.
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APPENDIX D
HORIZON/CMS HEALTHCARE CORPORATION
1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
I. PURPOSE OF THE PLAN
The HORIZON/CMS HEALTHCARE CORPORATION 1995 NON-EMPLOYEE DIRECTORS' STOCK
OPTION PLAN (the "Plan") is intended to promote the interests of HORIZON/CMS
HEALTHCARE CORPORATION, a Delaware corporation (the "Company"), and its
stockholders by helping to award and retain highly-qualified independent
directors, and allowing them to develop a sense of proprietorship and personal
involvement in the development and financial success of the Company.
Accordingly, the Company shall grant to directors of the Company who are not
employees of the Company or any of its subsidiaries ("Non-Employee Directors")
the option ("Option") to purchase shares of the common stock of the Company
("Stock"), as hereinafter set forth. Options granted under the Plan shall be
options which do not constitute incentive stock options, within the meaning of
section 422(b) of the Internal Revenue Code of 1986, as amended.
II. OPTION AGREEMENTS
Each Option shall be evidenced by a written agreement in the form attached
to the Plan.
III. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are Non-Employee Directors of
the Company. As of the date of the annual meeting of the stockholders of the
Company in each year that the Plan is in effect as provided in Paragraph VI
hereof, each Non-Employee Director then in office or elected to the Board of
Directors of the Company (the "Board") on such date shall receive, without the
exercise of the discretion of any person or persons, an Option exercisable for
7,000 shares of Stock (subject to adjustment in the same manner as provided in
Paragraph VII hereof with respect to shares of Stock subject to Options then
outstanding). If, as of any date that the Plan is in effect, there are not
sufficient shares of Stock available under the Plan to allow for the grant to
each Non-Employee Director of an Option for the number of shares provided
herein, each Non-Employee Director shall receive an Option for his or her
pro-rata share of the total number of shares of Stock then available under the
Plan. All Options granted under the Plan shall be at the Option price set forth
in Paragraph V hereof and shall be subject to adjustment as provided in
Paragraph VII hereof.
IV. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options granted
under the Plan shall not exceed 700,000 shares of Stock. Such shares may consist
of authorized but unissued shares of Stock or previously issued shares of Stock
reacquired by the Company. Any of such shares which remain unissued and which
are not subject to outstanding Options at the termination of the Plan shall
cease to be subject to the Plan, but, until termination of the Plan, the Company
shall at all times make available a sufficient number of shares to meet the
requirements of the Plan. Should any Option hereunder expire or terminate prior
to its exercise in full, the shares theretofore subject to such Option may again
be subject to an Option granted under the Plan. The aggregate number of shares
which may be issued under the Plan shall be subject to adjustment in the same
manner as provided in Paragraph VII hereof with respect to shares of Stock
subject to Options then outstanding. Exercise of an Option shall result in a
decrease in the number of shares of Stock which may thereafter be available,
both for purposes of the Plan and for sale to any one individual, by the number
of shares as to which the Option is exercised.
D-1
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V. OPTION PRICE
The purchase price of Stock issued under each Option shall be the fair
market value of Stock subject to the Option as of the date the Option is
granted. For all purposes under the Plan, the fair market value of a share of
Stock on a particular date shall be equal to the mean of the high and low sales
prices of the Stock (i) reported by the National Market System of NASDAQ on that
date or (ii) if the Stock is listed on a national stock exchange, reported on
the stock exchange composite tape on that date; or, in either case, if no prices
are reported on that date, on the last preceding date on which such prices of
the Stock are so reported. If the Stock is traded over the counter at the time a
determination of its fair market value is required to be made hereunder, its
fair market value shall be deemed to be equal to the average between the
reported high and low or closing bid and asked prices of Stock on the most
recent date on which Stock was publicly traded. In the event Stock is not
publicly traded at the time a determination of its value is required to be made
hereunder, the determination of its fair market value shall be made by the Board
in such manner as it deems appropriate.
VI. TERM OF PLAN
The Plan shall be effective on the date the Plan is approved by the
stockholders of the Company. Except with respect to Options then outstanding, if
not sooner terminated under the provisions of Paragraph VIII, the Plan shall
terminate upon and no further Options shall be granted after the expiration of
ten years from the date the Plan is approved by the stockholders of the Company.
VII. RECAPITALIZATION OR REORGANIZATION
A. The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
B. The shares with respect to which Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Option may thereafter be exercised (i) in the event
of an increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased.
C. If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"), the number and
class of shares of Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the optionee would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the optionee had been the holder of record of the number of
shares of Stock then covered by such Option.
D. Any adjustment provided for in Subparagraphs (b) or (c) above shall be
subject to any required stockholder action.
E. Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case
D-2
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whether or not for fair value, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of shares of Stock subject to
Options theretofore granted or the purchase price per share.
VIII. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Options have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided, that no change in any Option theretofore granted may be made
which would impair the rights of the optionee without the consent of such
optionee; and provided, further, that the Board may not make any alteration or
amendment which would materially increase the benefits accruing to participants
under the Plan, increase the aggregate number of shares which may be issued
pursuant to the provisions of the Plan, change the class of individuals eligible
to receive Options under the Plan or extend the term of the Plan, without the
approval of the stockholders of the Company.
IX. SECURITIES LAWS
A. The Company shall not be obligated to issue any Stock pursuant to any
Option granted under the Plan at any time when the offering of the shares
covered by such Option have not been registered under the Securities Act of
1933, as amended, and such other state and federal laws, rules or regulations as
the Company deems applicable and, in the opinion of legal counsel for the
Company, there is no exemption from the registration requirements of such laws,
rules or regulations available for the offering and sale of such shares.
B. It is intended that the Plan and any grant of an Option made to a person
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), meet all of the requirements of Rule 16b-3, as currently in effect
or as hereinafter modified or amended ("Rule 16b-3"), promulgated under the 1934
Act. If any provision of the Plan or any such Option would disqualify the Plan
or such Option under, or would otherwise not comply with, Rule 16b-3, such
provision or Option shall be construed or deemed amended to conform to Rule
16b-3.
D-3
<PAGE>
FORM OF
NON-EMPLOYEE DIRECTOR'S STOCK OPTION AGREEMENT
AGREEMENT made as of the day of , 19 , between HORIZON/CMS HEALTHCARE
CORPORATION, a Delaware corporation (the "Company"), and
("Director").
To carry out the purposes of the HORIZON/CMS HEALTHCARE CORPORATION 1995
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN (the "Plan"), a copy of which is
attached hereto as Exhibit A, by affording Director the opportunity to purchase
shares of common stock of the Company ("Stock"), and in consideration of the
mutual agreements and other matters set forth herein and in the Plan, the
Company and Director hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to Director the
right and option ("Option") to purchase all or any part of an aggregate of
shares of Stock, on the terms and conditions set forth herein and in the
Plan, which Plan is incorporated herein by reference as a part of this
Agreement. This Option shall not be treated as an incentive stock option within
the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code").
2. PURCHASE PRICE. The purchase price of Stock purchased pursuant to the
exercise of this Option shall be $ per share, which has been determined to be
not less than the fair market value of the Stock at the date of grant of this
Option. For all purposes of this Agreement, fair market value of Stock shall be
determined in accordance with the provisions of the Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this Option as
herein provided, this Option may be exercised, by written notice to the Company
at its principal executive office addressed to the attention of its Chief
Executive Officer, at any time and from time to time after the date of grant
hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a percentage of the aggregate number of shares offered
by this Option determined by the number of full years from the date of grant
hereof to the date of such exercise, in accordance with the following schedule:
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES
THAT MAY
BE
NUMBER OF FULL YEARS PURCHASED
---------------------------------------- --------
<S> <C>
Less than 1 year 0 %
1 year but less than 2 years 33 1/3%
2 years but less than 3 years 66 2/3%
3 years or more 100 %
</TABLE>
Notwithstanding the foregoing, if (i) the Company shall not be the surviving
entity in any merger, consolidation or other reorganization (or survives only as
a subsidiary of an entity other than a previously wholly-owned subsidiary of the
Company), (ii) the Company sells, leases or exchanges or agrees to sell, lease
or exchange all or substantially all of its assets to any other person or entity
(other than a wholly-owned subsidiary of the Company), (iii) the Company is to
be dissolved and liquidated, (iv) any person or entity, including a "group" as
contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934,
acquires or gains ownership or control (including, without limitation, power to
vote) of more than 50% of the outstanding shares of the Company's voting stock
(based upon voting power), or (v) as a result of or in connection with a
contested election of directors, the persons who were directors of the Company
before such election shall cease to constitute a majority of the Board of
Directors of the Company (each such event is referred to herein as a "Corporate
Change"), then effective as of the earlier of (1) the date of approval by the
stockholders of the Company of such merger, consolidation, reorganization, sale,
lease or exchange of assets or dissolution or such election of directors or (2)
the date of such Corporate Change, this Option shall be exercisable in full.
This Option and all rights granted hereunder are not transferable by
Director other than by will or the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined by the Code or Title 1 of the
Employee Retirement Income Security Act of 1974, as amended, or the
D-4
<PAGE>
rules thereunder, and may be exercised during Director's lifetime only by
Director or Director's guardian or legal representative. This Option may be
exercised only while Director remains a member of the Board of Directors of the
Company (the "Board") and will terminate and cease to be exercisable upon
Director's termination of membership on the Board, except that:
(a) If Director's membership on the Board terminates by reason of
disability, this Option may be exercised in full by Director (or Director's
estate or the person who acquires this Option by will or the laws of descent
and distribution or otherwise by reason of the death of Director) at any
time during the period of one year following such termination.
(b) If Director dies while a member of the Board, Director's estate, or
the person who acquires this Option by will or the laws of descent and
distribution or otherwise by reason of the death of Director, may exercise
this Option in full at any time during the period of one year following the
date of Director's death.
(c) If Director's membership on the Board terminates for any reason
other than as described in (a) or (b) above, this Option may be exercised by
Director at any time during the period of three months following such
termination, or by Director's estate (or the person who acquires this Option
by will or the laws of descent and distribution or otherwise by reason of
the death of Director) during a period of one year following Director's
death if Director dies during such three-month period, but in each case only
as to the number of shares Director was entitled to purchase hereunder upon
exercise of this Option as of the date Director's membership on the Board so
terminates.
This Option shall not be exercisable in any event after the expiration of ten
years from the date of grant hereof. The purchase price of shares as to which
this Option is exercised shall be paid in full at the time of exercise (A) in
cash (including check, bank draft or money order payable to the order of the
Company), (B) by delivering to the Company shares of Stock having a fair market
value equal to the purchase price, or (C) any combination of cash or Stock. No
fraction of a share of Stock shall be issued by the Company upon exercise of an
Option or accepted by the Company in payment of the purchase price thereof;
rather, Director shall provide a cash payment for such amount as is necessary to
effect the issuance and acceptance of only whole shares of Stock. Unless and
until a certificate or certificates representing such shares shall have been
issued by the Company to Director, Director (or the person permitted to exercise
this Option in the event of Director's death) shall not be or have any of the
rights or privileges of a stockholder of the Company with respect to shares
acquirable upon an exercise of this Option.
4. WITHHOLDING OF TAX. To the extent that the exercise of this Option or
the disposition of shares of Stock acquired by exercise of this Option results
in compensation income to Director for federal or state income tax purposes,
Director shall deliver to the Company at the time of such exercise or
disposition such amount of money or shares of Stock as the Company may require
to meet its obligation under applicable tax laws or regulations, and, if
Director fails to do so, the Company is authorized to withhold from any cash or
Stock remuneration then or thereafter payable to Director any tax required to be
withheld by reason of such resulting compensation income. Upon an exercise of
this Option, the Company is further authorized in its discretion to satisfy any
such withholding requirement out of any cash or shares of Stock distributable to
Director upon such exercise.
5. STATUS OF STOCK. The Company intends to register for issuance under the
Securities Act of 1933, as amended (the "Act"), the shares of Stock acquirable
upon exercise of this Option, and to keep such registration effective throughout
the period this Option is exercisable. In the absence of such effective
registration or an available exemption from registration under the Act, issuance
of shares of Stock acquirable upon exercise of this Option will be delayed until
registration of such shares is effective or an exemption from registration under
the Act is available. The Company intends to use its best efforts to ensure that
no such delay will occur. In the event exemption from registration under the Act
is available upon an exercise of this Option, Director (or the person permitted
to exercise this
D-5
<PAGE>
Option in the event of Director's death or incapacity), if requested by the
Company to do so, will execute and deliver to the Company in writing an
agreement containing such provisions as the Company may require to assure
compliance with applicable securities laws.
Director agrees that the shares of Stock which Director may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable federal or state securities
laws. Director also agrees (i) that the certificates representing the shares of
Stock purchased under this Option may bear such legend or legends as the Company
deems appropriate in order to assure compliance with applicable securities laws,
(ii) that the Company may refuse to register the transfer of the shares of Stock
purchased under this Option on the stock transfer records of the Company if such
proposed transfer would in the opinion of counsel satisfactory to the Company
constitute a violation of any applicable securities law and (iii) that the
Company may give related instructions to its transfer agent, if any, to stop
registration of the transfer of the shares of Stock purchased under this Option.
6. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of any successors to the Company and all persons lawfully claiming under
Director.
7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE.
D-6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Director has executed
this Agreement, all as of the day and year first above written.
HORIZON/CMS HEALTHCARE CORPORATION
By:
--------------------------------------
--------------------------------------
Director
D-7
<PAGE>
PROXY
HORIZON/CMS HEALTHCARE CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Horizon/CMS Healthcare Corporation, a
Delaware corporation (the "Company"), hereby appoints Neal M. Elliott and
Klemett L. Belt, Jr., or either one of them, attorneys, agents and proxies of
the undersigned, with full power of substitution to each of them, to vote all
the shares of Common Stock, par value $0.001 per share, of the Company which
are entitled to one vote per share and which the undersigned may be entitled
to vote at the Annual Meeting of Stockholders of the Company to be held at
the Albuquerque Marriott Hotel, 2102 Louisiana, N.E., Albuquerque, New Mexico
87110, on Wednesday, September 27, 1995, at 1:30 p.m. (Albuquerque time), and
at any adjournment(s) or postponement(s) of such meeting, with all powers
which the undersigned would possess if personally present:
1. To approve the amendment to the Company's Restated Certificate of
Incorporation to delete the restriction on committees of the Board of
Directors approving the issuance of capital stock of the Company;
2. To elect four Class 2 Directors to serve until the 1998 Annual Meeting
of Stockholders, two Class 3 Directors to serve until the 1996 Annual
Meeting of Stockholders and one Class 1 Director to serve until the 1997
Annual Meeting of Stockholders;
3. To approve the amendment to the Horizon Healthcare Corporation Employee
Stock Option Plan to provide for immediate vesting of outstanding options
upon death;
4. To approve the Horizon/CMS Healthcare Corporation 1995 Stock Incentive Plan;
5. To approve the amendment to the Horizon Healthcare Corporation Stock Option
Plan for Non-Employee Directors to provide for immediate vesting of
outstanding options upon the occurrence of certain events;
6. To approve the Horizon/CMS Healthcare Corporation 1995 Non-Employee
Directors' Stock Option Plan;
7. To ratify the appointment of Arthur Andersen LLP as independent auditors
for the Company for the fiscal year ending May 31,1996; and
8. To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) or postponement(s) thereof.
IF NO DIRECTIONS ARE GIVEN, THE INDIVIDUALS DESIGNATED ABOVE WILL VOTE
FOR EACH THE ABOVE PROPOSALS AND, AT THEIR DISCRETION, ON ANY OTHER MATTER THAT
MAY COME BEFORE THE MEETING.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement of the Company.
(CONTINUED AND TO BE VOTED, DATED AND SIGNED ON REVERSE SIDE)
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FOLD AND DETACH HERE
<PAGE>
The Board of Directors recommends a I plan to attend
Vote "FOR" the following Proposals: the meeting.
No. 1. To approve the amendment to the Company's Restated
Certificate of Incorporation to delete the restriction
on committees of the Board of Directors approving
the issuance of capital stock of the Company.
FOR AGAINST ABSTAIN
/ / / / / /
No. 2. To elect four Class 2 Directors to serve until
the 1998 Annual Meeting of Stockholders, two Class 3
Directors to serve until the 1996 Annual Meeting of
Stockholders and one Class 1 Director to serve until
the 1997 Annual Meeting of Stockholders.
FOR WITHHELD
/ / / /
(To withhold authority to vote for all nominees check the
block marked "Withheld". To withhold authority to vote for
any individual nominee write that nominee's name on the
space provided below.) The nominees are: Neal M. Elliot,
Michael A. Jeffries, Gerard M. Martin, Raymond N. Noveck,
Russell L. Carson, Bryan C. Cressey and Frank M. McCord.
------------------------------------
WITHHELD
No. 3. To approve the amendment to the Horizon Healthcare Corporation Employee
Stock Option Plan to provide for immediate vesting of outstanding options
upon death.
No. 4. To approve the Horizon/CMS Healthcare Corporation 1995 Stock
Incentive Plan.
FOR AGAINST ABSTAIN
/ / / / / /
No. 5. To approve the amendment to the Horizon Healthcare Corporation Stock
Option Plan for Non-Employee Directors to provide for immediate vesting
of outstanding options upon the occurrence of certain events.
FOR AGAINST ABSTAIN
/ / / / / /
No. 6. To approve the Horizon/CMS Healthcare Corporation 1995
Non-Employee Directors; Stock Option Plan.
FOR AGAINST ABSTAIN
/ / / / / /
No. 7. To ratify the appointment of Arthur Andersen LLP as
independent auditors for the Company for the fiscal year
ending May 31, 1996.
FOR AGAINST ABSTAIN
/ / / / / /
No. 8. In the discretion of the proxies named herein, the proxies are
authorized to vote upon such other matters as may properly come before
the Annual Meeting or any adjournment(s) or postponement(s)
thereof.
Please complete, date and sign this proxy
and return it promptly in the enclosed
envelope whether or not you plan to attend
the meeting. No postage is required.
(Signature(s) should agree with names on
Stock Certificates as shown herein.
Attorneys, executors, administrators,
trustees, guardians or custodians should
give full title as such.)
Dated: ___________________________,1995
_______________________________________
_______________________________________
Signature of Stockholder(s)
IF YOU PLAN TO ATTEND THE ANNUAL THIS PROXY IS SOLICITED ON BEHALF
MEETING OF STOCKHOLDERS, PLEASE OF THE BOARD OF DIRECTORS
MARK THE APPROPRIATE BOX IN THE
SPECIAL NOTES SECTION OF THE
PROXY CARD ABOVE.
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FOLD AND DETACH HERE
