<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):
/ / $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>
HORIZON/CMS HEALTHCARE CORPORATION
6001 INDIAN SCHOOL ROAD, N.E., SUITE 530
ALBUQUERQUE, NEW MEXICO 87110
(505) 881-4961
August 15, 1996
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 Tuesday, September 10, 1996. 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, we will discuss the matters described in the attached Notice
of Annual Meeting of Stockholders and Proxy Statement and we will provide an
update on current Company activities. 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 10.
Sincerely,
/s/ Neal M. Elliott
Neal M. Elliott
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
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 TUESDAY, SEPTEMBER 10, 1996
To the Stockholders:
Notice is hereby given that the 1996 Annual Meeting of Stockholders (the
"Annual Meeting") of Horizon/CMS Healthcare Corporation ("Horizon" or the
"Company") will be held on Tuesday, September 10, 1996, 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 amend the Restated Certificate of Incorporation to (i) change the
vote required to fill newly created directorships and vacancies on the
Board of Directors, (ii) change the vote required to appoint and remove
officers of the Company, and (iii) change the vote required to designate
committees of the Board, remove committee members and fill vacancies on
any committee of the Board;
2. To elect three Class 3 Directors to serve until the 1999 Annual Meeting
of Stockholders;
3. To approve the Horizon/CMS Healthcare Corporation 1996 Employee Stock
Purchase Plan;
4. To ratify the appointment of Arthur Andersen LLP as independent auditors
for the Company for the fiscal year ending May 31, 1997; and
5. 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
12, 1996, 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. ENCLOSED FOR THAT PURPOSE IS AN ADDRESSED RETURN ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors,
/s/ Scot Sauder
Scot Sauder
SECRETARY
Albuquerque, New Mexico
August 15, 1996
<PAGE>
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 1996 Annual Meeting of Stockholders
(the "Annual Meeting") to be held on Tuesday, September 10, 1996, 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, 1996, 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 15, 1996, a copy of this Proxy
Statement and a form of Proxy will first be mailed to stockholders of record as
of August 12, 1996.
RECORD DATE; SHARES ENTITLED TO VOTE
The Board of Directors has fixed the close of business on August 12, 1996 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 12, 1996, 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 $10,000, 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 amendments to the Restated Certificate of Incorporation, "FOR" the election
of the nominees to the Board, "FOR" the adoption of the Horizon/CMS Healthcare
Corporation 1996 Employee Stock Purchase 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 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
<PAGE>
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 AMENDMENTS TO THE RESTATED CERTIFICATE OF
INCORPORATION CHANGING (I) THE VOTE REQUIRED TO FILL NEWLY CREATED
DIRECTORSHIPS AND BOARD VACANCIES, (II) THE VOTE REQUIRED TO APPOINT AND
REMOVE OFFICERS OF THE COMPANY, AND (III) THE VOTE REQUIRED TO DESIGNATE
COMMITTEES OF THE BOARD, REMOVE COMMITTEE MEMBERS AND FILL ANY VACANCIES
ON COMMITTEES OF THE BOARD
The Board of Directors has adopted amendments to the Restated Certificate of
Incorporation of the Company, as amended (the "Restated Certificate of
Incorporation"), to (i) change the vote required to fill newly created
directorships and vacancies on the Board of Directors, (ii) change the vote
required to appoint and remove officers of the Company, and (iii) change the
vote required to designate committees of the Board, remove committee members and
fill vacancies on any committee of the Board (the "Charter Amendments") and has
recommended that the stockholders of the Company approve such Charter
Amendments. To this end, the Board of Directors has adopted and recommends that
the stockholders approve the following resolutions:
RESOLVED, that Section 3(A) of Article VI of the Restated Certificate of
Incorporation of the Company is hereby amended in its entirety to read as
follows:
"3. (A) Newly created directorships resulting from any
increase in the authorized number of directors and any vacancies
in the Board of Directors resulting from the death, resignation,
retirement, disqualification or other removal of a director from
office may be filled by the affirmative vote of a majority of the
directors then in office, although less that a quorum. Each
director so chosen shall be designated as either a Class 1, Class
2, or Class 3 director and the term of office of such director
shall expire at the next annual meeting of stockholders at which
the term of the class to which such director has been elected
expires."
RESOLVED, that Section 3 of the Article VII of the Restated Certificate
of Incorporation of the Company is hereby amended in its entirety to read as
follows:
"3. The directors shall by a vote of a majority of the
directors then in office at any regular or special meeting of the
Board of Directors called for that purpose, appoint such officers
as the directors from time to time deem appropriate. The duties of
the officers of the corporation shall be the duties usually
pertaining to such offices, as well as the duties prescribed from
time to time by the Board of Directors, by a vote of a majority of
the directors then in office at any regular or special meeting of
the Board of Directors called for that purpose. The Board of
Directors may remove any officer, at any time, with or without
cause, only by a vote of a majority of the directors then in
office at any regular or special meeting of the Board of Directors
called for that purpose."
RESOLVED, that Section 4 of Article VII of the Restated Certificate of
Incorporation of the Company is hereby amended in its entirety to read as
follows:
"4. The Board of Directors may, by resolution passed by a
majority of the directors then in office, 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
2
<PAGE>
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. The Board of Directors may by the affirmative vote of a
majority of the directors then in office, fill any vacancies on
any committee or remove any member thereof, either with or without
cause, at any time."
As currently in effect, (i) Section 3(A) of Article VI of the Restated
Certificate of Incorporation requires the approval of 80% of the directors then
in office to fill newly created directorships and any vacancies, (ii) Section 3
of Article VII of the Restated Certificate of Incorporation requires the
approval of 80% of the directors then in office to appoint and remove officers,
and (iii) Section 4 of Article VII of the Restated Certificate of Incorporation
requires the approval of 80% of the directors then in office to designate a
committee of the Board, remove committee members and fill vacancies of
committees.
In each case where the current provisions described above require the vote
of a number of directors equal to a percentage of the then authorized number of
directors, the Charter Amendments would change such requirements to a number of
directors equal to a majority of the directors then in office. The Charter
Amendments would also reduce the vote required to fill newly created
directorships and vacancies from 80% of the directors then in office to a
majority of the directors then in office.
The existing super-majority voting requirements are uncommon and exceed the
requirements of the Delaware General Corporation Law. Under the current
provisions, if several directors resign or retire unexpectedly or die, the Board
may be precluded from electing new officers, designating committees, appointing
additional directors to serve on committees or filling any committee vacancies.
The Charter Amendments will prevent such a situation from occurring and help to
ensure that the Board will be able, if a majority of its members so desire, to
expediently carry out its basic management functions without procedural delay or
interruption. The Board of Directors also believes that the Charter Amendments
will give the Board greater flexibility and allow it to more effectively and
efficiently address corporate governance issues.
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 Amendments.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE CHARTER AMENDMENTS.
PROPOSAL 2 -- ELECTION OF DIRECTORS
Three Class 3 Directors 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, 1998 and 1996, respectively. Each class
is required to be as nearly equal in number of directors as possible.
Charles K. Bradford, Ronald N. Riner, M.D., and Ernest A. Schofield have
been nominated for election to serve in Class 3 and, if elected, will serve
until the Company's 1999 Annual Meeting of Stockholders and until their
respective successors have been elected and qualified. Messrs. Bradford, Riner
and Schofield each currently serves as a Class 3 director of the Company.
The remaining six directors named below will not be required to stand for
election at the Annual Meeting because their present terms expire in 1997 or
1998.
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
3
<PAGE>
the election assuming a quorum is present or represented by Proxy at the Annual
Meeting. Stockholders may not cumulate their votes in the election of directors.
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 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 3 NOMINEES
Charles K. Bradford........... Vice President and Regional Manager for 62 July 1996
Cain Bros. in Chicago, Illinois; Director
of the Company
Ronald N. Riner, M.D. ........ President, The Riner Group, Inc., in St. Louis, Missouri; 47 July 1996
Director of the Company
Ernest A. Schofield........... Senior Vice President, Treasurer and Chief Financial 38 July 1996
Officer; Director of the Company
CLASS 1 DIRECTORS
Charles H. Gonzales........... Senior Vice President of Subsidiary Operations 40 1992
of the Company; Director of the Company
Frank M. McCord............... Chairman and Chief Executive Officer, 64 1986
Cascade Savings Bank in Everett,
Washington; Director of the Company
Maria Pappas.................. Cook County Commissioner in Chicago, Illinois; 48 July 1996
Director of the Company
CLASS 2 DIRECTORS
Neal M. Elliott............... President, Chief Executive Officer and Chairman 56 1986
of the Board of Directors of the Company
Michael A. Jeffries........... Senior Vice President -- Operations and 46 1992
Director of the Company
Raymond N. Noveck............. President, Strategic Systems, Inc. in Boston, 53 1987
Massachusetts; Director of the Company
</TABLE>
CHARLES K. BRADFORD, a certified public accountant, has served since 1993 as
the Vice President and Regional Manager for Cain Brothers, a private investment
banking and financial advisory firm that serves the health care industry. He
became a Director of the Company in July 1996. Prior to joining Cain Brothers,
he served as National, and then, International Director of the health care
practice of Arthur Andersen LLP. Mr. Bradford is a member of several health care
associations and has served on the Health Care Committee of the American
Institute of Certified Public Accountants, the American Hospital Association
Council on Finance and the Hospital Financial Management Association Principles
and Practices Board. Mr. Bradford is the co-author of a book published by the
American Hospital Association entitled MONITORING THE HOSPITAL'S FINANCIAL
HEALTH.
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
4
<PAGE>
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 including
health care related real estate as to which the Company is a lessee or a
borrower. Mr. Elliott is also a Trustee of the Baron Asset Fund.
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. In July 1995, after completion of the
Company's merger transaction with Continental Medical Systems, Inc. ("CMS"), he
became the Chief Executive Officer of the Company's Contract Therapy Division.
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.
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.
MARIA PAPPAS, a Ph.D. in Counseling and Psychology and an attorney, serves
as a Cook County Commissioner in the State of Illinois. Ms. Pappas is currently
the chair of the Law Enforcement Committee of the Cook County Commissioners. She
became a Director of the Company in July 1996. Prior to becoming a Commissioner
in November 1990, Ms. Pappas held teaching positions as a professor of
Counseling and Psychology at Loyola and DePaul Universities, respectively, and
at educational centers in Israel, Holland, Greece, Switzerland, England and
Austria. She has also served as a member of the Illinois Supreme Court Special
Committee on the Administration of Justice.
RONALD N. RINER, M.D., a physician specializing in cardio vascular disease,
serves as the President of The Riner Group, Inc., a professional advisory and
consulting company providing services to the medical, business, investment and
scientific communities on issues concerning health care management, clinical
practice management, risk management, strategic planning, clinical trials and
medical device development. He has served in this capacity since [ ]. He
became a Director of the Company in July 1996. Prior to joining The Riner Group
in [ ], Dr. Riner served as Vice President of Medical Affairs at the
Daughters of Charity National Health System in St. Louis, Missouri.
ERNEST A. SCHOFIELD, the Company's Senior Vice President, Treasurer, and
Chief Financial Officer, has been with the Company since July 1987. From July
1987 to April 1988, he served as a reimbursement analyst for the Company, from
April 1988 to May 1989, he served as Assistant Controller, from May 1989 to
November 1990, he served as Vice President and Controller of the Company, and
from November 1990 to August 1994 he served as Vice President of Finance. He
assumed his present position in September 1994. Prior to joining the Company,
Mr. Schofield, a certified public accountant, held various positions in public
accounting with Fox & Company and as a partner with Olivas & Company (certified
public accounting firms). He became a director of the Company in July 1996.
5
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS, MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth at July 31, 1996 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, nominees and executive officers of the Company as a group. At July
31, 1996, there were [ ] shares of Common Stock outstanding. The Company
is not aware of any other person 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:
Frank M. McCord.................................................................... 26,745(2) *
Raymond N. Noveck.................................................................. 70,568(3) *
Charles K. Bradford................................................................ -- --
Maria Pappas....................................................................... 11,000(4) *
Ronald N. Riner, M.D. .............................................................
NAMED OFFICERS AND EMPLOYEE DIRECTORS AND NOMINEES:
Neal M. Elliott.................................................................... 1,584,878(5)(6) 2.96%
Michael A. Jeffries................................................................ 51,718(7) *
Charles H. Gonzales................................................................ 89,870(6)(8) *
Ernest A. Schofield................................................................ 38,397(9) *
Klemett L. Belt, Jr. .............................................................. 347,981 *
Robert A. Ortenzio................................................................. 580,819(10) 1.10%
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS AS A GROUP
(10 PERSONS)........................................................................ 2,801,976(11) 5.14%
</TABLE>
- ------------------------
* 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 4,400 shares held by Mr. McCord's wife and 1,333 shares that may be
acquired within 60 days upon the exercise of stock options.
(3) Includes 1,333 shares that may be acquired within 60 days upon the exercise
of stock options.
(4) Includes 11,000 shares held by Ms. Pappas and her husband in a pension plan.
(5) Includes 33,333 shares that may be acquired within 60 days upon the exercise
of stock options.
(6) Excludes 36,364 shares held by Schlegel peopleCare Heritage Horizon
Foundation, of which Messrs. Elliott and Gonzales serve as directors.
(7) Includes 8,333 shares that may be acquired within 60 days upon the exercise
of stock options and 50 shares held by Mr. Jeffries' step-daughter.
(8) Includes 8,333 shares that may be acquired within 60 days upon exercise of
stock options.
(9) Includes 5,000 shares that may be acquired within 60 days upon exercise of
stock options.
(10) Includes 8,095 shares that may be acquired within 60 days upon exercise of
stock options.
6
<PAGE>
(11) Includes 65,760 shares that may be acquired within 60 days upon the
exercise of stock options.
DIRECTORS' MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held eight meetings during fiscal 1996. 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 1996:
AUDIT COMMITTEE. The Audit Committee met three times during fiscal 1996 and
consisted of Mr. Frank McCord and former directors Gerard M. Martin, LeRoy S.
Zimmerman. 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/STOCK OPTION COMMITTEE. The Compensation/Stock Option
Committee met twice during fiscal 1996 and consisted of Mr. Frank McCord and
former directors Russell L. Carson, Barry Portnoy and Bryan Cressey. In March
1996, Mr. Noveck replaced Mr. Carson on the Compensation/ Stock Option
Committee. The Compensation/Stock Option Committee reviews the Company's
compensation program and policies for its executive officers each year and
recommends and approves the compensation of executive officers. In addition, the
Compensation/Stock Option Committee administers the Company's various employee
stock option plans and the Company's Employee Stock Purchase Plan and approves
the granting of options thereunder.
EXECUTIVE COMMITTEE. During fiscal 1996, the Executive Committee consisted
of Mr. Neal Elliott, Mr. Noveck, former director Rocco A. Ortenzio and former
officers and directors Robert A. Ortenzio and Klemett L. Belt, Jr. The Executive
Committee has the authority to approve acquisitions and dispositions within
certain limitations and to perform such other duties as designated by the Board.
There is no standing nominating committee of the Board of Directors of the
Company.
COMPENSATION/STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the consummation of the Horizon merger with Greenery in fiscal year
1994, Greenery sold to Health and Retirement Properties Trust, formerly known as
Health and Rehabilitation Properties Trust ("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 manage these facilities
for a specified period on behalf of Connecticut Subacute Corporation II
("Tenant"), an entity wholly-owned by former directors Gerard M. Martin and
Barry M. Portnoy. Messrs. Martin and Portnoy resigned as directors of the
Company in June 1996. HRP 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, 1996, Horizon made working capital advances of
approximately $4.9 million and was paid a management fee of approximately $0.8
million 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 former directors 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
7
<PAGE>
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 former directors 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-annually. 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 1996, Messrs. Portnoy and Martin
paid approximately $852,000 in interest payments on the B&G Note in cash.
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
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.,
formerly 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).
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"). From time to time the Company has continued to increase
the amount of office
8
<PAGE>
space it leases from Albuquerque Centre. Thus, the Company now leases
approximately 48,100 square feet, or about 63% of the net rentable space in the
Albuquerque Centre Building. During fiscal 1996, the Company paid Albuquerque
Centre approximately $781,745 in rental payments.
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 30 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. During fiscal 1996, the Company paid AMI II $546,000 for such 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"). 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.
Former Director Rocco Ortenzio agreed to become a director and Vice Chairman
of Horizon's Board of Directors following the merger with CMS, and to provide
consulting services to Horizon on an hourly basis at a rate of $300 per hour.
See "-- Employment and Consulting Agreements." On November 9, 1995, Mr. Rocco
Ortenzio resigned as a Director of the Company. 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. 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 with CMS, Horizon's Board of Directors recognized
that Mr. Rocco Ortenzio's bonus arrangement would, following such 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. 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. Pursuant to the terms
of such agreement, Rocco A. Ortenzio ceased to be an employee of CMS upon the
consummation of the merger and received $3.7 million in satisfaction of the
change in control provisions described above and also received $11.6 million in
consideration for his execution of a non-compete agreement and in lieu of a
bonus for periods after the merger. See "-- Employment and Consulting
Agreements."
In addition, pursuant to his employment arrangements with CMS, Rocco A.
Ortenzio's outstanding unvested options to purchase 800,000 shares of CMS's
common stock (which, by virtue of the merger with CMS, converted into options to
purchase 431,760 shares of Common Stock) became fully vested. Rocco Ortenzio's
existing term life insurance policy was also converted into a whole life policy
pursuant to a split-dollar arrangement with CMS.
9
<PAGE>
Horizon has agreed to indemnify Mr. Rocco Ortenzio for any taxes, interest
and penalties resulting from a determination that any of the above described
payments to him constitute an "excess parachute payment" for purposes of Section
280G and Section 4999 of the Internal Revenue Code of 1986, as amended.
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 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, 1996, 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.
In April 1994, the Company acquired Advanced Clinical Technology, Inc.,
formerly known as Advanced Cardiovascular Technology, Inc. ("ACT"). Prior to
such acquisition, Klemett L. Belt, Jr., formerly the Executive Vice President
and a Director of the Company, had loaned ACT approximately $400,000, which was
evidenced by a convertible subordinated debenture, and held an option, expiring
in 1996, to acquire an additional 25% ownership interest in ACT for a purchase
price of $1,300,000. Upon the closing of the acquisition of ACT, Horizon funded
ACT with sufficient amounts to allow ACT to pay in full to Mr. Belt the $400,000
and Horizon purchased Mr. Belt's option for a cash payment at the closing of
$100,000. An additional cash payment of $100,000 will be paid by Horizon to Mr.
Belt if and when ACT achieves pre-tax earnings of $6 million within the first
three years of Horizon ownership. ACT did not meet such target in either the
first or second year subsequent to the acquisition.
On December 31, 1995, Mr. Belt resigned as the Executive Vice President and
a Director of the Company. At the time of his resignation, the Board of
Directors of the Company authorized the Company to enter into a Severance
Agreement with Mr. Belt. Under the terms of the Severance Agreement, the Company
agreed to pay Mr. Belt severance pay of $350,000 per year for a two-year period.
In addition, the Company agreed to pay Mr. Belt a bonus payment of $180,000 in
addition to his prior bonus of $150,000. Consistent with Mr. Belt's prior
employment agreement, the Company also agreed to pay Mr. Belt his retirement
benefits commencing in calendar 1998. Finally, the Company agreed to provide Mr.
Belt with health insurance coverage for himself, his spouse and his children.
See "-- Employment and Consulting Agreements."
During fiscal 1996, CMS was a party to various contracts with Intellex
Corporation ("Intellex") pursuant to which Intellex provided maintenance and
housekeeping services to 34 of the CMS rehabilitation hospitals. Intellex has
represented to the Company that it is wholly-owned by John Ortenzio, who is the
son of Rocco A. Ortenzio and brother of Robert A. Ortenzio. Intellex has also
represented to the Company that Martin Ortenzio, who is the son of Rocco A.
Ortenzio and brother of Robert A. Ortenzio, serves as an officer and a director
of Intellex. In fiscal 1996, CMS made payments to Intellex aggregating
approximately $4,344,279 under these contracts. The payments covered Intellex'
labor costs, maintenance and housekeeping supply costs services fees, overhead
and profits.
LeRoy S. Zimmerman, a former 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.
10
<PAGE>
Maria Pappas, a director of the Company, along with her husband, Mr. Peter
Camberos, is an investor in a variety of limited partnerships and/or limited
liability companies that lease long-term care facilities to the Company.
Specifically, Ms. Pappas and her husband are, taken as a whole, 15% limited
partners in Alamogordo/Santa Fe Associates, a New Mexico limited partnership,
which leases two facilities, located in Alamogordo and Santa Fe, respectively,
to the Company. In fiscal 1996, the Company paid rent to this partnership on
account of these two facilities of $1,006,000. Ms. Pappas and her husband are,
taken as a whole, 28.25% limited partners in Warren Associates Limited
Partnership, an Illinois limited partnership, which leases the Ridgecrest Care
Center in Warren, Ohio to the Company. In fiscal 1996, the Company paid $416,460
to this partnership on account of this lease. Ms. Pappas and her husband are,
taken as a whole, 20% non-managing members of N.M. Espanola Three Plus One
Limited Company, a New Mexico limited liability company, which sub-leases the
Hacienda de Salud -- Espanola facility in Espanola, New Mexico. In Fiscal 1996,
the Company this limited liability company approximately $617,800 on account of
this lease. Ms. Pappas and her husband are, taken as a whole, 20% non-managing
members of N.M. Lordsburg Three Plus One Limited Company, a New Mexico limited
liability company, which leases the Sunshine Haven facility in Lordsburg, New
Mexico. During fiscal 1996, the Company paid this limited liability company
approximately $305,200 on account of this lease. Ms. Pappas and her husband are,
taken as a whole, 20% non-managing members of N.M. Bloomfield Three Plus One
Limited Company, a New Mexico limited liability company, which sub-leases the
Hacienda de Salud -- Bloomfield facility located in Bloomfield, New Mexico to
the Company. During fiscal 1996, the Company paid this limited liability company
approximately $460,000 on account of this lease. Finally, Ms. Pappas and her
husband, taken as a whole, are 20% non-managing members of N.M. Silver City
Three Plus One Limited Company, a New Mexico limited liability company, which
sub-leases the Horizon Southwest facility located in Silver City, New Mexico to
the Company. During fiscal 1996, the Company paid this limited liability company
approximately $520,480 on account of this lease.
Each director and each officer of the Company who is subject to Section 16
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is
required by Section 16(a) of the Exchange Act to report to the SEC by a
specified date, his transactions in the Company's securities. [REMAINDER TO
COME].
11
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended May 31,
1996, 1995 and 1994, respectively, of the Chief Executive and those persons who
were, for the fiscal year ended May 31, 1996, the other four most highly
compensated executive officers of the Company (the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
--------------
ANNUAL COMPENSATION SECURITIES
------------------------------------ UNDERLYING ALL OTHER
NAME & SALARY OPTIONS/(SARS) COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) BONUS ($) (SHS.)(2) ($)(3)
- ---------------------------------------------- --------- ------------ ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Neal M. Elliott............................... 1996 $ 654,800 $ 600,000 300,000 $ 377,448
Chairman of the Board, President 1995 487,500 100,000 100,000 163,369
and Chief Executive Officer 1994 433,750 50,000 100,000 147,947
Robert A. Ortenzio............................ 1996 440,000 172,400 150,000 1,902,295
(formerly) Executive Vice President(4) 1995 429,500 -- -- 8,002
1994 427,778 -- 60,000 35,472
Klemett L. Belt, Jr........................... 1996 205,300 330,000 -- 1,655,313
(formerly) Executive Vice President(5) 1995 268,750 60,000 40,000 83,436
1994 242,500 50,000 30,000 103,834
Michael A. Jeffries........................... 1996 230,300 100,000 40,000 16,357
Senior Vice President -- Operations 1995 218,750 50,000 40,000 8,876
1994 183,750 40,000 25,000 7,484
Charles H. Gonzales........................... 1996 250,900 100,000 40,000 18,251
Senior Vice President -- Subsidiary 1995 178,750 40,000 40,000 8,106
Operations 1994 151,250 30,000 25,000 7,525
Ernest A. Schofield........................... 1996 228,000 100,000 40,000 13,883
Senior Vice President, Treasurer 1995 140,000 25,000 25,000 5,939
Chief Financial Officer 1994 105,500 20,000 15,000 4,830
</TABLE>
- ------------------------
(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 1996, all other compensation includes:
(i) Amounts accrued for retirement benefits for Messrs. Elliott, Ortenzio
and Belt, in the amounts of $353,631, $1,683,096 and $1,642,499,
respectively, pursuant to the terms of their respective employment
agreements (see "Employment and Consulting Agreements" below).
(ii) Company matching of employee contributions under a deferred
compensation arrangement as follows: Mr. Elliott -- $16,077; Mr. Ortenzio
-- $195,538; Mr. Belt -- $8,154; Mr. Jeffries -- $7,519; Mr. Gonzales --
$13,954; and Mr. Schofield -- $13,062.
(iii) Payments under an officers' medical plan: Mr. Elliott -- $6,102; Mr.
Ortenzio -- $0; Mr. Belt -- $4,100; Mr. Jeffries -- $8,271; Mr. Gonzales
-- $3,667; Mr. Schofield -- $191.
(iv) Dollar value of life insurance premiums paid by the Company with
respect to term group life insurance for Mr. Elliott -- $1,638; Mr.
Ortenzio -- $499; Mr. Belt -- $560; Mr. Jeffries -- $567; Mr. Gonzales --
$630; Mr. Schofield -- $630.
12
<PAGE>
(v) Dollar value of Company jet usage for Mr. Ortenzio -- $23,162.
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 and Consulting
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) Payment 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.
Ortenzio -- $576; Mr. Belt -- $1,440; Mr. Jeffries -- $510; Mr. Gonzales
-- $330 and Mr. Schofield -- $304.
(v) Dollar value of Company jet usage for Mr. Ortenzio -- $7,300.
For fiscal 1994, all other compensation includes:
(i) Amounts accrued for retirement benefits for Messrs. Elliott and Belt, in
the amounts of $118,703 and $48,486, respectively, pursuant to the terms
of their respective employment agreements (see "Employment and Consulting
Agreements" below).
(ii) Company match of employee contributions under a deferred compensation
arrangement as follows: Mr. Elliott -- $17,750; Mr. Belt -- $9,700; Mr.
Jeffries -- $4,594; Mr. Gonzales -- $6,050 and Mr. Schofield -- $3,474.
(iii) Payments under an officers' medical plan: Mr. Elliott -- $2,615; Mr.
Belt -- $42,404; Mr. Jeffries -- $2,380; Mr. Gonzales -- $1,145 and Mr.
Schofield -- $1,132.
(iv) Dollar value of life insurance premiums paid by the Company with
respect to term group life insurance for Mr. Elliott -- $1,440; Mr. Belt
-- $1,440; Mr. Jeffries -- $510; Mr. Gonzales -- $330 and Mr. Schofield
-- $224.
(v) Additional life insurance premiums paid on behalf of Mr. Elliott --
$7,439 and Mr. Belt -- $1,804. These advances will be repaid to the
Company by the officer or by the officer's estate upon the earlier of
cancellation of the applicable policy or death of the officer,
respectively.
(vi) Company match pursuant to the Company's 401(k) Profit Sharing Plan; Mr.
Ortenzio -- $3,472.
(vii) Premiums paid by the Company on a "split dollar" life insurance policy
on the lives of Robert Ortenzio and his wife. The Company has an interest
in the death benefits or cash surrender value under the policy equal to
the amount of premiums paid; Mr. Ortenzio -- $32,000.
(4) Mr. Ortenzio resigned as a Director and as Executive Vice President of the
Company on June 27, 1996, after end of fiscal 1996.
(5) Mr. Belt resigned as a Director and as Executive Vice President of the
Company on December 31, 1995, prior to the end of fiscal 1996.
13
<PAGE>
OPTION GRANTS
The following is information with respect to grants of options in fiscal
1995 pursuant to the Company's Employee Stock Option Plan to the Named Officers.
No stock appreciation rights were granted under those plans in fiscal 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------- ANNUAL RATE OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTION/SARS EXERCISE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM (2)
OPTION/SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED (#)(1) FISCAL 1996 ($/SH.) DATE 5% 10%
- ------------------------------ --------------- ------------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Neal M. Elliott............... 300,000 13.785% $ 21.375 7/13/2005 $4,032,787 $10,219,874
Klemett L. Belt, Jr........... -- -- -- -- -- --
Robert A. Ortenzio............ 150,000 6.893% 21.375 7/13/2005 2,016,394 5,109,937
Michael A. Jeffries........... 40,000 1.893% 21.375 7/13/2005 537,705 1,362,650
Charles H. Gonzales........... 40,000 1.893% 21.375 7/13/2005 537,705 1,362,650
Ernest A. Schofield........... 40,000 1.893% 21.375 7/13/2005 537,705 1,362,650
</TABLE>
- ------------------------------
(1) No grants of stock appreciation rights have been made. Options granted to
the Named Officers vest in one-third increments annually beginning on the
first anniversary of the date of grant.
(2) The dollar amounts under these columns represent the potential realizable
value of each grant of options assuming that the market price of the Common
Stock appreciates in value from the date of grant to the expiration date at
the 5% and 10% annual rates of return prescribed by the SEC. These
calculations are not intended to forecast possible future appreciation, if
any, of the price of Common Stock.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information concerning each exercise of stock
options during fiscal 1996 by the Named Officers and with respect to the
unexercised options to purchase Common Stock granted under the Company's
Employee Stock Option Plan to the Named Officers and held by them at May 31,
1996.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS OPTIONS/SARS
SHARES AT MAY 31, 1996(#) AT MAY 31, 1996($)(1)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ------------ ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Neal M. Elliott.............. -- -- 300,001 398,897 $3,680,334 $ 16,669
Klemett L. Belt, Jr.......... 120,000 $ 2,354,625 -- -- -- --
Robert A. Ortenzio........... 136,571 1,616,813 413,834 298,753 20,334 --
Michael A. Jeffries.......... 10,660 22,550 30,001 74,897 20,334 4,107
Charles H. Gonzales.......... -- -- 68,203 74,890 270,000 4,107
Ernest A. Schofield.......... 7,800 159,625 19,925 61,666 14,642 2,500
</TABLE>
- ------------------------------
(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, 1996 ($12.25).
DIRECTORS COMPENSATION
In July 1995, the Board of Directors voted to increase the compensation paid
to non-employee directors of the Company from $10,000, payable quarterly, to
$15,000, payable quarterly. On September 27, 1995, the stockholders of the
Company approved the adoption of the Horizon/CMS Healthcare Corporation 1995
Non-Employee Directors Stock Option Plan (the "Directors' Plan"). The Directors
Plan replaces the Company's prior non-qualified stock option plan. The Directors
Plan provides for the annual issuance to each non-employee director of a
non-qualified option to purchase 7,000 shares of Common Stock. The Directors
Plan is currently administered by a committee of the Board. 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 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
14
<PAGE>
except by will, laws of descent and distribution or by a qualified domestic
relations order. 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.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company currently has an employment agreement with Mr. Elliott, which
automatically renews on January 1 of each year for an additional year, subject
to earlier termination by the Company and Mr. Elliott under certain conditions.
Mr. Elliott's employment agreement provides for an annual salary of $385,000
subject to annual increases to be determined at the discretion of the
Compensation Committee.
Until December 31, 1995, the Company had an employment agreement with Mr.
Klemett L. Belt, Jr., which automatically renewed on the anniversary thereof for
an additional year, subject to earlier termination by the Company and Mr. Belt
under certain conditions. As set forth above, Mr. Belt and the Company
terminated the employment agreement on December 31, 1995 when the Company and
Mr. Belt entered into the Severance Agreement. See "-- Certain Transactions And
Other Matters."
In July 1995, the Compensation Committee increased the base salaries of
Messrs. Elliott and Belt for fiscal 1996 to $654,800 and $350,000, respectively,
and provided them with bonuses in the amounts of $600,000 and $150,000,
respectively.
Mr. Elliott's employment agreement provides for a maximum retirement benefit
of 50% of his 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 Mr. Elliott's
highest annual salary multiplied by the number of years of service to the
Company. His 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). His
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 Mr. Elliott's employment agreement, disability payments are payable
until recovery from the disability or until the individual reaches age 65. His
agreement provides that, upon termination of the agreement by the Company
without cause, or by Mr. Elliott 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 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 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.
On June 27, 1996, Mr. Robert A. Ortenzio resigned as a Director and Executive
Vice President of the Company. Mr. Ortenzio remains the President and Chief
Executive Officer of CMS.
In connection with the merger with CMS and the termination of Rocco A.
Ortenzio's employment arrangements with CMS, Horizon and Mr. Ortenzio entered
into a Consulting Agreement. As compensation for the consulting and advisory
services to be rendered by Mr. Ortenzio under such agreement, Mr. Ortenzio will
receive a consulting fee of $300 per hour, plus out-of-pocket expenses. Horizon
has agreed to pay Mr. Ortenzio a retainer of $50,000 per year, payable monthly
in advance, and consulting fees earned by Mr. Ortenzio in each calendar year
will be credited against the retainer. The agreement is for a term of two years,
commencing on July 10, 1995, however, the agreement will be automatically
extended for an additional one year period unless notice is given three months
prior to the end of the then-current term by either party to the agreement. As
consideration for the payment described under "-- Certain Transactions and Other
Matters" and for payment of consulting fees under the Consulting Agreement, Mr.
Ortenzio has agreed to be bound by certain noncompetition covenants for the term
of the Consulting Agreement. Pursuant to the Consulting Agreement, Horizon has
also agreed to reimburse Mr. Ortenzio for the cost of medical and dental
insurance and has agreed that for so long as Mr. Ortenzio is a director of
Horizon, Horizon will cause him to be elected as Vice Chairman of the Board of
Directors and as a member of the Executive Committee of the Board.
COMPENSATION/STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During fiscal year 1996, the Compensation/Stock Option Committee (the
"Committee") consisted of four independent, non-employee directors. As members
of the Committee, it is our responsibility to administer the Company's executive
compensation program, monitor corporate performance and its relationship to
compensation of executive officers, and make appropriate recommendations
concerning matters of executive compensation.
COMPENSATION POLICIES
To accomplish the Company's strategic objectives, the Company must be able
to attract, retain and motivate employees with the talents, skills and
experience needed to achieve strategic and operating goals. The Company expects
to pay for performance reflecting the Company's standards for quality at every
level of the organization. Our compensation philosophy and the underlying
compensation programs are designed to support directly the Company's overall
business objectives by:
- Allowing the Company to recruit, retain and develop highly qualified
executive and employee talent;
- Linking compensation with Company, subsidiary, region, area, facility and
individual performance;
- Maintaining compensation levels that are competitive (compared to similar
health care companies); and
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- Emphasizing sustained performance by aligning rewards with stockholders'
interests, especially through the use of equity participation programs.
To implement these policies, the Committee developed a four-part executive
compensation program consisting of base salary, annual bonus incentives, stock
options and other employment benefits.
Section 162(m) of the Internal Revenue Code of 1986 ("Section 162(m)")
establishes certain criteria for the tax deductibility of annual compensation in
excess of $1.0 million paid to certain of the Company's executive officers.
Generally, Section 162(m) permits the deductibility of "performance based"
remuneration, including stock options and bonus payments that are earned upon
the satisfaction of preestablished criteria in each case pursuant to a plan
which is approved by stockholders regardless of amount. Although the Committee
considers the net cost to the Company in making all compensation decisions
(including, for this purpose, the potential limitation on deductibility of
executive compensation), there is no assurance that compensation realized with
respect to any particular award will qualify as "performance based"
remuneration.
Although the Company's stock option and stock incentive plans satisfy the
criteria for Section 162(m), the Company's current annual incentive bonus plan
does not satisfy the criteria for deductibility of remuneration in excess of $1
million under Section 162(m). The Committee believes, however, that the
flexibility to adjust annual bonuses upward, as well as downward, is an
important feature of annual incentive plans and one that serves the best
interests of the Company by allowing the Committee to recognize and motivate
individual executive officers, as well as to change performance objectives, as
circumstances warrant. Consequently, the Committee believes the benefits derived
from having flexibility under the annual incentive bonus plans outweigh the
possible loss of a tax deduction for a portion of such remuneration. Therefore,
the Committee does not currently propose to have the annual incentive bonus
plans comply with Section 162(m) requirements. Amounts paid under the annual
incentive bonus plans to the executive officers will count toward the $1 million
deductibility limitation that is provided in Section 162(m). Though this
Committee does not currently intend to award compensation that would result in a
limitation in the deductibility of a portion of such compensation pursuant to
Section 162(m), the Committee may in the future decide to authorize compensation
in excess of the $1 million deductibility limitation of Section 162(m) if it
determines that such compensation is in the best interests of the Company. In
such event, those portions of the executive's compensation that are not
performance based (as defined in Section 162(m)) and that exceed the cap will
not be tax deductible by the Company.
BASE SALARY
The Committee seeks to maintain levels of compensation that are competitive
with similar health care companies in the industry. The peer group used by the
Committee in comparing compensation is a group of health care companies
consisting of the companies named under the heading "Stockholder Return
Performance Presentation."
Base salary represents the fixed component of the executive compensation
program. The Company's philosophy regarding base salaries is conservative,
maintaining salaries for the aggregate officer group at approximately the
competitive industry average. Periodic increases in base salary relate to
individual contributions evaluated against established objectives, length of
service, and the industry's annual competitive pay practice movement. The
Committee determined that the base salary for fiscal year 1996 for the Company's
Chief Executive Officer and the other executive officers was generally at the
competitive industry average.
ANNUAL INCENTIVE BONUSES
The Company's executive officers are eligible to receive annual incentive
compensation bonuses based on 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.
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STOCK OPTIONS
Long term incentive compensation consisting of stock options has been
established to:
- Focus attention on the Company's long-term goals; and
- Increase ownership and retention of the Company's stock.
The Committee has granted stock options with a vesting schedule of three years.
In the Committee's view, this vesting schedule helps to retain management, to
focus optionees on the long term goals of the Company, and to focus optionees on
actions that are more closely aligned with the interests of stockholders.
FISCAL YEAR 1996 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER.
In fiscal year 1996, the Committee approved an increase in the annual base
salary for Neal Elliott -- a founder of the Company -- from $500,000 to $654,800
consistent with the terms of his employment agreement with the Company. In
fiscal year 1996, Mr. Elliott's total cash compensation equaled $1,254,800 which
consisted of salary ($654,800) and a bonus ($600,000). Mr. Elliott was also
granted options to acquire 300,000 shares of Common Stock. The Company's
practice has been to determine the appropriate level of bonuses and stock option
grants based upon events occurring in the immediately preceding fiscal year. The
Committee based the amount of Mr. Elliott's bonus and his option grant on its
acknowledgment of his overall responsibility for implementing the Company's
substantial growth and strategic business plans during fiscal year 1995. The
Committee also recognized Mr. Elliott's pivotal role in conceiving, negotiating,
creating and implementing the Company's post-acute health care delivery system
and in successfully expanding the size of the Company through the consummation
of its merger with Continental Medical Systems, Inc. on July 10, 1995. It has
also been the Company's practice for the Committee to make bonus and stock
option grant determinations at or near the beginning of each new fiscal year.
Thus, the Committee awarded Mr. Elliott the aforementioned bonus and stock
option grant on July 13, 1995.
COMPENSATION/STOCK OPTION
COMMITTEE
FRANK M. MCCORD
RAYMOND N. NOVECK
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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/CMS HEALTHCARE CORPORATION
COMPARATIVE TOTAL RETURNS
JUNE 1, 1990 -- MAY 31, 1996
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG HORIZON/CMS HEALTHCARE CORPORATION, S&P 500 INDEX AND PEER GROUP**
(INFORMATION COMPILED AND PREPARED BY ZACK'S INVESTMENT RESEARCH, INC.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HORIZON/CMS HEALTHCARE CORPORATION S&P 500 COMPOSITE INDEX PEER GROUP
<S> <C> <C> <C>
1991 $ 100.00 $ 100.00 $ 100.00
1992 $ 171.43 $ 111.79 $ 180.72
1993 $ 228.57 $ 122.81 $ 168.60
1994 $ 514.29 $ 137.06 $ 254.86
1995 $ 947.62 $ 142.90 $ 315.08
1996 $ 695.24 $ 171.75 $ 344.67
</TABLE>
<TABLE>
<CAPTION>
6/01/91 5/31/92 5/31/93 5/31/94 5/31/95 5/31/96
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Horizon/CMS 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 HORIZON/CMS HEALTHCARE
CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, the stockholders will be asked to approve the
Horizon/CMS Healthcare Corporation 1996 Employee Stock Purchase Plan (the
"Purchase Plan"), a copy of which is attached hereto as Appendix A. The 1996
Plan was unanimously approved by the Board on August 5, 1996, subject to
stockholder approval at the Annual Meeting. The purpose of the Purchase Plan is
to furnish eligible employees an incentive to advance the Company's interest by
providing a method whereby they may acquire a proprietary interest in the
Company on favorable terms. The complete text of the Purchase Plan is attached
hereto as Exhibit A. In the event that shareholders do not approve the Purchase
Plan, it will be terminated. In connection with the adoption of the Purchase
Plan, the Board of Directors terminated the Horizon Healthcare Corporation
Employee Stock Purchase Plan, which had been in effect for approximately five
years, effective as of June 30, 1996.
GENERAL
The Purchase Plan authorizes the issuance of up to 250,000 shares of Common
Stock (subject to adjustment in the event of stock dividends, stock splits and
certain other events) and provides that no options may be granted under the
Purchase Plan after June 30, 2006. The Purchase Plan is available to all
employees of the Company and its participating subsidiaries who have completed
12 months of employment (six months of employment for options to be granted on
or after January 1, 1997). However, an employee may not be granted an option
under the Purchase Plan if after the granting of the option such employee would
be deemed to own 5% or more of the combined voting power or value of all classes
of stock of the Company or a subsidiary corporation. Further, an employee who is
both highly compensated (within the meaning of the Internal Revenue Code
provisions applicable to employee benefit plans) and an officer or employee of
the Company or a participating subsidiary who is subject to Section 16 of the
Securities Exchange Act of 1934, as amended, is not eligible to participate in
the Purchase Plan prior to January 1, 1997. Accordingly, no options under the
Purchase Plan will be granted to the Named Executives prior to January 1, 1997.
Each present and future subsidiary corporation of the Company will be a
participating subsidiary under the Purchase Plan unless the Compensation
Committee of the Board of Directors, which is charged with the general
administration of the Purchase Plan, specifically excludes such subsidiary
corporation from plan participation. As of July 1, 1996, approximately 15,000
employees were eligible to participate in the Purchase Plan.
The first option period ("Option Period") under the Purchase Plan began on
July 1, 1996, and will last for three months. The second Option Period under the
Purchase Plan will begin on October 1, 1996, and will also last for three
months. Beginning on January 1, 1997, a new Option Period under the Purchase
Plan will start on January 1 and July 1 of each year. Each such Option Period
will last for six months.
Under the Purchase Plan, an eligible employee must authorize payroll
deductions to be made during the entire Option Period, which amounts are used at
the end of the Option Period to acquire shares of Common Stock at 85% of the
fair market value of the Common Stock on the first or the last day of the Option
Period, whichever is lower. Employees have discretion to determine the amount of
their payroll deduction under the Purchase Plan, subject to the limits that not
more than 5% of compensation or $21,250 may be deducted in any Option Period or
calendar year, respectively. On the first day of each Option Period, the Company
grants options to purchase shares of Common Stock to each participant. On the
last day of the Option Period, the participant is deemed to have exercised the
option to the extent of the number of whole shares of Common Stock that may be
purchased with the participant's accumulated payroll deductions. A participant's
payroll deductions that remain after the purchase of such whole shares of Common
Stock are carried forward and used towards the purchase of whole shares in the
next Option Period. In no event may any participant acquire more than 10,000
shares of Common Stock under the Purchase Plan in any Option Period (which
amount is subject to adjustment in the event of stock dividends, stock splits
and certain other events). The Compensation Committee of the Board of Directors
makes all determinations necessary or advisable for the administration of the
Purchase Plan.
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An employee may withdraw from the Purchase Plan, in whole but not in part,
at any time prior to the last day of an Option Period by delivering a withdrawal
notice to the Company. In the event of such a withdrawal, the Company will
refund the entire amount of the payroll deductions during the Option Period,
without interest.
An employee's rights under the Purchase Plan terminate upon termination of
employment for any reason. Upon such termination, the Company will return the
employee's payroll deductions, without interest. An employee's purchase rights
under the Purchase Plan may not be transferred.
Option holders are protected against dilution in the event of a stock
dividend, stock split, subdivision, combination, recapitalization or similar
event. If the Company is not the surviving corporation in any merger or
consolidation (or survives only as a subsidiary) or if the Company is dissolved
or liquidated, then unless the surviving corporation assumes or substitutes new
options for all options then outstanding, the date of exercise for all options
then outstanding will be accelerated to a date fixed by the Compensation
Committee of the Board of Directors prior to the effective date of such merger,
consolidation, dissolution or liquidation.
The Board of Directors may at any time amend or terminate the Purchase Plan
except that no amendment shall be made without the approval of the holders of a
majority of the Company's outstanding Common Stock if such amendment would (a)
materially increase the benefits accruing to participants under the Purchase
Plan, (b) increase the number of shares which may be issued under the Purchase
Plan, (c) change the class of individuals eligible to receive options under the
Purchase Plan, (d) extend the term of the Purchase Plan, (e) cause options
issued under the Purchase Plan to fail to meet the requirements of Section 423
of the Code, or (f) otherwise modify the requirements as to eligibility for
participation.
FEDERAL INCOME TAX ASPECTS
The following discussion summarizes certain United States federal income tax
considerations for employees participating in the Purchase Plan and certain tax
effects to the Company. However, the summary does not address every situation
that may result in taxation. The Purchase Plan is not subject to the provisions
of the Employee Retirement Income Security Act of 1974, and the provisions of
Section 401(a) of the Internal Revenue Code are not applicable to the Purchase
Plan.
Amounts deducted from an employee's pay under the Purchase Plan are included
in the employee's compensation subject to federal income and social security
taxes. The Company will withhold taxes on these amounts. An employee will not
recognize any additional income at the time he or she elects to participate in
the Purchase Plan or purchases Common Stock under the Purchase Plan.
If an employee disposes of Common Stock purchased pursuant to the Purchase
Plan within two years after the first day of the Option Period with respect to
which such stock was purchased, the employee will recognize ordinary
compensation income at the time of disposition in an amount equal to the excess
of the fair market value of the stock on the day the option was exercised over
the purchase price the employee paid for the stock. This amount may be subject
to withholding taxes, including social security taxes. In addition, the employee
generally will recognize a capital gain or loss in an amount equal to the
difference between the amount realized upon the sale of the stock and his or her
basis in the stock (that is, his or her purchase price plus the amount taxed as
compensation income). If the shares have been held for more than one year, such
gain or loss will be long-term capital gain or loss.
If an employee disposes of Common Stock purchased pursuant to the Purchase
Plan more than two years after the first day of the Option Period with respect
to which such stock was purchased, the employee will recognize as ordinary
compensation income at the time of such disposition an amount equal to the
lesser of (a) the excess of the fair market value of the stock measured at the
time of such disposition over the amount paid for the stock or (b) 15% of the
fair market value of the stock measured as of the first day of the Option Period
with respect to which the stock was purchased. This amount, however, is not
subject to social security taxes or withholding. In addition, the employee
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<PAGE>
generally will recognize a long-term capital gain or loss in an amount equal to
the difference between the amount realized upon the disposition of the stock and
his or her basis in the stock (that is, his or her purchase price plus the
amount, if any, taxed as compensation income).
Although the amounts deducted from an employee's pay under the Purchase Plan
generally are tax-deductible business expenses of the Company, the Company
generally will not be allowed any additional deduction by reason of any
employee's purchase of Common Stock under the Purchase Plan. However, if an
employee disposes of Common Stock purchased pursuant to the Purchase Plan within
two years after the first day of the Option Period with respect to which such
stock was purchased, the Company should be entitled to a deduction in an amount
equal to the compensation income recognized by the employee. If an employee
disposes of Common Stock purchased under the Purchase Plan more than two years
after the first day of the Option Period with respect to which such stock was
purchased, the Company will not receive any deduction for federal income tax
purposes with respect to such stock. Except when an employee disposes of Common
Stock after the two-year period described above, the Company may be required to
withhold taxes upon, and to pay employment taxes with respect to, compensation
income recognized by its employees in connection with the Purchase Plan.
VOTE REQUIRED
The proposal to approve the Purchase 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 PURCHASE PLAN.
PROPOSAL 4 -- 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, 1997. 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 1997 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 13, 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
HORIZON/CMS HEALTHCARE CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The purpose of the HORIZON/CMS HEALTHCARE CORPORATION 1996
EMPLOYEE STOCK PURCHASE PLAN (the "Plan") is to furnish to eligible employees an
incentive to advance the best interests of HORIZON/CMS HEALTHCARE CORPORATION
(the "Company") by providing a method whereby they voluntarily may purchase
stock of the Company at a favorable price and upon favorable terms.
2. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
committee (the "Committee") of, and appointed by, the Board of Directors of the
Company (the "Board"), and the Committee shall be constituted so as to permit
the Plan to comply with Rule 16b-3, as currently in effect or as hereinafter
modified or amended ("Rule 16b-3"), promulgated under the Securities Exchange
Act of 1934, as amended (the "1934 Act"). Subject to the provisions of the Plan,
the Committee shall interpret the Plan and all options granted under the Plan,
shall make such rules as it deems necessary for the proper administration of the
Plan, shall make all other determinations necessary or advisable for the
administration of the Plan and shall correct any defect or supply any omission
or reconcile any inconsistency in the Plan or in any option granted under the
Plan in the manner and to the extent that the Committee deems desirable to carry
the Plan or any option into effect. The Committee shall, in its sole discretion
exercised in good faith, make such decisions or determinations and take such
actions, and all such decisions, determinations and actions taken or made by the
Committee pursuant to this and the other paragraphs of the Plan shall be
conclusive on all parties. The Committee shall not be liable for any decision,
determination or action taken in good faith in connection with the
administration of the Plan.
Notwithstanding any provision in the Plan to the contrary, no options may be
granted under the Plan to any member of the Committee during the term of his
membership on the Committee. No person shall be eligible to serve on the
Committee unless he is then a "disinterested person" within the meaning of Rule
16b-3.
3. PARTICIPATING COMPANIES. Each present and future parent or subsidiary
corporation of the Company (within the meaning of Sections 424(e) and (f) of the
Internal Revenue Code of 1986, as amended (the "Code")) that is eligible by law
to participate in the Plan shall be a "Participating Company" during the period
that such corporation is such a parent or subsidiary corporation; provided,
however, that the Committee may at any time and from time to time, in its sole
discretion, terminate a Participating Company's Plan participation. Any
Participating Company may, by appropriate action of its Board of Directors,
terminate its participation in the Plan. Transfer of employment among the
Company and Participating Companies (and among any other parent or subsidiary
corporation of the Company) shall not be considered a termination of employment
hereunder.
4. ELIGIBILITY. All employees of the Company and the Participating
Companies who have been employed by the Company or any Participating Company for
at least 12 months (including any authorized leave of absence meeting the
requirements of Treasury Regulation 1.421-7(h)(2)) as of the applicable date of
grant (defined below) shall be eligible to participate in the Plan; provided,
however, that the 12-month period referred to in the preceeding provisions of
this sentence shall be reduced to six months with respect to each date of grant
that occurs on or after January 1, 1997; and provided, further, that no option
shall be granted to an employee if such employee, immediately after the option
is granted, owns stock possessing five percent or more of the total combined
voting power or value of all classes of stock of the Company or of its parent or
subsidiary corporation (within the meaning of Sections 423(b)(3) and 424(d) of
the Code). In addition, no option shall be granted prior to January 1, 1997, to
an employee who, as of the applicable date of grant, is both a highly
compensated employee (within the meaning of Section 414(q) of the Code) and an
officer or employee of the Company or a Participating Company who is subject to
Section 16 of the 1934 Act.
5. STOCK SUBJECT TO THE PLAN. Subject to the provisions of paragraph 12
(relating to adjustment upon changes in stock), the aggregate number of shares
which may be sold pursuant to options
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granted under the Plan shall not exceed 250,000 shares of the authorized $.001
par value common stock of the Company ("Stock"), which shares may be unissued
shares or reacquired shares or shares bought on the market for purposes of the
Plan. Should any option granted under the Plan 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. Any shares which are not subject to
outstanding options upon the termination of the Plan shall cease to be subject
to the Plan.
6. GRANT OF OPTIONS.
(a) GENERAL STATEMENT; "DATE OF GRANT"; "OPTION PERIOD"; "DATE OF
EXERCISE". Following the effective date of the Plan and continuing while the
Plan remains in force, the Company shall offer options under the Plan to all
eligible employees to purchase shares of Stock. Except as otherwise determined
by the Committee, these options shall be granted on July 1, 1996, October 1,
1996, and, thereafter, on the first day of each January and July (each of which
dates is herein referred to as a "date of grant"). The term of each option
granted on July 1, 1996, and on October 1, 1996, shall be for three months, and
the term of each option granted thereafter shall be for six months (each of such
three-month and six-month periods is herein referred to as an "option period"),
which shall begin on a date of grant (the last day of each option period is
herein referred to as a "date of exercise"). The number of shares subject to
each option shall be the quotient of the payroll deductions withheld on behalf
of each participant in accordance with subparagraph 6(b) and the payments made
by such participant pursuant to subparagraph 6(f) extended for the option period
divided by the "option price" (defined below) of the Stock, as defined by
subparagraph 7(b), excluding all fractions; provided, however, that the maximum
number of shares that may be subject to any option may not exceed 10,000
(subject to adjustment as provided in paragraph 12).
(b) ELECTION TO PARTICIPATE; PAYROLL DEDUCTION AUTHORIZATION. Except as
provided in subparagraph 6(f), an eligible employee may participate in the Plan
only by means of payroll deduction. Except as provided in subparagraph 6(g),
each eligible employee who elects to participate in the Plan shall deliver to
the Company, within the time period prescribed by the Company, a written payroll
deduction authorization in a form prepared by the Company whereby he gives
notice of his election to participate in the Plan as of the next following date
of grant, and whereby he designates an integral percentage or specific amount of
his "eligible compensation" (as defined in subparagraph 6(d)) to be deducted
from his compensation for each pay period and paid into the Plan for his
account. The designated percentage or specific amount may not be expected to
result in the payment into the Plan during any payroll period of an amount less
than $5. The designated percentage or specific amount may not exceed either of
the following: (i) 5% of the amount of eligible compensation from which the
deduction is made; or (ii) an amount which will result in noncompliance with the
$25,000 limitation stated in subparagraph 6(e).
(c) CHANGES IN PAYROLL AUTHORIZATION. Except as provided in subparagraph
8(a), the payroll deduction authorization referred to in subparagraph 6(b) may
not be changed during the option period.
(d) "ELIGIBLE COMPENSATION" DEFINED. The term "eligible compensation"
means the gross (before taxes are withheld) total of all wages, salaries,
commissions, and bonuses received during the option period, except that such
term shall include elective contributions made on an employee's behalf by the
Company or a Participating Company that are not includable in income under
Section 125 or Section 402(e)(3) of the Code. Notwithstanding the foregoing,
"eligible compensation" shall not include (i) employer contributions to or
payments from any deferred compensation program, whether such program is
qualified under Section 401(a) of the Code or nonqualified, (ii) amounts
realized from the receipt or exercise of a stock option that is not an incentive
stock option within the meaning of Section 422 of the Code, (iii) amounts
realized at the time property described in Section 83 of the Code is freely
transferable or no longer subject to a substantial risk of forfeiture, (iv)
amounts realized as a result of an election described in Section 83(b) of the
Code, and (v) any amount realized as a result of a disqualifying disposition
within the meaning of Section 421(a) of the Code.
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(e) $25,000 LIMITATION. No employee shall be granted an option under the
Plan to the extent the grant of an option under the Plan would permit his rights
to purchase Stock under the Plan and under all other employee stock purchase
plans of the Company and its parent and subsidiary corporations (as such terms
are defined in Section 424(e) and (f) of the Code) to accrue at a rate which
exceeds $25,000 of fair market value of Stock (determined at the time the option
is granted) for each calendar year in which any such option granted to such
employee is outstanding at any time (within the meaning of Section 423(b)(8) of
the Code).
(f) LEAVES OF ABSENCE. During a paid leave of absence approved by the
Company and meeting the requirements of Treasury Regulation 1.421-7(h)(2), a
participant's elected payroll deductions shall continue. If a participant takes
an unpaid leave of absence that is approved by the Company and meets the
requirements of Treasury Regulation 1.421-7(h)(2), then such participant may
continue participation in the Plan by cash payments to the Company on his normal
pay days equal to the reduction in his payroll deductions caused by his leave.
If a participant on such leave fails to make such payments, or if a participant
takes a leave of absence that is not described in the preceding provisions of
this subparagraph 6(f), then he shall be considered to have withdrawn from the
Plan pursuant to the provisions of paragraph 8 hereof.
(g) CONTINUING ELECTION. A participant (i) who has elected to participate
in the Plan pursuant to subparagraph 6(b) as of a date of grant and (ii) who
takes no action to change or revoke such election as of the next following date
of grant and/or as of any subsequent date of grant prior to any such respective
date of grant shall be deemed to have made the same election, including the same
attendant payroll deduction authorization, for such next following and/or
subsequent date(s) of grant as was in effect for the date of grant for which he
made such election to participate.
7. EXERCISE OF OPTIONS.
(a) GENERAL STATEMENT. Each eligible employee who is a participant in the
Plan automatically and without any act on his part shall be deemed to have
exercised his option on each date of exercise to the extent that the cash
balance then in his account under the Plan is sufficient to purchase at the
"option price" (as defined in subparagraph 7(b)) whole shares of Stock. Any
balance remaining in his account after payment of the purchase price of those
whole shares shall be carried forward and used towards the purchase of whole
shares in the next following option period.
(b) "OPTION PRICE" DEFINED. The option price per share of Stock to be paid
by each optionee on each exercise of his option shall be a sum equal to 85% of
the fair market value of the Stock on the date of exercise or on the date of
grant, whichever amount is lesser. For all purposes under the Plan, the fair
market value of a share of Stock on a particular date shall be equal to the
closing sales price of the Stock (i) reported by the NASDAQ-National Market
System 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
Committee in such manner as it deems appropriate.
(c) DELIVERY OF SHARE CERTIFICATES. As soon as practicable after each date
of exercise, the Company shall issue one or more certificates representing the
total number of whole shares of Stock respecting exercised options in the
aggregate of all of the eligible employees hereunder. Any such certificate shall
be held by the Company, and, if the Company issues a certificate representing
the shares of more than one eligible employee, the Company shall keep accurate
records of the beneficial interests of each eligible employee in each such
certificate by means of a Company stock account. Each eligible employee shall be
provided with such periodic statements as may be directed by the Committee
reflecting all activity in any such Company stock account. In the event the
Company is required to obtain from any commission or agency authority to issue
any such certificate, the Company shall seek
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to obtain such authority. Inability of the Company to obtain from any such
commission or agency authority which counsel for the Company deems necessary for
the lawful issuance of any such certificate shall relieve the Company from
liability to any participant in the Plan except to return to him the amount of
the balance in his account. On or before March 15 and September 15 of each year,
an employee may, on the form prescribed by the Committee, request the Company to
deliver to such employee as soon as possible after the next following March 31
or September 30, respectively, a certificate issued in his name representing the
aggregate whole number of shares of Stock then held by the Company on his behalf
under the Plan. Further, upon the termination of an employee's employment with
the Company and its parent or subsidiary corporations for any reason whatsoever,
the Company shall deliver to such employee a certificate issued in his name
representing the aggregate whole number of shares of Stock then held by the
Company on his behalf under the Plan. While shares of Stock are held by the
Company, such shares may not be sold, assigned, pledged, exchanged, hypothecated
or otherwise transferred, encumbered or disposed of by the employee who has
purchased such shares; provided, however, that such restriction shall not apply
to the transfer of such shares of Stock pursuant to (i) a plan of reorganization
of the Company, but the stock, securities or other property received in exchange
therefor shall be held by the Company pursuant to the provisions hereof or (ii)
a divorce. The Committee may cause the Stock certificates issued in connection
with the exercise of options under the Plan to bear such legend or legends, and
the Committee may take such other actions, as it deems appropriate in order to
reflect the provisions of this subparagraph 7(c) and to assure compliance with
applicable securities laws. Neither the Company nor the Committee shall have any
liability with respect to a delay in the delivery of a Stock certificate
pursuant to this subparagraph 7(c).
8. WITHDRAWAL FROM THE PLAN.
(a) GENERAL STATEMENT. Any participant may withdraw in whole from the Plan
at any time prior to the exercise date relating to a particular option period.
Partial withdrawals shall not be permitted. A participant who wishes to withdraw
from the Plan must timely deliver to the Company a notice of withdrawal in a
form prepared by the Company. The Company, promptly following the time when the
notice of withdrawal is delivered, shall refund to the participant the amount of
the cash balance in his account under the Plan; and thereupon, automatically and
without any further act on his part, his payroll deduction authorization and his
interest in unexercised options under the Plan shall terminate.
(b) ELIGIBILITY FOLLOWING WITHDRAWAL. A participant who withdraws from the
Plan shall be eligible to participate again in the Plan upon expiration of the
option period during which he withdrew (provided that he is otherwise eligible
to participate in the Plan at such time).
9. TERMINATION OF EMPLOYMENT. If the employment of a participant
terminates for any reason whatsoever, his participation in the Plan
automatically and without any act on his part shall terminate as of the date of
the termination of his employment. The Company shall refund to him the amount of
the cash balance in his account under the Plan, and thereupon his interest in
unexercised options under the Plan shall terminate.
10. RESTRICTION UPON ASSIGNMENT OF OPTION. An option granted under the
Plan shall not be transferable otherwise than by will or the laws of descent and
distribution. Each option shall be exercisable, during his lifetime, only by the
employee to whom granted. The Company shall not recognize and shall be under no
duty to recognize any assignment or purported assignment by an employee of his
option or of any rights under his option.
11. NO RIGHTS OF STOCKHOLDER UNTIL CERTIFICATE ISSUES. With respect to
shares of Stock subject to an option, an optionee shall not be deemed to be a
stockholder, and he shall not have any of the rights or privileges of a
stockholder. An optionee shall have the rights and privileges of a stockholder
upon, but not until, a certificate for shares has been issued on his behalf
following exercise of his option. With respect to an optionee's Stock held by
the Company pursuant to subparagraph 7(c), the Company shall, as soon as
practicable, pay the optionee any cash dividends attributable thereto and
facilitate the optionee's voting rights attributable thereto.
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12. CHANGES IN STOCK; ADJUSTMENTS. Whenever any change is made in the
Stock, by reason of a stock dividend or by reason of subdivision, stock split,
reverse stock split, recapitalization, reorganization, combinations,
reclassification of shares, or other similar change, appropriate action will be
taken by the Committee to adjust accordingly the number of shares subject to the
Plan, the maximum number of shares that may be subject to any option, and the
number and option price of shares subject to options outstanding under the Plan.
If the Company shall not be the surviving corporation in any merger or
consolidation (or survives only as a subsidiary of another entity), or if the
Company is to be dissolved or liquidated, then unless a surviving corporation
assumes or substitutes new options (within the meaning of Section 424(a) of the
Code) for all options then outstanding, (i) the date of exercise for all options
then outstanding shall be accelerated to a date fixed by the Committee prior to
the effective date of such merger or consolidation or such dissolution or
liquidation and (ii) upon such effective date any unexercised options shall
expire.
13. USE OF FUNDS; NO INTEREST PAID. All funds received or held by the
Company under the Plan shall be included in the general funds of the Company
free of any trust or other restriction, and may be used for any corporate
purpose. No interest shall be paid to any participant or credited to his account
under the Plan.
14. TERM OF THE PLAN. The Plan shall be effective as of July 1, 1996,
provided the Plan is approved by the stockholders of the Company within 12
months thereafter. Notwithstanding any provision in the Plan, no option granted
under the Plan shall be exercisable prior to such stockholder approval, and, if
the stockholders of the Company do not approve the Plan within 12 months after
its adoption by the Board, then the Plan shall automatically terminate. Except
with respect to options then outstanding, if not sooner terminated under the
provisions of paragraph 15, the Plan shall terminate upon and no further options
shall be granted after June 30, 2006.
15. 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
(other than as a result of the anti-dilution provisions of the Plan), change the
class of individuals eligible to receive options under the Plan, extend the term
of the Plan, cause options issued under the Plan to fail to meet the
requirements of employee stock purchase options as defined in Section 423 of the
Code, or otherwise modify the requirements as to eligibility for participation
in the Plan without the approval of the stockholders of the Company.
16. SECURITIES LAWS. The Company shall not be obligated to issue any Stock
pursuant to any option granted under the Plan at any time when 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 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. Further, all Stock acquired pursuant to the Plan shall be
subject to the Company's policy or policies, if any, concerning compliance with
securities laws and regulations, as the same may be amended from time to time.
17. 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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