<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HORIZON MENTAL HEALTH MANAGEMENT, INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
[ ] $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:
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[x] No fee required.
</TABLE>
<PAGE> 2
HORIZON MENTAL HEALTH MANAGEMENT, INC.
1500 WATERS RIDGE DRIVE
LEWISVILLE, TEXAS 75057-6011
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 29, 1997
To the Stockholders of
Horizon Mental Health Management, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Horizon Mental Health Management, Inc. (the "Company") will be held at the
executive offices of the Company located at 1500 Waters Ridge Drive,
Lewisville, Texas 75057-6011, on Wednesday, January 29, 1997, at 9:00 a.m.,
Central Time, for the following purposes:
1. To elect seven directors to serve for the ensuing year;
2. To consider and vote upon a proposal to amend the Certificate
of Incorporation of the Company, as amended, to increase the
number of authorized shares of Common Stock of the Company
from 10,000,000 shares to 40,000,000 shares, as further
described in the accompanying Proxy Statement;
3. To consider and vote upon a proposal to approve the Rights
Agreement, as further described in the accompanying Proxy
Statement;
4. To consider and vote upon a proposal to ratify the appointment
of Price Waterhouse LLP as the independent accountants for the
Company for the fiscal year ending August 31, 1997; and
5. To transact such other business as may properly come before
the Annual Meeting and any and all adjournments thereof.
The close of business on December 13, 1996 has been fixed by the Board
of Directors as the record date for determining stockholders entitled to notice
of and to vote at the Annual Meeting. A list of stockholders eligible to vote
at the Annual Meeting will be available for inspection at the Annual Meeting,
and during business hours from January 17, 1997 to the date of the Annual
Meeting at the executive offices of the Company located at 1500 Waters Ridge
Drive, Lewisville, Texas 75057-6011.
You are cordially invited to attend the Annual Meeting. Whether or
not you plan to attend the Annual Meeting, it is important that you ensure your
representation by completing, signing, dating and promptly returning the
enclosed proxy card. A return envelope, which requires no postage if mailed in
the United States, has been provided for your use. If you attend the Annual
Meeting, you may revoke your proxy and vote in person if you wish.
By Order of the Board of Directors,
JAMES W. McATEE
Secretary
December 20, 1996
<PAGE> 3
HORIZON MENTAL HEALTH MANAGEMENT, INC.
1500 WATERS RIDGE DRIVE
LEWISVILLE, TEXAS 75057-6011
------------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
------------------------
TO BE HELD JANUARY 29, 1997
This Proxy Statement is furnished in connection with the solicitation
on behalf of the Board of Directors of Horizon Mental Health Management, Inc.,
a Delaware corporation (the "Company" or "Horizon"), of proxies for use at the
Annual Meeting of Stockholders of the Company (the "Annual Meeting") to be held
at the executive offices of the Company located at 1500 Waters Ridge Drive,
Lewisville, Texas 75057-6011, on Wednesday, January 29, 1997, at 9:00 a.m.,
Central Time, and at any and all adjournments thereof, for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders. This Proxy
Statement and the accompanying proxy card are first being mailed on or about
December 20, 1996 to stockholders of the Company entitled to notice of and to
vote at the Annual Meeting. Only holders of record of the Common Stock, $.01
par value ("Common Stock"), of the Company at the close of business on December
13, 1996, will be entitled to notice of and to vote at the Annual Meeting. As
of that date, there were 3,650,677 shares of Common Stock outstanding. Each
share of Common Stock entitles the record holder to one vote. There is no
cumulative voting.
The holders of a majority of the issued and outstanding shares of
Common Stock entitled to vote at the Annual Meeting must be present in person or
represented by proxy at the Annual Meeting in order to have a quorum for the
Annual Meeting. Directors will be elected at the Annual Meeting by a plurality
of the votes of the shares present in person or represented by proxy at the
Annual Meeting and entitled to vote on the election of directors. Accordingly,
the seven nominees for director receiving the highest number of affirmative
votes cast on the election of directors at the Annual Meeting will be elected as
directors. The affirmative vote of the holders of a majority of the issued and
outstanding shares of Common Stock on the record date will be required to
approve the proposal to amend the Certificate of Incorporation of the Company
(Proposal No. 2 herein). The affirmative vote of the holders of a majority of
the shares of Common Stock which are actually present in person or represented
by proxy at the Annual Meeting and entitled to vote thereat will be required to
approve all other matters to be acted upon at the Annual Meeting. Abstentions
will be counted for purposes of determining the presence or absence of a quorum,
but not voted. Abstentions will therefore have the same effect as votes against
any proposal requiring the affirmative vote of a majority of the outstanding
shares or of the shares present and entitled to vote thereon. Broker non-votes
will be counted only for purposes of determining the presence or absence of a
quorum. Broker non-votes on the proposal to amend the Certificate of
Incorporation of the Company (Proposal No. 2 herein) will have the same effect
as votes against such proposal, but broker non-votes will have no effect on the
outcome of the other matters to be acted upon at the Annual Meeting.
If the accompanying proxy card is properly signed and received by the
Company prior to the Annual Meeting and not revoked, it will be voted in
accordance with the instructions contained therein. If no instructions are
given, the persons designated as proxies in the accompanying proxy card will
vote "FOR" the election as directors of those persons named below and "FOR" all
other proposals set forth therein.
<PAGE> 4
The Board of Directors is not currently aware of any matters other
than those referred to herein which will come before the Annual Meeting. If
any other matter is properly presented at the Annual Meeting for action, the
persons named in the accompanying proxy card will vote the proxy in their own
discretion on such matter.
You may revoke your proxy at any time before it is actually voted at
the Annual Meeting by delivering written notice of revocation to the Secretary
of the Company, by submitting a subsequently dated proxy, or by attending the
Annual Meeting and giving notice to the Secretary of the Company in writing that
the proxy is withdrawn. Attendance at the Annual Meeting will not, by itself,
constitute revocation of the proxy.
The cost of soliciting proxies in the accompanying form will be borne
by the Company. Proxies may also be solicited personally or by telephone by
officers or employees of the Company, none of whom will receive additional
compensation therefor. The Company's regularly retained investor communications
firm, Corporate Communications, Inc., may also be called upon to solicit
proxies by telephone or mail. The Company will reimburse brokerage houses and
other nominees for their reasonable expenses in forwarding proxy materials to
beneficial owners of Common Stock.
The Company's executive offices are located at 1500 Waters Ridge
Drive, Lewisville, Texas 75057-6011. Its telephone number is (972) 420-8200.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
GENERAL INFORMATION
As set by the Board of Directors pursuant to the Bylaws of the
Company, the authorized number of directors of the Company is seven. Seven
directors will be elected at the Annual Meeting, to hold office until the next
annual meeting of stockholders of the Company and until their respective
successors are duly elected and qualify, or until their earlier death,
resignation or removal. All director nominees named below are currently
serving as directors of the Company with terms expiring at the Annual Meeting.
The Board of Directors has no reason to believe that any of the nominees will
not serve if elected, but if any of them become unavailable to serve as a
director, and if the Board designates a substitute nominee, the persons named
in the accompanying proxy card will vote for the substitute nominee designated
by the Board.
INFORMATION REGARDING NOMINEES
Set forth below is certain information with respect to each director
nominee. Additional information regarding certain of the nominees is set forth
in other sections of this Proxy Statement.
<TABLE>
<CAPTION>
NAME AGE TITLE DIRECTOR SINCE
- ---- --- ----- --------------
<S> <C> <C> <C>
James Ken Newman 53 President, Chief Executive Officer and July 1989
Chairman of the Board of Directors
James W. McAtee 51 Executive Vice President - Finance & July 1995
Administration, Chief Financial Officer,
Treasurer and Secretary; Director
Jack R. Anderson 71 Director December 1990
George E. Bello 61 Director April 1995
William H. Longfield 58 Director July 1995
Keith B. Pitts 39 Director February 1992
Donald E. Steen 50 Director April 1995
</TABLE>
2
<PAGE> 5
James Ken Newman has been President and Chief Executive Officer of the
Company since July 1989 and Chairman since February 1992. Mr. Newman currently
serves on the board of directors of United Dental Care, Inc. and Telecare
Corporation.
James W. McAtee has been Executive Vice President-Finance &
Administration of the Company since February 1992 and Chief Financial Officer,
Treasurer and Secretary of the Company since September 1990. Mr. McAtee was a
Senior Vice President of the Company from September 1990 to February 1992.
Jack R. Anderson has been President of Calver Corporation, a health
care consulting and investment firm, and a private investor, since 1982. Mr.
Anderson currently serves on the board of directors of FHP International
Corporation, Talbert Medical Management Holdings Corporation and United Dental
Care, Inc. Mr. Anderson is a member of the Compensation and Option Committee of
the Board of Directors of the Company.
George E. Bello has been Executive Vice President and Controller and a
member of the board of directors of Reliance Group Holdings, Inc., an insurance
holding company, since 1982. Mr. Bello also serves on the board of directors of
Zenith National Insurance Corp. and United Dental Care, Inc. Mr. Bello is a
member of the Audit Committee of the Board of Directors of the Company.
William H. Longfield has been the Chairman and Chief Executive Officer
of C.R. Bard, Inc., a multi-national developer, manufacturer and marketer of
health care products, since September 1995. Mr. Longfield was President and
Chief Executive Officer of C.R. Bard, Inc. from October 1993 to September 1995,
President and Chief Operating Officer from September 1991 to October 1993 and
Executive Vice President and Chief Operating Officer from February 1989 to
September 1991. Mr. Longfield currently serves on the board of directors of
C.R. Bard, Inc., Atlantic Health Systems, Health Industry Manufacturers
Association, Manor Care, Inc., The West Company and United Dental Care, Inc.
Keith B. Pitts has been Executive Vice President and Chief Financial
Officer of OrNda HealthCorp, a health care services corporation primarily
involved in the ownership and operation of hospitals and providing related
services, since August 1992. From July 1991 to August 1992, Mr. Pitts was a
partner in Ernst & Young LLP's Southeast Region Health Care Consulting Group,
and from January 1988 to July 1991 he was a partner and Regional Director in
Ernst & Young LLP's Western Region Health Care Consulting Group. Mr. Pitts
currently serves on the board of directors of Summit Care Corporation. Mr.
Pitts is a member of the Compensation and Option Committee of the Board of
Directors of the Company.
Donald E. Steen has been President of the International Group of
Columbia/HCA Healthcare Corporation, a health care services corporation
primarily involved in the ownership and operation of hospitals and providing
related services, since September 1994. From August 1981 to September 1994,
Mr. Steen was Chief Executive Officer of Medical Care America, Inc., a
corporation that operated ambulatory surgery centers. Medical Care America,
Inc. was acquired by Columbia/HCA Healthcare Corporation in September 1994.
Mr. Steen currently serves on the board of directors of United Dental Care,
Inc. Mr. Steen is a member of the Audit Committee of the Board of Directors of
the Company.
SHARES REPRESENTED BY THE ACCOMPANYING PROXY CARD WILL BE VOTED "FOR"
THE ELECTION OF THE NOMINEES NAMED ABOVE EXCEPT TO THE EXTENT AUTHORITY TO VOTE
FOR ONE OR MORE NOMINEES IS WITHHELD. AS INDICATED ON THE PROXY CARD,
STOCKHOLDERS MAY (I) VOTE FOR THE ENTIRE SLATE OF NOMINEES, (II) WITHHOLD
AUTHORITY TO VOTE FOR THE ENTIRE SLATE OF NOMINEES OR (III) BY WRITING THE NAME
OF ONE OR MORE NOMINEES IN THE SPACE PROVIDED ON THE PROXY CARD, WITHHOLD
AUTHORITY TO VOTE FOR SUCH SPECIFIED NOMINEE OR NOMINEES.
3
<PAGE> 6
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors of the Company held four meetings during the
fiscal year ended August 31, 1996. The only standing committees of the Board of
Directors are the Compensation and Option Committee and the Audit Committee.
Each current director of the Company attended at least 75% of the aggregate of
the total number of meetings of the Board of Directors of the Company, and of
the committees of the Board on which the respective director served, that were
held during the fiscal year ended August 31, 1996.
Compensation and Option Committee. The Compensation and Option
Committee reviews and sets from time to time the salaries and annual incentive
bonuses for the officers of the Company at or above the Vice President level,
and also administers the stock option plans of the Company. The Compensation and
Option Committee met once during the fiscal year ended August 31, 1996. Jack R.
Anderson and Keith B. Pitts currently are the members of the Compensation and
Option Committee.
Audit Committee. The principal functions of the Audit Committee are
to make recommendations to the Board of Directors as to the selection of the
independent auditors for the Company, and to review and consult with the Board
of Directors or management regarding the scope and results of any outside audit
of the Company and other auditing and accounting matters. The Audit Committee
met once during the fiscal year ended August 31, 1996. George E. Bello and
Donald E. Steen currently are the members of the Audit Committee.
4
<PAGE> 7
EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding
compensation earned by or awarded to the Chief Executive Officer and the other
executive officers of the Company named below (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------------- ------------
Other
Annual Securities ALL OTHER
Fiscal Compensation Underlying COMPENSATION
NAME AND PRINCIPAL POSITION Year Salary(1) Bonus(1) (2) Options (#) (3)
- --------------------------- ---- --------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
James Ken Newman . . . . . . . 1996 $229,932 $283,833 --- 20,000 $2,501
President and Chief 1995 193,459 130,187 --- 19,844 2,932
Executive Officer 1994 179,000 89,500 --- 89,500 2,248
James W. McAtee . . . . . . . . 1996 211,317 140,096 --- 15,000 2,501
Executive Vice President - 1995 187,314 89,062 --- 11,594 2,932
Finance & Administration 1994 169,417 50,825 --- 50,825 2,248
Gary A. Kagan . . . . . . . . . 1996 195,692 64,876 --- 18,000 2,501
Executive Vice President - 1995 184,083 72,000 --- 18,562 2,932
Development 1994 176,000 58,500 --- 85,000 2,248
Robert A. Lefton . . . . . . . 1996 159,474 79,734 $119,097 30,000 2,501
Executive Vice President, 1995 152,005 75,938 --- --- 2,932
Operations 1994 146,175 65,547 22,114 10,000 2,248
John F. DeVaney . . . . . . . . 1996 151,232 75,600 28,898 30,000 2,501
Executive Vice President, 1995 144,092 64,046 --- --- 2,771
Operations 1994 120,000 45,308 22,575 17,500 1,824
</TABLE>
- ------------------
(1) Represents the amounts earned in the fiscal year indicated, irrespective
of when amounts were paid by the Company. The bonus amounts shown for
Messrs. Newman and McAtee for fiscal 1996 include incentive bonuses, and
also include bonuses earned by them in fiscal 1996 under the contingent
bonus plan. See "Other Compensation Arrangements - Contingent Bonuses."
The bonus amounts shown for Mr. Kagan were calculated based on the number
of new management contract locations that opened in the fiscal year in
question, irrespective of when the contracts were signed. Such bonus
amounts shown for Mr. Kagan as to any fiscal year do not include amounts
accrued as of the end of such fiscal year for signed contracts where the
contract location was not opened as of the end of the fiscal year, since
the bonuses are to be paid only if and when such contract locations open.
The bonus amount shown for Mr. Lefton for fiscal 1994 includes sales
commissions of $10,000.
(2) The amounts shown include relocation expenses of $116,647 in fiscal 1996
and $21,964 in fiscal 1994 for Mr. Lefton, and $28,723 in fiscal 1996 and
$22,425 in fiscal 1994 for Mr. DeVaney, respectively.
(3) The amounts shown for each fiscal year consist of Company contributions
made in that fiscal year to the 401(k) Plan of the Company on behalf of
the Named Executive Officers with respect to the prior calendar year.
5
<PAGE> 8
STOCK OPTIONS
The following table sets forth information regarding the grant of
options to purchase shares of Common Stock to the Named Executive Officers in
the fiscal year ended August 31, 1996.
OPTION GRANTS IN FISCAL YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL EXERCISE ANNUAL RATES OF
UNDERLYING OPTIONS OR STOCK PRICE APPRECIATION
OPTIONS GRANTED TO BASE ------------------------
GRANTED(1) EMPLOYEES IN PRICE(2) EXPIRATION FOR OPTION TERM(3)
NAME (#) FISCAL YEAR ($/SH) DATE 5% 10%
- ---- ---------- ------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
James Ken Newman . . . . . 20,000 11.7% $14.625 8/31/05 $ 183,952 $ 466,170
James W. McAtee . . . . . . 15,000 8.8 14.625 8/31/05 137,964 349,627
Gary A. Kagan . . . . . . . 10,000 5.9 14.625 8/31/05 91,976 233,085
8,000 4.7 21.250 8/14/06 106,912 270,936
Robert A. Lefton . . . . . 5,000 2.9 14.625 8/31/05 45,988 116,542
25,000 14.7 21.250 8/14/06 334,100 846,676
John F. DeVaney . . . . . . 5,000 2.9 14.625 8/31/05 45,988 116,542
25,000 14.7 21.250 8/14/06 334,100 846,676
</TABLE>
- ------------------
(1) The options vest and are exercisable cumulatively in 20% annual
installments commencing two years after the date of grant. Exercisability
of the options may be accelerated in the event of the commencement of a
tender offer for shares of the Company, the signing of an agreement for
certain mergers or consolidations involving the Company or for the sale of
all or substantially all assets of the Company, a change in any consecutive
two-year period in the majority of the members of the Board of Directors of
the Company serving on the Board at the beginning of such period, and
certain other extraordinary corporate transactions. The options are
subject to early termination in the event of the optionee's cessation of
service with the Company.
(2) The exercise price per share of the options equalled the reported closing
price of the Common Stock on the date of grant. Subject to the terms of
the applicable option agreements, the exercise price may be paid in cash
or in shares of Common Stock owned by the optionee, or a combination of
the foregoing.
(3) There is no assurance that the actual stock price appreciation over the
ten-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock does in
fact appreciate over the option term, no value will be realized from the
option grants.
6
<PAGE> 9
AGGREGATE OPTION EXERCISES IN FISCAL 1996 AND OPTION VALUES AT FISCAL YEAR-END
The following table sets forth, for each Named Executive Officer,
information regarding stock options exercised during the fiscal year ended
August 31, 1996, the number of shares covered by both exercisable and
unexercisable stock options as of August 31, 1996, and the value of stock
options outstanding as of August 31, 1996.
AGGREGATED OPTION EXERCISES
IN FISCAL YEAR ENDED AUGUST 31, 1996
AND OPTION VALUES AS OF AUGUST 31, 1996
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Options at Fiscal in-the-Money Options at
on Year-End (#) Fiscal Year-End (1)
Exercise Value --------------------------- ----------------------------
Name (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James Ken Newman . . . 50,000 $953,963 124,657 181,249 $2,505,180 $3,100,442
James W. McAtee . . . . 10,677 224,217 90,686 109,314 1,798,992 1,833,685
Gary A. Kagan . . . . . -- -- 55,250 131,312 1,038,976 2,063,856
Robert A. Lefton . . . 6,250 114,116 7,500 51,250 140,000 451,250
John F. DeVaney . . . . 2,000 37,618 15,875 53,125 301,750 462,500
</TABLE>
- ------------------
(1) Calculated based on the closing price of the Common Stock of $22.00 per
share as reported on the Nasdaq National Market on August 30, 1996, the
last trading day of fiscal 1996, less the applicable exercise price. The
values shown for Mr. Lefton and Mr. Devaney were calculated by including
as an addition to the per share exercise price of certain options granted
to such individuals in fiscal 1993 and fiscal 1994 the amount per share
paid by such individuals to purchase such options.
OTHER COMPENSATION ARRANGEMENTS
Employment Agreements
The Company has entered into employment agreements with Messrs. Newman
and Kagan. Under their employment agreements, Messrs. Newman and Kagan are
entitled to base salaries that are subject to increase, but not decrease, by
the Board of Directors of the Company. The annual base salaries for Messrs.
Newman and Kagan were $250,000 and $200,000, respectively, as of August 31,
1996. Mr. Newman's employment agreement provides that the Board of Directors
will adopt each year a bonus plan, under which Mr. Newman may earn up to 100%
of his base salary, with the terms and performance criteria of the bonus plan
to be determined by the Board of Directors. The employment agreements also
allow Messrs. Newman and Kagan to participate in the insurance and other fringe
benefit plans provided to the Company's employees generally from time to time.
Each of the employment agreements is terminable by either party
thereto with or without cause upon at least 30 days prior written notice. In
addition, either party may terminate the employment agreement "with cause"
under certain circumstances. The employee can terminate with cause if the
Company materially breaches or fails to perform under the agreement. For such
purpose, Mr. Newman's employment agreement expressly provides that a material
breach includes a material decrease in Mr. Newman's responsibility and
authority or the relocation of the Company's principal executive offices
without Mr. Newman's consent. The Company may terminate an employment
agreement with cause if the employee thereunder (i) is unable to perform his
duties due to illness, injury or incapacity for more
7
<PAGE> 10
than six months or death, (ii) is convicted of a felony or (iii) breaches or
neglects to perform under the agreement. If an employment agreement is
terminated without cause by the Company or with cause by the employee
thereunder, the terminated employee will be entitled to receive (i) any bonus
previously earned, (ii) a severance cash payment equal to $150,000 in Mr.
Newman's case and one year's base salary in Mr. Kagan's case, payable in twelve
equal monthly installments and (iii) accelerated vesting of all outstanding
stock options and other benefits or bonuses or, alternatively, with respect to
any benefits or bonuses that cannot be fully vested pursuant to applicable law
the terminated employee will be entitled to receive if allowed by law cash
equal to the amount of benefits or bonuses forfeited. Both employment
agreements contain certain noncompetition and nonsolicitation covenants binding
on the employee during the employment term and for specified periods thereafter
unless the employment agreement is terminated by the Company without cause or
by the employee with cause. Each employment agreement also contains certain
confidentiality and nondisclosure covenants on the part of the employee that
survive termination for any reason.
Contingent Bonuses
In January 1995, the Compensation and Option Committee approved
contingent bonuses applicable to Messrs. Newman, McAtee and Kagan. The aggregate
amounts of such bonuses which may be earned by Messrs. Newman, McAtee and Kagan
are $216,904, $123,176 and $206,000, respectively. Each such individual will be
entitled to receive 25% of his aggregate potential bonus on or after October 31,
1995, 1996, 1997 and 1998, on a cumulative basis, but only if the conditions
discussed below are satisfied. The bonuses will be considered earned by the
executive officer and payable by the Company only if (i) each respective bonus
is utilized to pay the exercise price of stock options for the purchase of
Common Stock and (ii) the executive officer has remained in the continuous
employment of the Company until the date when each such bonus, or portion
thereof, is paid. The bonuses may be payable in one or more installments as and
when the executive officer elects to exercise stock options, provided that the
conditions to the receipt of the bonus have been satisfied on the payment date
thereof. In fiscal 1996, $54,000 and $13,346 of such bonuses were paid to
Messrs. Newman and McAtee, respectively, and used to pay the exercise price of
stock options for the purchase of Common Stock exercised by them in such fiscal
year. Such payments represent the only bonus payments made by the Company
through December 1, 1996 under the contingent bonus plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Anderson and Pitts are the members of the Compensation and
Option Committee. Neither of these individuals has ever been an officer or
employee of the Company or any of its subsidiaries.
DIRECTOR COMPENSATION
The Company's Amended and Restated 1995 Stock Option Plan for Eligible
Outside Directors (the "Director Plan") provides for a one-time formula grant
of stock options to purchase 10,000 shares of Common Stock to each non-employee
director of the Company upon such director's initial election to the Board of
Directors if the director satisfies certain criteria specified in
8
<PAGE> 11
such plan, as well as an annual formula grant of stock options to purchase 2,000
shares of Common Stock to each eligible non-employee director who is reelected
to the Board of Directors at an annual meeting of stockholders of the Company
and meets certain other specified criteria. Stock options granted to directors
under such plan vest and become exercisable in five equal cumulative annual
installments on each annual anniversary of the grant date. Such stock options
terminate on the date any optionee ceases to be a director of the Company for
any reason other death (in the event of the optionee's death, stock options
vested at the date of death are exercisable for one year thereafter).
In 1995, each of Messrs. Bello, Longfield, Pitts and Steen received
grants of stock options to purchase 10,000 shares of Common Stock under the
Director Plan. Each one of these four individuals who is reelected to the Board
of Directors at the Annual Meeting will receive a grant of stock options to
purchase 2,000 shares of Common Stock under such plan. Such additional stock
options will be granted on the date of the Annual Meeting at an exercise price
equal to the closing price of the Common Stock on the Nasdaq National Market on
that date.
Directors of the Company do not receive any other compensation for
service on the Board of Directors or any committee thereof, but are reimbursed
for their out-of-pocket expenses incurred in attending meetings of the Board of
Directors.
9
<PAGE> 12
COMPENSATION AND OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation and Option Committee of the Board of Directors of the
Company reviews and approves the salaries and annual incentive bonuses of the
officers of the Company at or above the Vice President level and all grants of
options to purchase shares under the Company's stock option plans to officers
and key employees. At all times during the fiscal year ended August 31, 1996,
the Compensation and Option Committee was composed exclusively of directors who
were "disinterested persons" as defined by applicable Securities and Exchange
Commission rules. The members of such Committee are neither employees nor
former employees of the Company nor have such individuals participated in any
of the Company executive or other employee compensation programs. During
fiscal 1996, the Committee was composed of two directors, Mr. Anderson and Mr.
Pitts.
Horizon's executive compensation policy is designed and administered
to provide a competitive compensation program that will enable Horizon to
attract, motivate, reward and retain executives who have the skills, education,
experience and capabilities required to discharge their duties in a competent
and efficient manner. The compensation policy is based on the principle that
the financial rewards to the executive should be aligned with the financial
interests of the stockholders of Horizon.
Horizon's executive compensation strategy has three separate elements,
consisting of base salary, annual incentive compensation and long-term
incentive compensation (stock options). The following is a summary of the
policies underlying each element.
BASE SALARY
James Ken Newman, Chairman, President and Chief Executive Officer of
the Company, and Gary A. Kagan, Executive Vice President - Development, are the
only executive officers who are parties to employment agreements with the
Company. See "Other Compensation Arrangements - Employment Agreements." The
agreements permit, but do not require, increases to their base salaries, and
also contemplate the opportunity for an annual incentive bonus. The
Compensation and Option Committee reviews the base salaries of Messrs. Newman
and Kagan (as well as other officers, including the other Named Executive
Officers) periodically, considering factors such as individual and corporate
performance, and individual experience, expertise and years of service.
In determining Mr. Newman's overall compensation as well as the
compensation of the other officers, the Compensation and Option Committee also
reviews certain compensation levels at other companies including selected peer
companies. Such other companies are not necessarily the same as the companies
in the peer group index in the Performance Graph section of this Proxy
Statement because the Compensation and Option Committee believes that the
Company competes for executive talent with companies in addition to those in
its peer group. The Compensation and Option Committee does not attempt to set
base salaries at any particular level based on such surveys, but rather uses
such surveys to obtain an overview of compensation levels in general.
No particular weight is given by the Compensation and Option Committee
to any of the foregoing factors, and decisions as to adjustments in base
salaries are primarily subjective. In August 1995, the base salaries of each
of the Company's officers at or above the Vice President level were reviewed
and increases approved for each of the officers to be effective at various
dates during fiscal 1996. For Mr. Newman, an increase of $38,000 to $228,000
effective August 1, 1995 was approved. This increase was based upon the
substantial growth in the size of the Company, the much improved financial
10
<PAGE> 13
performance of the Company, and the successful completion of the Company's
acquisition of the mental health unit management contracts of Mental Health
Management, Inc. and the initial public offering of the Company. In August
1996, the Compensation and Option Committee granted Mr. Newman an increase of
$22,000 to $250,000 based upon the Company's continued growth in revenue and
earnings.
ANNUAL INCENTIVE COMPENSATION
For services rendered during fiscal 1996, each of Horizon's executive
officers received cash bonuses upon the completion of such fiscal year. All
such cash bonuses were awarded based upon performance criteria. Mr. Newman's
bonus potential is set by his employment agreement at 100% of his annual base
salary. For fiscal 1996, the performance criteria was set based upon the
Board-approved budget which was consistent with the then current public
expectation of earnings per share for the Company.
Mr. McAtee's bonus was set at up to 60% of his average base salary for
the fiscal year and was based upon the Company achieving the same
Board-approved budget.
Mr. Kagan's bonus was set at a designated amount for each new
management contract signed during the fiscal year above a specified minimum
number of new contracts.
Messrs. Lefton and DeVaney and the Regional Vice Presidents of the
Company had bonuses set at up to 50% of their average base salary for fiscal
1996, with 100% of the bonus based upon the financial results of their regions.
LONG-TERM INCENTIVES
The Compensation and Option Committee is authorized to grant incentive
and nonqualified stock options to key employees of the Company, including
officers. Such option grants are intended to provide long-term incentive to
increase stockholder value by improving corporate performance and
profitability. Stock option grants provide an incentive that focuses the
executive's attention on managing the Company from the perspective of an owner
with an equity stake in the business. These grants also help ensure that
operating decisions are based on long-term results that benefit the Company and
ultimately the stockholders. Currently, stock options are not necessarily
granted annually, but are granted from time to time at the discretion of the
Compensation and Option Committee. While no specific formula is used to
determine stock option grants made to any particular grantee, grants are
generally based upon a subjective evaluation of non-objective factors such as
the grantee's past contribution toward Company performance and expected
contribution to meeting long-term strategic goals of the Company.
In granting options in fiscal 1996, the Committee made a subjective
evaluation of the performance of those officers who had been with the Company
during the prior year, assessed the potential future contributions of each
proposed grantee, considered the stock options already held by the proposed
grantees and their levels of authority in the Company, and the necessity of
remaining competitive in the contract management industry in the granting of
options, and granted stock options with an exercise price equal to the reported
closing price of the Common Stock on the date of grant to tie the gain of
grantees to the gain of the stockholders.
As a result of these considerations, the Compensation and Option
Committee granted on September 1, 1995, 20,000 stock options to Mr. Newman,
15,000 stock options to Mr. McAtee, 10,000 stock options to Mr. Kagan, and
5,000 stock options to each of Messrs. Lefton and DeVaney, under the 1995 Stock
Option Plan of the Company (the "1995 Plan"). These 55,000 stock options were
granted to such officers at an exercise price of $14.625 per share, which was
the reported closing price of the
11
<PAGE> 14
Common Stock on such date. Further, on August 15, 1996, the Compensation and
Option Committee granted Mr. Kagan 8,000 stock options under the 1995 Plan and,
in recognition of their additional responsibilities as newly appointed co-chief
operating officers, 25,000 stock options under the 1995 Plan to each of Mr.
Lefton and Mr. DeVaney, at the reported closing price of the Common Stock on
that date of $21.25 per share.
Section 162(m) of the Internal Revenue Code of 1986, as amended,
imposes a $1,000,000 limit on the amount of compensation that will be
deductible for Federal income tax purposes by the Company each fiscal year with
respect to each of the Chief Executive Officer and the four other most highly
compensated executive officers of the Company. The base salary and annual
incentive compensation level of the Company's executive officers is currently
well below this limit. The Company believes that the limitation of Section
162(m) does not apply to compensation earned or that may be earned with respect
to the stock options granted to the Named Executive Officers under the stock
option plans of the Company during or prior to the fiscal year ended August 31,
1996.
Compensation and Option Committee
JACK R. ANDERSON
KEITH B. PITTS
12
<PAGE> 15
PERFORMANCE GRAPH
The following graph shows a comparison of the total cumulative
stockholder return for the Company, the Total Return Index for Nasdaq Stock
Market (US Companies) (the "Nasdaq (US) Index"), a peer group selected by the
Company and the American Stock Exchange Index (the "ASE Index"), for the
period from March 14, 1995 (the date on which the Common Stock was first
registered under Section 12 of the Securities Exchange Act of 1934) through
August 31, 1996. The total return for both the Nasdaq (US) Index and the ASE
Index are shown because the Common Stock was listed and traded on the American
Stock Exchange until May 7, 1996, when the Common Stock began trading on the
Nasdaq National Market. The comparison below assumes $100 was invested on
March 14, 1995 in each of the Common Stock, shares comprising the Nasdaq (US)
Index, the common stock of the peer group and shares comprising the ASE Index,
and assumes reinvestment of dividends. Neither the Company nor any companies in
the peer group paid any dividends during such period.
HORIZON MENTAL HEALTH MANAGEMENT, INC.
TOTAL CUMULATIVE STOCKHOLDER RETURN FOR
PERIOD ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
3/14/95 8/31/95 8/31/96
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Horizon 100.00 150.00 220.00
- --------------------------------------------------------------------------------
Nasdaq (US) Index 100.00 126.66 142.85
- --------------------------------------------------------------------------------
Peer Group 100.00 113.06 123.34
- --------------------------------------------------------------------------------
ASE Index 100.00 117.75 123.30
- --------------------------------------------------------------------------------
</TABLE>
The peer group consists of the following publicly traded companies in
the health management services industry: Air Methods Corp., American Healthcorp.
Inc., Comprehensive Care Corp., Hemacare Corp., Medquist, Inc., Northstar
Health Services Inc. and Rehabcare Group, Inc.
13
<PAGE> 16
SECURITY OWNERSHIP BY MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
Set forth below is certain information with respect to the beneficial
ownership of Common Stock as of November 30, 1996, by (i) each person who, to
the knowledge of the Company, beneficially owns more than 5% of the outstanding
Common Stock, (ii) each current director (which constitutes all nominees for
director) of the Company, (iii) each Named Executive Officer and (iv) all
directors and executive officers of the Company as a group. Except as
indicated below, to the Company's knowledge each person named has sole voting
and investment power with respect to all shares shown as beneficially owned by
such person.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------
NAME NUMBER PERCENT
- ---- -------------- --------------
<S> <C> <C>
James Ken Newman (1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 407,610 10.7%
Jack R. Anderson (1) . . . . . . . . . . . . . . . . . . . . . . . . . . 351,600 9.6
Lutheran Brotherhood (1) . . . . . . . . . . . . . . . . . . . . . . . . 325,100 8.9
James W. McAtee (1)(3) . . . . . . . . . . . . . . . . . . . . . . . . . 224,300 6.0
GeoCapital Corporation (1) . . . . . . . . . . . . . . . . . . . . . . . 188,000 5.1
George E. Bello (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,000 4.4
Gary A. Kagan (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,141 2.2
John F. DeVaney (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,875 *
Robert A. Lefton (7) . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500 *
Donald E. Steen (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 *
William H. Longfield (8) . . . . . . . . . . . . . . . . . . . . . . . . 3,000 *
Keith B. Pitts (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 *
All directors and executive officers as a group (10 persons)(9) . . . . . 1,259,026 31.3
</TABLE>
- ------------------
* Less than 1%.
(1) The address of James Ken Newman and James W. McAtee is 1500 Waters Ridge
Drive, Lewisville, Texas 75057-6011. The address of Jack R. Anderson is
16475 Dallas Parkway, Suite 735, Dallas, Texas 75248. The address of
Lutheran Brotherhood is 625 Fourth Avenue South, Minneapolis, Minnesota
55415. The address of GeoCapital Corporation is 767 Fifth Avenue, 45th
Floor, New York, New York 10153.
(2) Includes 151,993 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options.
(3) Includes 34,000 and 13,332 shares of Common Stock held in trust for the
benefit of Mr. Newman's children and Mr. McAtee's children,
respectively. Also includes 106,291 shares of Common Stock issuable
upon the exercise of immediately exercisable stock options.
(4) Includes 44,000 shares of Common Stock held in a trust of which Mr.
Bello is a trustee and 2,000 shares of Common Stock issuable upon the
exercise of immediately exercisable stock options.
(5) Consists of 81,141 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options.
14
<PAGE> 17
(6) Consists of 15,875 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options.
(7) Consists of 7,500 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options.
(8) Includes 2,000 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options.
(9) Includes 370,800 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options held by certain directors and
executive officers.
PROPOSAL NO. 2
AMENDMENT TO CERTIFICATE OF
INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
DESCRIPTION OF THE PROPOSED AMENDMENT
The Board of Directors of the Company has adopted and declared it to
be advisable that the stockholders of the Company approve an amendment (the
"Amendment") to the Certificate of Incorporation, as amended, of the Company
(the "Certificate of Incorporation") to increase the number of shares of
Common Stock authorized for issuance from 10,000,000 shares to 40,000,000
shares, and has directed that the proposed Amendment be submitted to the
stockholders of the Company at the Annual Meeting for their approval.
REASONS FOR THE PROPOSED AMENDMENT
The number of authorized shares of Common Stock of the Company is
currently 10,000,000 shares. As of November 30, 1996, 3,650,677 shares of
Common Stock were outstanding and 1,217,218 shares were reserved for issuance
pursuant to the Company's stock option plans, leaving 5,132,105 unissued shares
not reserved. Approval of the Amendment would provide additional authorized
shares of Common Stock for issuance in the event of the future exercise or
exchange of Rights to be distributed under the Rights Agreement (as hereinafter
defined) that will be considered for approval by the stockholders at the Annual
Meeting (Proposal No. 3 herein) and for other corporate purposes described
below. However, approval of the Amendment by the stockholders is not a
condition to the effectiveness of the Rights Agreement and approval of the
Rights Agreement is not a condition to the effectiveness of the Amendment.
If the Rights Agreement is approved and the Board of Directors
authorizes the distribution of Rights as a dividend, the Board may reserve all
or a portion of the authorized shares of the Common Stock for issuance upon
exercise of the Rights. However, based on the initial terms of the Rights and
the Rights Agreement, the Board of Directors will not need to reserve all
authorized but unissued shares of Common Stock for such purpose. See "The
Rights Agreement - Reserved Shares/Substitution of Assets." Accordingly, the
additional authorized shares that will be available for issuance if the
Amendment is approved may be used for other purposes as described below.
In addition to having additional authorized shares for purposes of the
Rights Agreement, the Board of Directors believes that it is prudent to have
additional authorized shares of Common Stock readily available for issuance in
connection with possible future financings, corporate mergers, acquisition
transactions, establishing strategic relationships with corporate partners,
employee benefit plans, and for other general corporate purposes. The Amendment
will also provide a reserve of shares available for issuance in connection with
possible stock splits or stock dividends if the Board of Directors were to
determine that it would be desirable to facilitate a broader base of
stockholders. Currently, the Company has no plans, agreements or arrangements
in place requiring the issuance of additional shares of Common Stock for these
or other purposes, other than possible future issuances pursuant to existing
share reservations and the Rights Agreement. However, having such additional
authorized Common Stock available for issuance in the future would allow the
Board of Directors to issue shares of Common Stock, including through private
placements of securities, without the delay and expense associated with seeking
stockholder approval (other than any stockholder approval required by applicable
laws or the rules of any national securities exchange or market on which shares
of Common Stock of the Company are then listed). Elimination of such delays and
the expense occasioned by the necessity of obtaining stockholder approval will
better enable the Company, among other things, to engage in financing
15
<PAGE> 18
transactions and acquisitions as well as to take advantage of changing market
and financial conditions on a more competitive basis as determined by the Board
of Directors.
TERMS OF ADDITIONAL AUTHORIZED SHARES
The additional shares of Common Stock to be authorized by the Amendment
would, if and when issued, have rights identical to the currently outstanding
shares of Common Stock. The Company's authorized capital stock currently
includes 500,000 shares of Preferred Stock, $.10 par value per share. No such
Preferred Stock was outstanding as of the date of this Proxy Statement. The
Board of Directors of the Company has the authority to authorize the issuance of
the Preferred Stock in one or more series and to fix the rights (including the
voting rights, if any), preferences, privileges and restrictions granted to or
imposed upon any such series, without any further vote or action by
stockholders. Any future issuance of Common Stock will be subject to the rights
of holders of any outstanding shares of Preferred Stock which the Company may
issue in the future.
POSSIBLE EFFECTS OF THE PROPOSED AMENDMENT
If the proposed Amendment is approved, the Board of Directors may cause
the issuance of the additional shares of Common Stock to be authorized pursuant
to the Amendment without further vote or action by the stockholders of the
Company, except as may be required by applicable laws or the rules of any
national securities exchange or market on which shares of Common Stock of the
Company are then listed. Current holders of Common Stock do not have any
preemptive or cumulative voting rights. The increase in authorized Common Stock
will not have any immediate effect on the rights of existing stockholders. To
the extent that the additional authorized shares are issued in the future,
except in the case of a stock split or stock dividend, such issuances will
decrease existing stockholders' percentage equity ownership.
In addition, the additional authorized shares of Common Stock could
create impediments to a takeover or a change in control of the Company. Shares
of authorized and unissued Common Stock could be issued in one or more
transactions which would make a change in control of the Company more
difficult, and therefore less likely. Any such issuance of additional stock
could have the effect of diluting the earnings per share and book value per
share of outstanding shares of Common Stock, and such additional shares could
be used to dilute the stock ownership or voting rights of persons seeking to
obtain control of the Company. Accordingly, the increase in the number of
authorized shares of Common Stock may deter a future takeover attempt which
holders of Common Stock may deem to be in their best interest or in which
holders of Common Stock may be offered a premium for their shares over the then
current market price. The Amendment was not approved by the Board of Directors
of the Company in response to any threatened or perceived takeover threat, and
the Company has no knowledge of such a threat as of the date of this Proxy
Statement. The Amendment is not part of a plan by management to adopt a series
of anti-takeover measures. However, the Amendment, as well as the Rights
Agreement, could have the effect of deterring takeovers or changes in control
of the Company. Also, the Company already has in place certain charter and
Bylaw provisions which may be deemed to render more difficult, or discourage,
takeovers or changes in control of the Company. See "Rights Agreement -
Existing Anti-Takeover Provisions." At present, management does not intend to
propose other anti-takeover measures in future proxy solicitations.
THE PROPOSED AMENDMENT
The following resolution will be submitted for approval by the
stockholders at the Annual Meeting:
"RESOLVED, that the Certificate of Incorporation of Horizon
Mental Health Management, Inc., as heretofore amended, be
further amended by changing the first paragraph of Article IV
thereof to increase the number of authorized shares of Common
Stock from 10,000,000 shares
16
<PAGE> 19
to 40,000,000 shares so that, as hereby amended, the first paragraph of
said Article IV shall be and read in its entirety as follows:
The Corporation is authorized to issue two classes of
capital stock to be designated "Common Stock" and
"Preferred Stock," respectively. The aggregate number of
shares of all classes of capital stock which the
Corporation shall have the authority to issue is
40,500,000 shares, consisting of 500,000 shares of
Preferred Stock, $.10 par value per share, and
40,000,000 shares of Common Stock, $.01 par value per
share.
RESOLVED FURTHER, that at any time prior to the effectiveness
of the filing of a Certificate of Amendment with the Secretary of State
of the State of Delaware to effect the foregoing proposed amendment,
notwithstanding authorization of such proposed amendment by the
stockholders of Horizon Mental Health Management, Inc., the Board of
Directors of said corporation may abandon such proposed amendment without
further action by the stockholders."
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF THE COMPANY TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY FROM
10,000,000 SHARES TO 40,000,000 SHARES, AND YOUR PROXY WILL BE SO VOTED UNLESS
YOU SPECIFY OTHERWISE. AS INDICATED ABOVE, THE BOARD OF DIRECTORS
MAY IN ITS DISCRETION ELECT TO ABANDON THE PROPOSED AMENDMENT AT ANY TIME PRIOR
TO THE EFFECTIVENESS OF THE FILING OF THE REQUIRED CERTIFICATE OF AMENDMENT
WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE.
PROPOSAL NO. 3
RIGHTS AGREEMENT
The Board of Directors of the Company proposes to adopt a Rights
Agreement (the "Rights Agreement"), pursuant to which it intends to declare a
dividend distribution of one Common Stock purchase right (a "Right") for each
outstanding share of Common Stock of the Company, but such distribution will be
made only if the proposal relating to the Rights Agreement is approved by
the stockholders. Set forth below is a description of the material terms of
the Rights and the Rights Agreement.
GENERAL
If the proposal to approve the Rights Agreement is approved by the
stockholders at the Annual Meeting, the dividend will be payable on a date
thereafter chosen by the Board of Directors (the "Record Date") to the
stockholders of record on that date. Each Right, when it first becomes
exercisable, will entitle the holder to purchase from the Company one share of
Common Stock at an initial exercise price of $125 per share (the "Exercise
Price"), subject to adjustment. The description and the terms of the Rights
will be set forth in a Rights Agreement to be entered into between the Company
and a third-party Rights Agent to be selected by the Company (the "Rights
Agent"). It is currently expected that Texas Commerce Bank National Association
will initially serve as the Rights Agent.
17
<PAGE> 20
Each holder of shares of Common Stock as of the Record Date will receive
a distribution of one Right per share of Common Stock in accordance with and
pursuant to the Rights Agreement. A Right will also accompany each share of
Common Stock issued following the Record Date.
Exercisability of Rights. Initially, the Rights will not be exercisable
or transferable apart from the shares of Common Stock with respect to which
they were distributed, and will be evidenced only by the certificates
representing such shares. The Rights will become exercisable and transferable
apart from the Common Stock on a date (the "Exercisability Date") that is the
earlier of (i) the close of business on the tenth business day after the Stock
Acquisition Date, defined as the first date of a public announcement that a
person or group of affiliated or associated persons has become an Acquiring
Person (as defined below) or (ii) the close of business on such date as a
majority of the Board of Directors shall determine, which date shall follow the
commencement of a tender or exchange offer that, if consummated, would result
in a person or group becoming an Acquiring Person. The Rights will be
exercisable from the Exercisability Date until the Expiration Date, which is
the earlier of the close of business on the ten-year anniversary of the date of
the Rights Agreement (the "Final Expiration Date"), the date the Rights are
redeemed by the Company, or the date the Rights are exchanged by the Company,
at which time they will expire.
A person or group becomes an Acquiring Person when such person or group
acquires or obtains the right to acquire beneficial ownership of 15% or more
of the then outstanding shares of Common Stock, with certain exceptions
described in the Rights Agreement (including exceptions for shares owned by the
Company or a subsidiary or employee benefit plan of the Company, and for shares
owned by any person who the Board of Directors determines inadvertently reached
such 15% beneficial ownership level and who promptly divests sufficient shares
such that 15% or greater beneficial ownership ceases).
Transferability of Rights. Prior to the Exercisability Date, the Rights
will not be transferable apart from the shares of Common Stock to which they
are attached. Thus, the surrender or transfer of any Common Stock certificate
prior to that date will also constitute the transfer of the Rights associated
with the shares represented by such certificate. Until the Exercisability Date
(or earlier redemption, exchange or expiration of the Rights), new Common Stock
certificates issued after the Record Date, upon transfer or new issuance of
shares of Common Stock, will contain a notation incorporating the Rights
Agreement by reference. Until the Exercisability Date (or earlier redemption,
exchange or expiration of the Rights), the surrender for transfer of any
certificates for shares of Common Stock, outstanding as of the Record Date,
even without such notation or a copy of a Summary of Rights being attached
thereto, will also constitute the transfer of the Rights associated with the
shares of Common Stock represented by such certificate. As soon as practicable
after the Exercisability Date, separate certificates evidencing the Rights
("Rights Certificates") will be mailed to each record holder of shares of
Common Stock as of the close of business on the Exercisability Date and, in
certain circumstances, holders of certain shares issued after the
Exercisability Date. Until exercised, the holders will not have any rights of
holders of Common Stock, including any rights to vote or receive dividends on
the Common Stock.
Flip-In Rights. Upon the acquisition of 15% of the Common Stock by an
Acquiring Person (a "Flip-In Event"), each holder of a Right will thereafter
have the right (the "Flip-In Right") to receive, upon exercise and payment of
the Exercise Price, the number of shares of Common Stock having a market value
immediately prior to the Flip-In Event equal to two times the then current
Exercise Price of the Right, except that any Right that is (or, in certain
circumstances specified in the Rights Agreement, was) beneficially owned by an
Acquiring Person (or any of its affiliates or associates, as defined) will
become null and void upon the occurrence of the Flip-In Event. Cash will be
paid in lieu of fractional shares.
For example, at the Exercise Price of $125 per Right, if any person
becomes the beneficial owner of 15% or more of the outstanding Common Stock of
the Company, ten business days thereafter each Right (other than Rights owned
by such 15% beneficial owner or any of its affiliates or associates, which
will have become void) would entitle its holder to purchase $250 worth of Common
Stock for $125. Assuming that the Common Stock
18
<PAGE> 21
had a per share value of $25 at such time, each Right would effectively entitle
its holder to purchase ten shares of Common Stock for $125.
Flip-Over Rights. If, at any time following an Exercisability Date,
either (i) the Company is acquired in a merger or other business combination
transaction or (ii) the Company sells or otherwise transfers more than 50% of
its aggregate assets or earning power, each holder of a Right (except Rights
previously voided as described above) will thereafter have the right (the
"Flip-Over Right") to receive, upon exercise, shares of common stock of the
Acquiring Person having a value equal to two times the then current Exercise
Price of the Right. The Flip-Over Right will be exercisable apart from, and
regardless of the exercise or surrender of, the Flip-In Right.
Redemption of the Rights. At any time prior to the close of business on
the tenth business day following a public announcement that a party is an
Acquiring Person, the Board of Directors may redeem the Rights in whole but not
in part at a Redemption Price of $.01 per Right. Under some circumstances,
the redemption must also be approved by a majority of the members of the Board
of Directors in office at the time of the adoption of the Rights Agreement or
members whose nominations were approved by members then in office. Immediately
upon any redemption of the Rights, the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive the
Redemption Price.
Exchange of the Rights. At any time after any person becomes an
Acquiring Person, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such Acquiring Person or any of its affiliates or
associates which have become void), in whole or in part, for Common Stock at an
exchange ratio of one share of Common Stock per Right. Under some
circumstances, the exchange must also be approved by a majority of the members
of the Board of Directors in office at the time of the adoption of the Rights
Agreement or members whose nominations were approved by members then in office.
Adjustments. The Exercise Price payable, and the number of shares of
Common Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Common Stock, (ii) upon the grant to holders of the
Common Stock of certain rights, options or warrants to subscribe for or
purchase Common Stock at a price, or securities convertible into Common Stock
with a conversion price, less than the then current market price of the Common
Stock or (iii) upon the distribution to holders of the Common Stock of
evidences of indebtedness or assets (excluding regular periodic cash dividends
paid out of earnings or retained earnings or dividends payable in shares of
Common Stock) or of subscription rights or warrants (other than those referred
to above).
Reserved Shares/Substitution of Assets. The Rights Agreement
contemplates that the Company will reserve a sufficient number of authorized
but unissued shares of Common Stock to permit the exercise in full of the
Rights should the Rights become exercisable. If the Amendment to the
Certificate of Incorporation is not approved by the stockholders, the number of
authorized but unissued and non-reserved shares of Common Stock would be
sufficient for issuance upon the Rights becoming exercisable based on the
initial terms of the Rights before the effect of any future anti-dilution
adjustment for such events as a share dividend or stock split and before the
effect of any future adjustment resulting from a Flip-In Event. However,
depending upon the then current market price of the Common Stock and the
Exercise Price, the number of shares of Common Stock presently authorized or to
be authorized if the Amendment is approved may be insufficient to permit
exercise in full of the Rights upon the occurrence of a Flip-In Event.
Consequently, the effectiveness of the Rights Agreement may be impaired if an
insufficient number of shares is authorized and reserved for issuance upon the
exercise of Rights.
However, the Board of Directors may (and under certain circumstances is
obligated to) issue other equity securities or assets upon the exercise of the
Rights if sufficient shares of Common Stock are not available for issuance. The
Board of Directors may make adequate provision to substitute for the shares of
Common Stock which are not available for issuance upon exercise of such Rights
either cash, other equity securities of the Company (including, without
limitation, shares of Preferred Stock of the Company), debt securities of the
Company, other assets, or a combination of the foregoing, having an aggregate
value (as determined by a majority of the Board of Directors after receiving
advice from a nationally recognized investment banking firm) equal to the value
of the shares of Common Stock unavailable for issuance upon exercise of the
Rights. In addition, the Board of Directors, subject to certain limitations,
may amend the Rights to change the Exercise Price and therefore the number of
shares of Common Stock issuable upon exercise of the Rights. If the Company does
not take such action within 30 days following the later of a Flip-In Event or
the date on which the Company's right of redemption with respect to the Rights
expires, then the Company will be required to deliver cash as the substitute
for the unavailable authorized shares of Common Stock.
Amendment of the Rights Agreement. At any time prior to the
Exercisability Date, the Board of Directors may amend any provision of the
Rights Agreement in any manner, including to change the Exercise Price, without
the approval of the holders of the Common Stock. Thereafter, subject to certain
limitations, the Board of Directors may amend the Rights Agreement without the
approval of the holders of the Common Stock so long as the interests of the
holders of the Rights are not adversely affected, including generally (i) to
shorten or lengthen any time period under the Rights Agreement or (ii) in any
manner that the Board deems necessary or desirable, so long as such amendment is
consistent with and for the purpose of fulfilling the objectives of the Board of
Directors in originally adopting the Rights Agreement.
EFFECT AND ADVANTAGES OF THE RIGHTS AGREEMENT
The Rights Agreement will not prevent a bidder from making a tender
offer for the Company, but may result in a higher price for all the
stockholders if an offer is made. The Rights Agreement is a short-term plan
designed to prevent an acquirer from gaining control of the Company without
offering all stockholders what the Board of Directors believes to be the full
value of their investment. In particular,
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the Rights Agreement is designed to prevent coercive or abusive takeover
practices, such as two-tiered, partial or "bust-up" tender offers and market
sweeps. The basic objective of the Rights Agreement is to encourage
prospective acquirers to come forward with a sound offer at the earliest
possible time and to negotiate with the Board of Directors. It is well
recognized that the price an acquirer is ultimately willing to pay for a
company's stock can far exceed the initial offer, especially when the acquirer
must negotiate with the target's board of directors.
The Rights Agreement was approved by a unanimous vote of the Board of
Directors. The Board of Directors believes that adoption of the Rights
Agreement is consistent with its fiduciary obligations to the stockholders.
Such exercises of a board of directors' authority have been consistently
supported by Delaware case law. The Delaware Supreme Court has held that
adoption of a rights plan is a valid exercise of a board's business judgment.
In addition, the Delaware courts, as well as courts in many other jurisdictions,
have recognized the appropriateness of rights plans and their value when used in
a manner consistent with the fiduciary obligations of a board of directors.
The Rights Agreement was not approved by the Board of Directors in
response to any threatened or perceived takeover threat, and the Company has no
knowledge of such a threat as of the date of this Proxy Statement. The Rights
Agreement is not part of a plan by management to adopt a series of anti-takeover
measures. However, the proposed Amendment to the Certificate of Incorporation
could have the effect of deterring takeovers or changes in control of the
Company. See "Amendment to Certificate of Incorporation to Increase Authorized
Common Stock - Possible Effects of Proposed Amendment." Also, the Company
already has in place certain charter and Bylaw provisions which may be deemed to
render more difficult, or discourage, takeovers or changes in control of the
Company. See "- Existing Anti-Takeover Provisions." At present, management
does not intend to propose other anti-takeover measures in future proxy
solicitations.
DISADVANTAGES OF THE RIGHTS AGREEMENT
The Rights Agreement could have the effect of deterring tender offers or
takeover attempts, even though such an offer or attempt might appear to
stockholders to be beneficial, and could make it more difficult for the holder
of a large block of the Common Stock to assume control of the Company. In
addition, it has been argued that rights plans, in general, have the effect of
entrenching management by discouraging certain takeovers which are not favored
by management.
EXISTING ANTI-TAKEOVER PROVISIONS
As discussed more fully below, the following factors, and the potential
for each to have an anti-takeover effect, should be reviewed in evaluating the
proposal to approve the Rights Agreement.
Delaware Law. The Company is subject to the provisions of Section 203
of the General Corporation Law of the State of Delaware, an anti-takeover law.
In general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of a corporation's outstanding voting stock. This provision
may have the effect of delaying, deferring or preventing a change in control of
the Company without further action by the stockholders.
Certain Provisions of the Company's Certificate of Incorporation and
Bylaws. Portions of the Company's Certificate of Incorporation and Bylaws may
make more difficult the acquisition of control of the Company.
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<PAGE> 23
These provisions may also encourage persons seeking to acquire control of the
Company to consult first with the Company's Board of Directors to negotiate the
terms of any proposed business combination or offer. The provisions are
designed to reduce the vulnerability of the Company to an unsolicited proposal
for a takeover that does not contemplate the acquisition of all outstanding
shares of the Company or which is otherwise unfair to stockholders of the
Company.
The Company's authorized capital stock currently includes 500,000 shares
of Preferred Stock, $.10 par value per share. No such Preferred Stock was
outstanding as of the date of this Proxy Statement. The Board of Directors of
the Company has the authority to authorize the issuance of the Preferred Stock
in one or more series and to fix the rights (including the voting rights, if
any), preferences, privileges and restrictions granted to or imposed upon any
such series, without any further vote or action by stockholders. Any future
issuance of Common Stock will be subject to the rights of holders of any
outstanding shares of Preferred Stock which the Company may issue in the future.
The Company believes that the Preferred Stock provides the Company with
increased flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs that might arise. Having
such authorized shares available for issuance will allow the Company to issue
shares of Preferred Stock without further action by stockholders, unless such
action is required by applicable laws or the rules of any stock exchange or
market on which the Company's securities may be listed. Although the Board of
Directors has no intention at the present time of doing so, it could issue a
series of Preferred Stock, the terms of which could impede the completion of a
merger, tender offer or other takeover attempt and may adversely affect the
voting and other rights of the holders of Common Stock. The Board of Directors
will make any determination to issue such shares based on its judgment as to the
best interests of the Company and its stockholders at the time of issuance. The
Board of Directors, in so acting, could issue Preferred Stock having terms which
could discourage an acquisition attempt or other transaction that some, or a
majority, of the stockholders might believe to be in their best interests or in
which stockholders might receive a premium for their stock over the then market
price of such stock.
The Bylaws of the Company provide that the number of directors may be
fixed from time to time by the Company's Board of Directors. In addition, the
Bylaws provide that, subject to any rights of the holders of any outstanding
Preferred Stock of the Company, a majority of the Board of Directors then in
office will have the authority to fill any vacancies on the Board of Directors.
Accordingly, the Board of Directors could temporarily prevent any stockholder
from obtaining majority representation on the Board of Directors by enlarging
the Board of Directors and filling the new directorships with its own nominees.
APPROVAL OF THE RIGHTS AGREEMENT
The vote of stockholders on this proposal is not required under Delaware
law, but the Board of Directors considers it appropriate for the stockholders
to express or withhold approval of the Rights Agreement to determine whether
the stockholders concur with the Board of Directors' belief that the Rights
Agreement may enhance stockholder value. If the Rights Agreement is not
approved at the Annual Meeting by stockholders holding a majority of the shares
of Common Stock present in person or represented by proxy and entitled to vote
at the Annual Meeting, the Board of Directors will not authorize the
distribution of the Rights and the Rights Agreement will not become effective.
The result of the vote of the stockholders will not limit or otherwise affect
the power of the Board to amend or supplement the Rights Agreement.
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<PAGE> 24
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE RIGHTS AGREEMENT, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY
OTHERWISE.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The stockholders are asked to ratify the appointment of Price Waterhouse
LLP as the independent accountants for the Company for the fiscal year ending
August 31, 1997. Price Waterhouse LLP, a certified public accounting firm, has
served as the independent accountants for the Company since 1991.
Representatives of Price Waterhouse LLP are expected to be present at the
Annual Meeting to respond to appropriate questions and to make such statements
as they may desire.
Ratification of the appointment of the independent accountants is not a
matter which is required to be submitted to a vote of stockholders, but the
Board of Directors considers it appropriate for the stockholders to express or
withhold approval of the appointment. If stockholder approval should not be
obtained, the Board of Directors would consider an alternative appointment for
fiscal 1997.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE INDEPENDENT
ACCOUNTANTS FOR THE COMPANY FOR THE FISCAL YEAR ENDING AUGUST 31, 1997, AND
YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Donald E. Steen, a director and director nominee of the Company, is
President of the International Group of Columbia/HCA Healthcare Corporation
("Columbia/HCA"). At August 31, 1996, the Company had mental health
management contracts with 32 hospitals directly or indirectly owned by
Columbia/HCA, of which 27 had programs in operation. These 27 contracts
accounted for 23.0% of the Company's net revenues for the fiscal year ended
August 31, 1996. In the aggregate, including terminated contracts, revenues
generated by hospitals directly or indirectly owned by Columbia/HCA accounted
for 26.1% of the Company's net revenues for the fiscal year ended August 31,
1996. Of the 32 Columbia/HCA contracts at August 31, 1996, 19 contracts
contain a provision limiting the number of contracts which Columbia/HCA can
cancel without cause to 33.3% during any calendar year.
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PROPOSALS BY STOCKHOLDERS
Proposals by stockholders intended to be presented at the first annual
meeting of stockholders of the Company after the Annual Meeting must be
received at the executive offices of the Company no later than August 21, 1997,
to be included in the Company's proxy statement and form of proxy relating to
that meeting.
OTHER BUSINESS
The Board of Directors is aware of no other matter that will be
presented for action at the Annual Meeting. If any other matter requiring a
vote of the stockholders properly comes before the Annual Meeting, the persons
authorized under management proxies will vote and act on such matter according
to their own discretion and judgment.
ANNUAL REPORT
The Company's Annual Report to Stockholders, which contains audited
consolidated financial statements of the Company for the fiscal year ended
August 31, 1996, is being mailed to stockholders of record with this Proxy
Statement. The Annual Report to Stockholders does not form a part of the proxy
solicitation materials.
UPON THE WRITTEN REQUEST OF ANY PERSON WHO IS A RECORD HOLDER OF COMMON
STOCK AS OF THE CLOSE OF BUSINESS ON DECEMBER 13, 1996, THE COMPANY WILL
PROVIDE WITHOUT CHARGE TO SUCH PERSON A COPY OF THE ANNUAL REPORT ON FORM 10-K
OF THE COMPANY FOR THE FISCAL YEAR ENDED AUGUST 31, 1996 AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (EXCLUDING EXHIBITS). ANY SUCH WRITTEN
REQUEST MUST BE DIRECTED TO HORIZON MENTAL HEALTH MANAGEMENT, INC., 1500 WATERS
RIDGE DRIVE, LEWISVILLE, TEXAS 75057-6011, ATTENTION: MR. JAMES W. MCATEE,
SECRETARY.
JAMES W. McATEE
Secretary
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<PAGE> 26
HORIZON MENTAL HEALTH MANAGEMENT, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 29, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HORIZON
MENTAL HEALTH MANAGEMENT, INC.
The undersigned hereby constitutes and appoints JAMES KEN NEWMAN and JAMES
W. McATEE, each with power to act without the other and with full power of
substitution, as Proxies of the undersigned to represent and to vote all shares
of the Common Stock of Horizon Mental Health Management, Inc. (the "Company")
standing in the name of the undersigned, at the Annual Meeting of Stockholders
of the Company to be held at the executive offices of the Company located at
1500 Waters Ridge Drive, Lewisville, Texas 75057-6011, on Wednesday, January
29, 1997, at 9:00 a.m., Central Time, and at any and all adjournments thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR THE SEVEN NOMINEES OF THE BOARD OF DIRECTORS LISTED IN
PROPOSAL 1 AND FOR THE APPROVAL OF PROPOSALS 2, 3 AND 4. IF THE EXECUTED PROXY
DOES NOT WITHHOLD AUTHORITY TO VOTE FOR THE ELECTION OF A NOMINEE FOR DIRECTOR
IN PROPOSAL 1, THE PROXY WILL BE DEEMED TO GRANT AUTHORITY TO VOTE FOR THE
ELECTION OF SUCH NOMINEE AND WILL BE SO VOTED. THE PROXIES NAMED HEREIN ARE
EACH AUTHORIZED TO VOTE IN THEIR DISCRETION UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY AND ALL ADJOURNMENTS THEREOF.
The undersigned hereby revokes any proxy or proxies heretofore given. This
Proxy may be revoked at any time before it is exercised by following the
procedures stated in the Proxy Statement.
(PLEASE MARK, SIGN AND DATE ON THE OTHER SIDE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.)
<PAGE> 27
[ X ] Please mark your votes
as in this example.
WITHHOLD
FOR all nominees listed AUTHORITY
(except as listed to the to vote for all
contrary below) nominees listed
1. Election of
Directors. [ ] [ ]
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE OR
NOMINEES, MARK THE FOR BOX AND WRITE EACH SUCH NOMINEE'S NAME IN THE SPACE
PROVIDED BELOW:
-----------------------------------------------------------------------------
NOMINEES: James Ken Newman
James W. McAtee
Jack R. Anderson
George E. Bello
William H. Longfield
Keith B. Pitts
Donald E. Steen
FOR AGAINST ABSTAIN
2. Proposal to approve the amendment to the
Certificate of Incorporation, as amended, [ ] [ ] [ ]
to increase the number of authorized shares
of Common Stock from 10,000,000 shares to
40,000,000 shares.
3. Proposal to approve the Rights Agreement. [ ] [ ] [ ]
4. Proposal to ratify the appointment of Price
Waterhouse LLP as the independent accountants [ ] [ ] [ ]
for the Company for the fiscal year ending
August 31, 1997.
5. The Proxies are authorized to vote in their discretion upon such other
matters as may properly come before the Annual Meeting and any and all
adjournments thereof.
PLEASE MARK, SIGN AND DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE.
SIGNATURE Dated
--------------------------- --------------------
SIGNATURE Dated
--------------------------- --------------------
IF HELD JOINTLY
NOTE: Please date and sign exactly as name appears hereon. When shares of
Common Stock are owned by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a
partnership, please sign in full partnership name by authorized
person.
