<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
AUGUST 11, 1997
Date of Report (Date of earliest event reported)
HORIZON HEALTH CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-13626 75-2293354
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
</TABLE>
1500 WATERS RIDGE DRIVE
LEWISVILLE, TEXAS 75057-6011
(Address of principal executive offices and zip code)
(972) 420-8200
(Registrant's telephone number,
including area code)
HORIZON MENTAL HEALTH MANAGEMENT, INC.
(Former name of registrant)
================================================================================
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 11, 1997, the Registrant acquired all of the issued and
outstanding shares of capital stock of Specialty Healthcare Management, Inc., a
Delaware corporation ("Specialty"), pursuant to that certain Share Exchange
Reorganization Agreement dated as of April 25, 1997, by and among the
Registrant, Specialty, and the stockholders of Specialty, as amended by an
amendment dated as of July 2, 1997 (the Share Exchange Reorganization Agreement
as so amended, being referred to in this Report as the "Specialty Agreement").
Specialty is a contract manager of mental health, physical rehabilitation and
chemical dependency treatment programs for general acute care hospitals and
other health care entities. At May 31, 1997, Specialty had 48 management
contracts covering locations in 21 states. For the year ended December 31, 1996,
Specialty had revenues of approximately $33.8 million and net income of
approximately $1.2 million. For the nine months ended May 31, 1997 (the last day
of the Registrant's third fiscal quarter), Specialty had revenues of
approximately $23.2 million and net income of approximately $871,000.
The shares of Specialty were acquired from the nine stockholders of
Specialty. The transaction was in the form of a share exchange in which
1,400,000 shares of Common Stock, $.01 par value per share, of the Registrant
were issued, representing approximately 20.1% of the outstanding Common Stock of
the Registrant immediately after the transaction. The Registrant will account
for the transaction as a pooling of interests.
The proposal to effect the transaction described above was previously
reported in the Registrant's Proxy Statement dated July 10, 1997, as filed with
the Securities and Exchange Commission effective July 11, 1997. The issuance of
the 1,400,000 shares of Registrant Common Stock in the share exchange was
approved by the stockholders of the Registrant at a special meeting of
stockholders held on August 11, 1997.
2
<PAGE> 3
ITEM 5. OTHER EVENTS
The Registrant changed its corporate name to "Horizon Health Corporation"
on August 11, 1997. The name change was approved by the stockholders of the
Registrant at a special meeting of stockholders held on August 11, 1997.
Effective August 12, 1997, the Registrant changed its Nasdaq National
Market Trading Symbol to "HORC."
Effective August 1, 1997, James E. Buncher was elected as an additional
director on the Board of Directors of the Registrant. Mr. Buncher most recently
had served as President of the Health Plans Group of Value Health, Inc., a
national specialty managed care company, and as President and Chief Executive
Officer of Community Care Network, Inc., a Value Health subsidiary. He recently
resigned such positions when Value Health was acquired in July, 1997 and
currently is reviewing other employment opportunities.
Pursuant to the terms of the Specialty Agreement, Howard B. Finkel was
elected as an additional director on the Board of Directors of the Registrant
effective August 11, 1997. Mr. Finkel is the former Chief Executive Officer and
a former stockholder and director of Specialty. On August 11, 1997, pursuant to
the Specialty Agreement, Mr. Finkel acquired 663,600 shares of Common Stock of
the Registrant, or approximately 9.5% of the aggregate number of shares of
Common Stock of the Registrant outstanding immediately after the share exchange
under the Specialty Agreement.
Robert A. Lefton has been elected as President of the Registrant, effective
September 1, 1997. Mr. Lefton currently serves as an Executive Vice
President-Operations of the Registrant. Mr. James Ken Newman, who currently
serves as President, Chief Executive Officer and Chairman of the Registrant,
will continue to serve as Chairman and Chief Executive Officer of the
Registrant.
3
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Pro Forma Financial Information
See Page F-1 of this Report for the Index to Financial Statements filed as
a part of this Report.
(b) Financial Statements of Specialty Healthcare Management, Inc.
See Page F-1 of this Report for the Index to Financial Statements filed as
a part of this Report.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Incorporation of the Registrant, as
amended (filed herewith).
4.1 -- Specimen Common Stock Certificate of the Registrant
(filed herewith).
4.2 -- Rights Agreement dated February 6, 1997, between the
Registrant and American Stock Transfer & Trust Company,
as Rights Agent (incorporated herein by reference to
Exhibit 4.1 to the Registrant's Registration Statement on
Form 8-A (Registration Number 000-22123) as filed with
the Commission on February 7, 1997).
10.1 -- Share Exchange Reorganization Agreement dated as of April
25, 1997, among the Registrant, Howard B. Finkel, John
Harrison, Larry Reiff, Argentum Capital Partners, L.P.,
Denise Dailey, Ken Dorman, G. Phillip Woellner, and
Michael S. McCarthy, and Specialty Healthcare Management,
Inc., as amended by a First Amendment to Share Exchange
Reorganization Agreement dated as of July 2, 1997
(incorporated herein by reference to Appendix A to the
definitive Proxy Statement filed with the Commission by
the Registrant on July 11, 1997, relating to a Special
Meeting of Stockholders of the Registrant to be held on
August 11, 1997).
10.2 -- Post-Closing Escrow Agreement dated August 11, 1997
between the Registrant and Howard B. Finkel, as Agent
(filed herewith).
10.3 -- Registration Rights Agreement dated August 11, 1997,
between the Registrant and Howard B. Finkel, et al.
(filed herewith).
23.1 -- Consent of Price Waterhouse LLP (filed herewith).
23.2 -- Consent of Price Waterhouse LLP (filed herewith).
</TABLE>
* * *
(Remainder of page left blank intentionally)
4
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORIZON HEALTH CORPORATION
By: /s/ JAMES W. MCATEE
------------------------------------
James W. McAtee
Executive Vice President, Finance &
Administration (Principal Financial
and Chief Accounting Officer)
Date: August 25, 1997
5
<PAGE> 6
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Condensed Combined
Financial Statements................................... F-2
Unaudited Pro Forma Condensed Combined Balance Sheet as of
May 31, 1997........................................... F-3
Unaudited Pro Forma Condensed Combined Statement of Income
for the nine months ended May 31, 1997................. F-4
Unaudited Pro Forma Condensed Combined Statement of Income
for the nine months ended May 31, 1996................. F-5
Unaudited Pro Forma Condensed Combined Statement of Income
for the year ended August 31, 1996..................... F-6
Unaudited Pro Forma Condensed Combined Statement of Income
for the year ended August 31, 1995..................... F-7
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements............................................. F-8
SPECIALTY HEALTHCARE MANAGEMENT, INC.
Report of Independent Accountants......................... F-9
Consolidated Balance Sheets as of December 31, 1995 and
1996 and May 31, 1997
(unaudited)............................................ F-10
Consolidated Statements of Operations for the years ended
December 31, 1995 and 1996 and the five months ended
May 31, 1996 (unaudited) and May 31, 1997
(unaudited)............................................ F-11
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1995 and 1996 and the five
months ended May 31, 1997 (unaudited).................. F-12
Consolidated Statements of Cash Flows for the years ended
December 31, 1995 and 1996 and the five months ended
May 31, 1996 (unaudited) and May 31, 1997
(unaudited)............................................ F-13
Notes to Consolidated Financial Statements................ F-14
NATIONAL MEDICAL MANAGEMENT SERVICES DIVISION OF NATIONAL
MEDICAL ENTERPRISES, INC.
Report of Independent Accountants......................... F-20
Balance Sheet as of December 31, 1994..................... F-21
Statement of Operations and Division Equity for the year
ended December 31, 1994................................ F-22
Statement of Cash Flows for the year ended December 31,
1994................................................... F-23
Notes to Financial Statements............................. F-24
</TABLE>
F-1
<PAGE> 7
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to the
share exchange (the "Exchange") between Horizon Health Corporation, a Delaware
corporation formerly named "Horizon Mental Health Management, Inc." ("Horizon"
or the "Company") and the stockholders of Specialty Healthcare Management, Inc.,
a Delaware corporation ("Specialty"), on August 11, 1997 pursuant to the Share
Exchange Reorganization Agreement dated as of April 25, 1997 as amended July 2,
1997, accounted for as a pooling of interests. The unaudited pro forma condensed
balance sheet presents the combined financial position of Horizon and Specialty
as of May 31, 1997 assuming that the Exchange had occurred as of May 31, 1997.
Such pro forma information is based upon the historical balance sheet data of
Horizon and Specialty as of May 31, 1997. The unaudited pro forma condensed
statements of income give effect to the Exchange by combining the results of
operations of Horizon for the years ended August 31, 1996 and 1995 and for the
nine months ended May 31, 1997 and May 31, 1996 with the results of operations
of Specialty for the years ended December 31, 1996 and 1995 and the nine months
ended May 31, 1997 and May 31, 1996, respectively, on a pooling of interests
basis. The operations of Specialty for the four months ended December 31, 1996,
resulting in net revenue and net income of $10.8 million and $900,000,
respectively, have been included in the pro forma statement of income for the
year ended August 31, 1996 and for the nine month period ended May 31, 1997. The
operations of Specialty for the four months ended December 31, 1995, resulting
in net revenue and net income of $13.2 million and $691,000, respectively, have
been included in the pro forma statement of income for the year ended August 31,
1995 and for the nine months ended May 31, 1996. Pro forma information for the
year ended August 31, 1994 has not been provided as Specialty was a division of
National Medical Enterprises, Inc. during the year ended December 31, 1994 and
therefore is not eligible for pooling for that period under generally accepted
accounting principles. These unaudited pro forma financial statements should be
read in conjunction with the historical financial statements and notes thereto
of Specialty included in this Report.
F-2
<PAGE> 8
HORIZON HEALTH CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
MAY 31, 1997
ASSETS
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HORIZON SPECIALTY ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.......... $ 3,894,900 $ 359,549 $ 4,254,449
Accounts receivable less allowance
for bad debts................... 10,754,948 4,288,993 15,043,941
Notes receivable................... -- 174,378 174,378
Receivable from employees.......... 70,743 -- 70,743
Income tax receivable.............. -- 235,080 285,080
Prepaid expenses and other
assets.......................... 634,646 46,489 681,135
Deferred income taxes.............. 1,562,725 1,097,980 $ 1,174,938(A) 3,835,643
----------- ----------- ----------- -----------
Total current assets....... 16,917,962 6,202,469 1,174,938 24,295,369
Restricted cash...................... -- 398,151 398,151
Deferred income taxes................ -- 173,579 173,579
Property and equipment:
Building and improvements.......... 68,402 -- 68,402
Equipment.......................... 3,321,681 379,905 (100,000)(A) 3,601,586
----------- ----------- ----------- -----------
3,390,083 379,905 (100,000) 3,669,988
Less accumulated depreciation...... (1,963,949) (216,883) (2,180,832)
----------- ----------- ----------- -----------
1,426,134 163,022 (100,000) 1,489,156
Goodwill, net of accumulated
amortization....................... 19,471,713 1,914,550 21,386,263
Management contracts, net of
accumulated depreciation........... 2,227,442 2,443,653 4,671,095
Other assets......................... 510,595 -- 510,595
----------- ----------- ----------- -----------
Total assets............... $40,553,846 $11,295,424 $ 1,074,938 $52,924,208
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable................... $ 463,202 $ 1,012,259 $ 1,475,461
Accrued compensation and
benefits........................ 4,791,507 1,244,038 $ 1,468,500(A) 7,504,045
Accrued third party payor
liabilities..................... 142,918 -- 142,918
Income taxes payable............... 26,883 176,723 203,606
Other accrued liabilities.......... 7,389,066 645,575 1,737,200(A) 9,771,841
Current portion of long-term
debt............................ -- 464,600 464,600
----------- ----------- ----------- -----------
Total current
liabilities.............. 12,813,576 3,543,195 3,205,700 19,562,471
Retirement plan payable.............. -- 132,564 132,564
Deferred income taxes................ 1,249,526 -- (34,000)(A) 1,215,526
Long-term debt, less current
portion............................ -- 2,758,020 2,758,020
----------- ----------- ----------- -----------
Total liabilities.......... 14,063,102 6,433,779 3,171,700 23,668,581
Common stock, subject to
redemption......................... -- 870,000 (870,000)(E) --
Minority interest.................... 83,845 -- 83,845
Stockholders' Equity:
Common stock....................... 55,668 70 13(E) 55,751
Additional paid-in-capital......... 14,413,073 1,363,948 1,119,987(A)(E) 16,897,008
Retained earnings.................. 11,938,158 2,632,908 (2,346,762)(A) 12,224,304
Treasury stock, at cost.............. -- (5,281) (5,281)
----------- ----------- ----------- -----------
Total stockholders'
equity................... 26,406,899 3,991,645 (1,226,762) 29,171,782
----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity..... $40,553,846 $11,295,424 $ 1,074,938 $52,924,208
=========== =========== =========== ===========
</TABLE>
F-3
<PAGE> 9
HORIZON HEALTH CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED MAY 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HORIZON SPECIALTY ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Management contract revenue.......... $ 57,893,658 $ 23,286,557 $ 81,180,215
Operating expenses:
Salaries and wages................. (31,087,736) (12,294,817) (43,382,553)
Purchased services................. (8,552,753) (4,677,692) (13,230,445)
Operating and administrative....... -- (1,900,402) (1,900,402)
Provision for bad debts............ (742,969) (2,095,744) (2,838,713)
Depreciation and amortization...... (1,201,652) (450,238) (1,651,890)
Other.............................. (7,534,976) -- (7,534,976)
------------ ------------ --------- ------------
Total operating expenses... (49,120,086) (21,418,893) (70,538,979)
------------ ------------ --------- ------------
Interest income (expense), net....... 425,681 (322,174) 103,507
------------ ------------ --------- ------------
Net income before income taxes....... 9,199,253 1,545,490 10,744,743
Income tax expense................... 3,641,245 674,681 4,315,926
------------ ------------ --------- ------------
Net income before equity in Horizon
LLC and minority interest.......... 5,558,008 870,809 6,428,817
------------ ------------ --------- ------------
Equity in net earnings of Horizon
LLC................................ -- -- --
------------ ------------ --------- ------------
Minority interest.................... (75,091) -- (75,091)
------------ ------------ --------- ------------
Net income........................... $ 5,482,917 $ 870,809 $ 6,353,726
============ ============ ========= ============
Net income per share................. $ 0.83(D) $ 91.72 $ 0.79
Weighted average shares
outstanding(B)..................... 6,637,785(D) 9,494 1,390,506(B) 8,037,785
============ ============ ========= ============
</TABLE>
F-4
<PAGE> 10
HORIZON HEALTH CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED MAY 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HORIZON SPECIALTY ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Management contract revenue........ $ 45,504,167 $ 26,814,422 $ 72,318,589
Operating expenses:
Salaries and wages............... (25,087,954) (14,580,912) (39,668,866)
Purchased services............... (6,524,349) (5,787,688) (12,312,037)
Operating and administrative..... -- (2,836,149) (2,836,149)
Provision for bad debts.......... (42,389) (1,739,776) (1,782,165)
Depreciation and amortization.... (974,124) (199,812) (1,173,936)
Other............................ (6,395,236) -- (6,395,236)
------------ ------------ --------- ------------
Total operating
expenses............... (39,024,052) (25,144,337) (64,168,389)
------------ ------------ --------- ------------
Interest income (expense), net..... 197,396 (187,616) 9,780
------------ ------------ --------- ------------
Net income before income taxes..... 6,677,511 1,482,469 8,159,980
Income tax expense................. 2,648,126 574,644 3,222,770
------------ ------------ --------- ------------
Net income before equity in Horizon
LLC and minority interest........ 4,029,385 907,825 4,937,210
------------ ------------ --------- ------------
Equity in net earnings of Horizon
LLC.............................. -- -- --
Minority interest.................. -- -- --
------------ ------------ --------- ------------
Net income......................... $ 4,029,385 $ 907,825 $ 4,937,210
============ ============ ========= ============
Net income per share............... $ .62(D) $ 114.11 $ 0.64
Weighted average shares
outstanding(B)................... 6,505,147(D) 7,956 1,165,248(B) 7,678,351
============ ============ ========= ============
</TABLE>
F-5
<PAGE> 11
HORIZON HEALTH CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED)
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HORIZON SPECIALTY ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Management contract revenue........ $ 62,444,755 $ 33,794,211 $ 96,238,966
Operating expenses:
Salaries and wages............... (34,705,889) (18,811,093) (53,516,982)
Purchased services............... (8,635,117) (7,270,250) (15,905,367)
Operating and administrative..... -- (3,310,494) (3,310,494)
Provision for bad debts.......... (73,948) (1,361,101) (1,435,049)
Depreciation and amortization.... (1,307,688) (504,102) (1,811,790)
Other............................ (8,805,581) -- (8,805,581)
------------ ------------ --------- ------------
Total operating
expenses............... (53,528,223) (31,257,040) (84,785,263)
------------ ------------ --------- ------------
Interest income (expense), net..... 323,860 (390,050) (66,190)
------------ ------------ --------- ------------
Net income before income taxes..... 9,240,392 2,147,121 11,387,513
Income tax expense................. 3,673,755 935,605 4,609,360
------------ ------------ --------- ------------
Net income before equity in Horizon
LLC and minority interest........ 5,566,637 1,211,516 6,778,153
------------ ------------ --------- ------------
Equity in net earnings of Horizon
LLC.............................. -- -- --
Minority interest.................. (2,397) -- (2,397)
------------ ------------ --------- ------------
Net income......................... $ 5,564,240 $ 1,211,516 $ 6,775,756
============ ============ ========= ============
Net income per share............... $ .85(D) $ 132.61 $ 0.86
Weighted average shares
outstanding(B)................... 6,525,042(D) 9,136 1,338,073(B) 7,872,251
============ ============ ========= ============
</TABLE>
F-6
<PAGE> 12
HORIZON HEALTH CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED)
FOR THE YEAR ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HORIZON SPECIALTY ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Management contract revenue........ $ 29,349,764 $ 40,005,119 $ 69,354,883
Operating expenses:
Salaries and wages............... (15,389,780) (22,190,878) (37,580,658)
Purchased services............... (4,644,645) (8,298,548) (12,943,193)
Operating and administrative..... -- (5,275,072) (5,275,072)
Provision for bad debts.......... (208,946) (1,471,450) (1,680,396)
Depreciation and amortization.... (903,184) (229,420) (1,132,604)
Other............................ (4,267,212) -- (4,267,212)
------------ ------------ ---------- ------------
Total operating
expenses............... (25,413,767) (37,465,368) (62,879,135)
------------ ------------ ---------- ------------
Interest expense, net.............. (753,743) (249,329) (1,003,072)
------------ ------------ ---------- ------------
Net income before income taxes..... 3,182,254 2,290,422 5,472,676
Income tax expense................. 803,754 890,780 1,694,534
------------ ------------ ---------- ------------
Net income before equity in Horizon
LLC and minority interest........ 2,378,500 1,399,642 3,778,142
Equity in net earnings of
Horizon, LLC..................... 1,567,720 -- 1,567,720
Minority interest.................. -- -- --
------------ ------------ ---------- ------------
Net income......................... $ 3,946,220 $ 1,399,642 $ 5,345,862
============ ============ ========== ============
Net income per share............... $ 0.76(D) $ 180.30 $ 0.85
Weighted average shares
outstanding(B)................... 5,162,889(D) 7,763 1,136,981(B) 6,307,633
============ ============ ========== ============
</TABLE>
F-7
<PAGE> 13
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Exchange is accounted for as a pooling-of-interests. The pro forma
condensed combined statements of income assume that the Exchange was consummated
at the beginning of the earliest period presented. The pro forma condensed
combined balance sheet assumes that the transaction was consummated on May 31,
1997.
A. The pro forma condensed combined statements of income do not reflect
nonrecurring costs (see S-X Article 11.02(5)) and charges resulting
directly from the Exchange. These costs and charges are estimated as
follows:
<TABLE>
<S> <C>
Severance and related benefits....................... $1,468,500
Lease abandonment.................................... 267,700
Non-compatible technology............................ 100,000
Brokerage fees....................................... 683,500
Professional fees.................................... 787,000
Relocation costs..................................... 249,000
----------
Total costs.......................................... $3,555,700
----------
</TABLE>
These nonrecurring costs include costs relating to computer hardware
and software and leases that will be abandoned after the consummation
of the Exchange. These assets are currently being utilized in the
operations of Specialty but are not compatible with the planned
operations for Horizon. Severance and related benefits represent
anticipated payments to identified employees, including payments
required by their respective employment agreements, who will be
terminated after the consummation of the Exchange.
The deferred tax asset and liability adjustments are calculated using an
effective tax rate of 34%. The amount for brokerage fees includes
$250,000 relating to fees paid on behalf of Specialty. This amount is
excluded from the adjustment made to other accrued liabilities and is
reflected as additional paid-in-capital.
B. To adjust pro forma amounts based on historical share amounts,
converting each outstanding share of Specialty Common Stock into
Horizon Common Stock based on the following exchange ratio:
<TABLE>
<CAPTION>
EXCHANGE RATIO
--------------
<S> <C>
Specialty............................................ 147.4616
</TABLE>
D. Adjusted to reflect a three-for-two stock split effected by Horizon in
the form of a 50% stock dividend which occurred on January 31, 1997.
E. Adjusted to reflect the termination of the put option, relating to the
purchase of Parkside, upon consummation of the Exchange.
F-8
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Specialty Healthcare Management, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Specialty Healthcare Management, Inc. and its subsidiaries at December 31, 1995
and 1996, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Dallas, Texas
April 25, 1997
F-9
<PAGE> 15
SPECIALTY HEALTHCARE MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996 MAY 31, 1997
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 82,267 $ 406,141 $ 359,549
Accounts receivable, less allowance for
uncollectible accounts of $132,010, $1,760,480
and $3,018,802, respectively.................... 5,738,252 5,623,465 4,288,993
Notes and other receivables........................ -- 59,957 174,378
Income tax receivable.............................. 187,212 -- 235,080
Prepaid expenses and other assets.................. 59,843 35,313 46,489
Deferred income taxes.............................. 616,151 1,097,980 1,097,980
---------- ----------- -----------
Total current assets....................... 6,683,725 7,222,856 6,202,469
Restricted cash...................................... 138,547 344,404 398,151
Deferred income taxes................................ 119,782 173,579 173,579
Furniture and equipment.............................. 364,190 378,905 379,905
Accumulated depreciation............................. (83,029) (176,465) (216,883)
---------- ----------- -----------
281,161 202,440 163,022
Management contracts, net of accumulated amortization
of $142,857, $515,718 and $703,021, respectively... 857,143 2,630,956 2,443,653
Goodwill, net of accumulated amortization of $3,009,
$39,180 and $66,447, respectively.................. 155,258 1,941,817 1,914,550
---------- ----------- -----------
Total assets............................... $8,235,616 $12,516,052 $11,295,424
========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $1,267,735 $ 1,494,757 $ 1,012,259
Accrued compensation and benefits.................. 1,492,769 1,257,708 1,244,038
Income taxes payable............................... -- 75,344 176,723
Other accrued liabilities.......................... 1,682,556 836,280 645,575
Note payable....................................... 176,600 -- --
Current portion of long-term debt.................. 138,000 519,600 464,600
---------- ----------- -----------
Total current liabilities.................. 4,757,660 4,183,689 3,543,195
Other liabilities.................................... 333,882 485,754 132,564
Long-term debt, less current portion................. 570,694 3,056,714 2,758,020
Commitments and contingencies
Common stock, subject to redemption, 1,305 shares
issued and outstanding............................. -- 870,000 870,000
Shareholders' equity:
Common stock, $0.01 par value; 10,000 shares
authorized, 6,599, 6,974 and 6,974 shares issued
and outstanding, respectively................... 66 70 70
Additional paid-in-capital......................... 1,228,953 1,338,948 1,363,948
Retained earnings.................................. 1,399,642 2,611,158 2,632,908
Deferred compensation.............................. (50,000) (25,000) --
---------- ----------- -----------
2,578,661 3,925,176 3,996,926
Less cost of common stock in treasury, 37 shares... (5,281) (5,281) (5,281)
---------- ----------- -----------
Total shareholders' equity................. 2,573,380 3,919,895 3,991,645
---------- ----------- -----------
Total liabilities and shareholders'
equity................................... $8,235,616 $12,516,052 $11,295,424
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE> 16
SPECIALTY HEALTHCARE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED FIVE MONTHS ENDED
DECEMBER 31, -------------------------
------------------------- MAY 31, MAY 31,
1995 1996 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Management contract revenue.............. $40,005,119 $33,794,211 $13,568,362 $12,468,399
Operating expenses:
Salaries and benefits.................. 22,190,878 18,811,093 7,942,517 6,644,792
Purchased services..................... 8,298,548 7,270,250 3,017,741 2,429,507
Operating and administrative........... 5,275,072 3,310,494 1,438,876 954,982
Provision for bad debts................ 1,471,450 1,361,101 500,287 1,975,281
Interest expense....................... 249,329 390,050 116,932 171,370
Depreciation and amortization.......... 229,420 504,102 167,524 261,062
----------- ----------- ----------- -----------
Total operating expenses....... 37,714,697 31,647,090 13,183,877 12,436,994
----------- ----------- ----------- -----------
Income before income taxes............... 2,290,422 2,147,121 384,485 31,405
Income tax expense....................... 890,780 935,605 167,520 9,655
----------- ----------- ----------- -----------
Net income............................... $ 1,399,642 $ 1,211,516 $ 216,965 $ 21,750
=========== =========== =========== ===========
Net income per share..................... $ 180.30 $ 132.61 $ 25.59 $ 2.29
----------- ----------- ----------- -----------
Weighted average shares outstanding...... 7,763 9,136 8,478 9,494
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE> 17
SPECIALTY HEALTHCARE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY
---------------- PAID-IN RETAINED DEFERRED STOCK,
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION AT COST TOTAL
------ ------ ---------- ---------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995... 3,002 $30 $ 970 $ -- $ -- $ -- $ 1,000
Net income................. -- -- -- 1,399,642 -- -- 1,399,642
Issuance of common stock in
conjunction with
purchase................. 3,597 36 888,968 -- -- -- 889,004
Issuance of stock warrants
in conjunction with
purchase................. -- -- 389,350 -- -- -- 389,350
Sale of additional common
stock.................... 37 -- 24,665 -- -- -- 24,665
Acquisition of treasury
stock.................... (37) -- -- -- -- (5,281) (5,281)
Deferred compensation for
issuance of stock........ -- -- -- -- (75,000) -- (75,000)
Amortization of deferred
compensation............. -- -- -- -- 25,000 -- 25,000
Notes receivable for
purchase of common
stock.................... -- -- (75,000) -- -- -- (75,000)
----- --- ---------- ---------- -------- ------- ----------
Balance at December 31,
1995....................... 6,599 66 1,228,953 1,399,642 (50,000) (5,281) 2,573,380
Net income................. -- -- -- 1,211,516 -- -- 1,211,516
Sale of additional common
stock.................... 375 4 59,995 -- -- -- 59,999
Payments on notes
receivable............... -- -- 50,000 -- -- -- 50,000
Amortization of deferred
compensation............. -- -- -- -- 25,000 -- 25,000
----- --- ---------- ---------- -------- ------- ----------
Balance at December 31,
1996....................... 6,974 70 1,338,948 2,611,158 (25,000) (5,281) 3,919,895
Net income................. -- -- -- 21,750 -- -- 21,750
Amortization of deferred
compensation............. -- -- 25,000 -- 25,000 -- 50,000
----- --- ---------- ---------- -------- ------- ----------
Balance at May 31, 1997
(unaudited)................ 6,974 $70 $1,363,948 $2,632,908 $ -- $(5,281) $3,991,645
===== === ========== ========== ======== ======= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE> 18
SPECIALTY HEALTHCARE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED FIVE MONTHS ENDED
DECEMBER 31, ---------------------------
------------------------- MAY 31, MAY 31,
1995 1996 1996 1997
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities:
Net income...................................... $ 1,399,642 $ 1,211,516 $ 216,965 $ 21,750
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 229,420 504,102 167,524 261,062
Deferred income taxes......................... (735,933) (535,626) -- --
Noncash expense............................... 510,000 -- -- 43,926
Net changes in assets and liabilities:
Restricted cash............................. (582,689) (205,857) 421,175 (53,747)
Accounts receivable......................... (68,868) 114,787 451,167 1,334,472
Notes and other receivables................. -- (59,957) (10,607) (114,421)
Income taxes receivable..................... (187,212) 187,212 (147,099) (235,080)
Prepaid expenses and other assets........... 219,974 24,530 (22,400) (11,176)
Accounts payable, accrued expenses and other
current liabilities...................... 1,698,585 (854,315) (1,110,528) (686,873)
Income taxes payable........................ -- 75,344 -- 101,379
Other liabilities........................... 243,423 151,872 (208,959) (353,190)
----------- ----------- ---------- ------------
Net cash provided by (used in) operating
activities............................. 2,726,342 613,608 (242,762) 308,102
Investing activities:
Purchases of furniture and equipment............ (328,992) (14,715) -- (1,000)
Purchase of net assets of National Medical
Management Services........................... (3,946,849) (302,817) (302,817) --
Purchase of net assets of the Parkside
Company....................................... -- (2,600,000) (2,600,000) --
Increase in goodwill and management contracts... (37,916) (123,222) (106,836) --
----------- ----------- ---------- ------------
Net cash used in investing activities.... (4,313,757) (3,040,754) (3,009,653) (1,000)
Financing activities:
Proceeds from long-term borrowings.............. 3,203,000 3,291,820 3,398,474 11,330,740
Proceeds from sale of common stock.............. 783,388 60,000 60,000 --
Payments on note payable and long-term debt..... (2,317,706) (600,800) (176,600) (11,684,434)
----------- ----------- ---------- ------------
Net cash provided by (used in) financing
activities............................. 1,668,682 2,751,020 3,281,874 (353,694)
----------- ----------- ---------- ------------
Net increase (decrease) in cash and cash
equivalents..................................... 81,267 323,874 29,459 (46,592)
Cash and cash equivalents at beginning of
period.......................................... 1,000 82,267 82,267 406,141
----------- ----------- ---------- ------------
Cash and cash equivalents at end of period........ $ 82,267 $ 406,141 $ 111,726 $ 359,549
=========== =========== ========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest...................................... $ 249,329 $ 390,050 $ 116,932 $ 171,370
=========== =========== ========== ============
Income taxes.................................. $ 1,813,925 $ 1,208,675 $ -- $ 900
=========== =========== ========== ============
Supplemental disclosure of noncash investing
activities:
Purchase of net assets of NMMS during 1995 and
purchase of net assets of Parkside during
1996:
Fair value of assets acquired................. $ 6,755,415 $ 3,500,000 $3,500,000 $ --
Cash paid..................................... 3,946,849 2,600,000 2,600,000 --
Common stock exchanged........................ -- 870,000 870,000 --
----------- ----------- ---------- ------------
Liabilities assumed...................... $ 2,808,566 $ 30,000 $ 30,000 $ --
=========== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE> 19
SPECIALTY HEALTHCARE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Specialty Healthcare Management, Inc. (the Company) provides contract
management and staffing services for the operation and management of
psychiatric, physical rehabilitation and chemical dependency units in general
acute care hospitals and nursing homes.
The Company was incorporated in August 1994 for the purpose of acquiring
the net assets and operations of National Medical Management Services (the
Division), a division of National Medical Enterprises, Inc. Effective January 3,
1995, the Company acquired the assets and operations of the Division for cash
and notes payable of $3.95 million and assumed current liabilities of
approximately $2.8 million. In addition, the Company issued warrants as partial
consideration that, if exercised, would provide the seller with approximately
15% of the Company's outstanding common stock (see Note 8).
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the purchase has been allocated to the assets
purchased and liabilities assumed based upon the fair values at date of
acquisition. The excess of the purchase price over the fair values of the
tangible net assets acquired was allocated $1,000,000 to acquired management
contracts and $120,350 to goodwill which is being amortized over 7 and 40 years,
respectively. The accompanying statements of operations reflect the operating
results since the effective date of the acquisition.
Effective April 1, 1996, the Company merged the Parkside Company
(Parkside), a similar provider of contract management services, into the
Company. Under the merger agreement, 100,000 outstanding common shares of
Parkside were exchanged for 1,305 shares of the Company's common stock for a
fair value of $870,000. In addition, the Company paid $2.6 million in cash. The
purchase price of $3.5 million was allocated to acquired management contracts of
$2.1 million and goodwill of $1.4 million. The agreement also contains an option
exercisable by the Parkside shareholder on or after October 11, 1997 to put to
the Company for redemption at fair market value all shares held. The exercise
date may be extended at the option of the Company for six months through a
payment of $150,000. The accompanying statements of operations reflect the
operating results since the effective date of the acquisition.
The Company's customers are not concentrated in any specific geographic
region, but are concentrated in the health care industry. There are no
significant concentrations of accounts receivable at December 31, 1995 and 1996.
Management continually monitors and adjusts its reserves and allowances
associated with these receivables.
The Company is exposed to credit losses in the event of nonperformance by
counterparties to financial instruments, but does not expect any counterparties
to fail to meet their obligations. The Company generally does not obtain
collateral or other security to support financial instruments subject to credit
risk, but monitors the credit standing of counterparties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Psychiatric Management Services
Company (PMSC). PMSC is the holding company which manages a governmental
contract. Significant intercompany accounts and transactions have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-14
<PAGE> 20
SPECIALTY HEALTHCARE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from these estimates.
REVENUE RECOGNITION
Revenue is reported as earned based upon the terms of the management
contracts as services are rendered. Management fee revenue is calculated based
on a per diem calculation using patients per day, a fixed fee, or a combination
of the two depending on the specific contract. These management contracts are
generally for terms ranging from three to ten years and often have automatic
renewal options.
RESTRICTED CASH
Restricted cash represents amounts set aside for the Supplemental Executive
Retirement Plan (SERP) and the Deferred Compensation Plan which are restricted
from general use.
FURNITURE, EQUIPMENT AND IMPROVEMENTS
Furniture, equipment and improvements are stated at cost. Depreciation on
furniture and equipment is computed using the straight-line method over the
estimated useful lives of three to five years. Customer facility and site
improvements are expensed when incurred.
MANAGEMENT CONTRACTS
Management contracts represent the fair value of contracts purchased and
are being amortized using the straight-line method over seven years.
GOODWILL
Goodwill represents the excess of cost over fair value of net assets
acquired and is being amortized using the straight-line method over 40 years.
NET INCOME PER SHARE
Net income per share is calculated using the weighted average number of
common and common equivalent shares outstanding during the respective periods.
LONG-LIVED AND INTANGIBLE ASSETS
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and Assets to be
Disposed Of" (FAS 121). Under FAS 121, the Company recognizes impairment losses
on furniture, equipment, contracts and goodwill whenever events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be
recoverable through undiscounted future cash flows. Such losses are determined
by comparing the sum of the expected future discounted net cash flows to the
carrying amount of the asset. As of December 31, 1996, no impairment losses have
been incurred.
FINANCIAL INSTRUMENTS
Financial instruments consist of cash and cash equivalents, restricted
cash, accounts receivable, investments, current liabilities and long-term debt
obligations. The carrying amounts reported in the balance sheets for these
financial instruments approximate fair value.
F-15
<PAGE> 21
SPECIALTY HEALTHCARE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Advertising costs
included in the statements of operations for the years ended December 31, 1995
and 1996 are approximately $251,000 and $137,000, respectively.
CASH AND CASH EQUIVALENTS
Cash equivalents include highly-liquid investments with maturities of three
months or less when purchased and consist primarily of money market funds and
mutual funds.
INCOME TAXES
The Company uses the asset and liability method as specified in Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes," to
calculate the provision for income taxes. Deferred tax assets and liabilities
are determined based on differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Changes in
the deferred tax assets and liabilities are reflected in the consolidated
statements of operations.
3. RETIREMENT PLAN
The Company sponsors a defined contribution 401(k) plan that covers
substantially all eligible employees. The Company's contributions to the plan
are based on 3% and 2% for 1995 and 1996, respectively, of an employee's monthly
compensation. For the years ended December 31, 1995 and 1996, contributions to
the plan were approximately $263,000 and $146,000, respectively.
4. OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following at December 31, 1995
and 1996 and May 31, 1997 (unaudited):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MAY 31,
1995 1996 1997
---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued bonuses............................................ $ 440,256 $ -- $ --
Purchased services payable................................. 300,500 297,000 274,000
Accrued self-insurance expenses............................ -- 292,700 292,700
Accrued third party payor denials.......................... 494,142 133,644 --
Other accrued liabilities.................................. 447,658 112,936 78,875
---------- -------- --------
$1,682,556 $836,280 $645,575
========== ======== ========
</TABLE>
5. NOTE PAYABLE
As part of the purchase transaction on January 3, 1995, the Company entered
into a one-year promissory note for $731,000 payable quarterly to National
Medical Enterprises, Inc. The note, which included interest at 8%, was paid in
full in January 1996.
F-16
<PAGE> 22
SPECIALTY HEALTHCARE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1995 and 1996 and
May 31, 1997 (unaudited):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MAY 31,
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable, bearing interest at the Citibank,
N.A. base rate plus 2% per annum with interest
and principal payments due monthly through April
1, 1998.......................................... $562,000 $ 637,800 $ 421,300
Revolving line of credit, bearing interest at the
Citibank, N.A. base rate plus 2% per annum, with
interest payable monthly and any outstanding
borrowings due December 22, 1998................. 146,694 2,938,514 2,801,320
-------- ---------- ----------
708,694 3,576,314 3,222,620
Less current portion............................... 138,000 519,600 464,600
-------- ---------- ----------
$570,694 $3,056,714 $2,758,020
======== ========== ==========
</TABLE>
The Company entered into a credit facility with a financing organization
that provides for a $700,000 term loan and a line of credit up to the lesser of
$4,300,000 or an amount equal to 70% of the net amount of eligible receivables.
During 1996, the Company increased the total credit facility to $6,000,000,
which provides for a $1,027,500 term loan and a line of credit up to the lesser
of $4,972,500 or an amount equal to 75% of the net amount of eligible
receivables. Borrowings under the credit facility bear interest as noted above
with the Company being subject to an annual minimum interest charge of $120,000.
In addition, the Company pays an annual credit facility fee of .25% on the
amount of the total facility. The credit facility agreement also requires the
Company to meet certain financial ratios on leverage, debt service coverage, net
worth, etc., and contains certain covenants which restrict capital expenditures
and the incurrence of additional indebtedness. Substantially all of the
Company's assets are pledged as collateral.
Maturities of long-term debt for the two years succeeding December 31, 1996
are $519,600 in 1997 and $3,056,714 in 1998.
7. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Current:
Federal................................................... $1,367,269 $1,236,585
State..................................................... 259,444 234,646
---------- ----------
Total current............................................... 1,626,713 1,471,231
Deferred:
Federal................................................... (658,466) (479,244)
State..................................................... (77,467) (56,382)
---------- ----------
Total deferred.............................................. (735,933) (535,626)
---------- ----------
$ 890,780 $ 935,605
========== ==========
</TABLE>
F-17
<PAGE> 23
SPECIALTY HEALTHCARE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income taxes at the U.S. federal statutory rate to
income taxes reflected in the Consolidated Statement of Operations is as
follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Net Income Before Taxes at 34%.............................. $778,743 $730,021
Goodwill Amortization....................................... -- 87,550
Meals and Entertainment and other Permanent Adjustments..... 18,271 19,550
State Income Taxes, net..................................... 93,766 98,484
-------- --------
$890,780 $935,605
-------- --------
</TABLE>
The components of the net deferred tax assets at December 31, 1995 and 1996
were obtained using the liability method in accordance with SFAS No. 109 and are
as follows:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Accounts Receivable......................................... $390,377 $1,009,195
Fixed Assets/Intangibles.................................... 119,782 114,677
Accrued Liabilities......................................... 225,774 88,785
Deferred Compensation....................................... -- 58,902
-------- ----------
Deferred Income Tax Assets................................ $735,933 $1,271,559
-------- ----------
</TABLE>
The Company recorded federal and state income tax expense for the five
months ended May 31, 1996 and 1997 (unaudited) in the amounts of $167,520 and
$9,655 resulting in combined tax rates of 43.57% and 30.74%, respectively.
8. WARRANTS AND CAPITAL STOCK
As part of the purchase effective January 3, 1995, the Company issued
warrants to National Medical Enterprises, Inc. to purchase 1,165 shares of
common stock at an exercise price of $.0858 per share. The warrants can be
exercised at any time subsequent to January 3, 1997 and the exercise price and
number of shares are adjustable to maintain an approximate 15% proportional
ownership share of the Company. The value of the warrants at the date of
issuance was determined to be $389,350. As of December 31, 1996, there were
1,215 warrants outstanding.
In conjunction with the purchase transaction, the Company issued additional
shares to existing management shareholders, other senior management and an
outside shareholder. The proceeds from the sale of these shares were used in the
purchase transaction. Certain management acquired shares through note receivable
arrangements and the outstanding balance on these notes has been reflected as a
reduction of shareholders' equity.
All shareholders have entered into a stock agreement which puts certain
restrictions on the transfer or sale of stock. In addition, the ownership of
shares by an employee shareholder shall not vest until the third anniversary of
the date of issuance of the shares. If employment is terminated during the
vesting period, the shares will be repurchased by the Company at the lesser of
book value or the initial purchase price paid for the shares.
F-18
<PAGE> 24
SPECIALTY HEALTHCARE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LEASE COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under various operating
leases. Total rent expense incurred in 1996 and 1995 was approximately $202,000
and $260,000, respectively. The following is a schedule of future minimum rental
payments required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year at December 31, 1996:
<TABLE>
<S> <C>
1997....................................................... $211,026
1998....................................................... 211,026
1999....................................................... 14,784
--------
Total minimum lease payments............................... $436,836
========
</TABLE>
The Company is involved in litigation arising in the ordinary course of
business, including matters involving professional liability. It is the opinion
of management that the ultimate disposition of such litigation would not be in
excess of any reserves or have a material adverse effect on the Company's
financial position or results of operations.
F-19
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Specialty Healthcare Management, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations and division equity and of cash flows present fairly, in all
material respects, the financial position of National Medical Management
Services, a division of National Medical Enterprises, Inc. (the Division), at
December 31, 1994, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Division's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
May 8, 1997
F-20
<PAGE> 26
NATIONAL MEDICAL MANAGEMENT SERVICES
(A DIVISION OF NATIONAL MEDICAL ENTERPRISES, INC.)
BALANCE SHEET
DECEMBER 31, 1994
ASSETS
<TABLE>
<S> <C>
Current assets:
Accounts receivable, less allowance for uncollectible
accounts of $1,316,528................................. $4,731,408
Prepaid expenses and other assets......................... 471,067
----------
Total current assets.............................. 5,202,475
Furniture and equipment, at cost (net of accumulated
depreciation of $195,940)................................. 54,980
----------
Total assets...................................... $5,257,455
==========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable.......................................... $ 574,705
Accrued compensation and benefits......................... 1,654,919
Other accrued liabilities................................. 787,869
----------
Total current liabilities......................... 3,017,493
Division equity............................................. 2,239,962
----------
Total liabilities and division equity............. $5,257,455
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 27
NATIONAL MEDICAL MANAGEMENT SERVICES
(A DIVISION OF NATIONAL MEDICAL ENTERPRISES, INC.)
STATEMENT OF OPERATIONS AND DIVISION EQUITY
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Management contract revenue................................. $22,175,986
Intercompany interest income................................ 1,378,123
Intercompany revenue........................................ 14,791,542
-----------
Total revenue..................................... 38,345,651
Operating expenses:
Salaries and benefits..................................... 20,149,717
Purchased services........................................ 9,351,229
Operating and administrative.............................. 4,990,394
Intercompany interest expense............................. 91,644
Depreciation.............................................. 21,312
-----------
Total operating expenses.......................... 34,604,296
-----------
Income before income taxes.................................. 3,741,355
Income taxes................................................ 1,395,525
-----------
Net income.................................................. 2,345,830
Change in parent company balances........................... (445,948)
Division equity, beginning of year.......................... 340,080
-----------
Division equity, end of year................................ $ 2,239,962
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 28
NATIONAL MEDICAL MANAGEMENT SERVICES
(A DIVISION OF NATIONAL MEDICAL ENTERPRISES, INC.)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Operating activities:
Net income................................................ $2,345,830
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 21,312
Net changes in current assets and liabilities:
Accounts receivable.................................. (1,306,022)
Prepaid expenses and other assets.................... (228,449)
Accounts payable and accrued expenses................ 223,306
Other accrued liabilities............................ (584,187)
----------
Net cash provided by operating activities......... 471,790
Investing activities:
Purchases of furniture and equipment...................... (25,842)
----------
Net cash used in investing activities..................... (25,842)
Financing activities:
Change in parent company balances......................... (445,948)
----------
Net cash used in financing activities..................... (445,948)
----------
Net change in cash................................ --
Cash at beginning of year................................... --
----------
Cash at end of year......................................... $ --
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 29
NATIONAL MEDICAL MANAGEMENT SERVICES
(A DIVISION OF NATIONAL MEDICAL ENTERPRISES, INC.)
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF DIVISION
National Medical Management Services (the Division) provides contract
management and staffing services for the operation and management of
psychiatric, physical rehabilitation and chemical dependency units in general
acute care hospitals and long-term care facilities. These management contracts
are generally for terms ranging from three to five years and often have
automatic renewal provisions.
National Medical Management Services is a division of National Medical
Enterprises, Inc. (the Parent), and therefore, its accounts and results of
operations are included in the consolidated financial statements of the Parent.
The Division's customers are not concentrated in any specific geographic
region, but are concentrated in the health care industry. There are no
significant concentrations of accounts receivable at December 31, 1994.
Management continually monitors and adjusts its reserves and allowances
associated with these receivables.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from these estimates.
REVENUE RECOGNITION
Revenues are reported as earned based upon the terms of the management
contracts as services are rendered.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated lives of three to seven years.
ADVERTISING COSTS
The Division expenses all advertising costs as incurred. Advertising costs
included in the statement of operations and Division equity for the year ended
December 31, 1994 are approximately $217,000.
FINANCIAL INSTRUMENTS
Financial instruments consist of accounts receivable and certain current
liabilities. The carrying amounts reported in the balance sheet for these
financial instruments approximate fair value.
INCOME TAXES
Effective as of the first quarter of 1994, the Division adopted Statement
109. The cumulative effect of the change was immaterial to the accompanying
financial statements. The Division is included in the consolidated U. S. federal
income tax return of its Parent. However, the income tax provision of the
Division was calculated as if the Division had filed a separate U. S. federal
income tax return.
F-24
<PAGE> 30
NATIONAL MEDICAL MANAGEMENT SERVICES
(A DIVISION OF NATIONAL MEDICAL ENTERPRISES, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. RETIREMENT PLAN
The Division participated in a defined contribution 401(k) plan sponsored
by the Parent. The Division made contributions to the plan based on 3% of an
employee's monthly compensation. For the year ended December 31, 1994,
contributions to the plan were approximately $169,000.
4. INCOME TAXES
The provision for income taxes at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1994
----------
<S> <C>
Current:
Federal................................................... $1,208,457
State..................................................... 187,068
----------
Total current income taxes........................ $1,395,525
==========
</TABLE>
The difference between the federal statutory rate of 34% and the effective
tax rate is attributable to state income taxes, net of federal income tax
benefits.
Income taxes owed as of December 31, 1994 and paid during 1994 are
reflected in division equity on the balance sheet.
5. RELATED PARTY TRANSACTIONS
The Division's cash collections were maintained in a central pooled cash
concentration account maintained by the Parent. The Division recognizes interest
income on its portion of the cash pool.
Additionally, the Division provides to and receives services from the
Parent and the net balance due to Parent is included in Division equity in the
accompanying balance sheet. The Division recognizes interest expense on any net
balance due to parent.
Approximately 33% of the Division's 1994 management contract and other
revenue was derived from contracts with various affiliated entities and is
included in intercompany revenue on the accompanying statement of operations and
Division equity.
The accompanying statement of operations and Division equity includes
reasonable allocations of corporate costs incurred by the Parent on behalf of
the Division. The allocations by the Parent were based on revenues, number of
employees, or square footage, depending on the specific cost. Principally due to
the use of estimates and allocations, the financial information included herein
may not necessarily reflect the financial position and results of operations of
the Division in the future or what the financial position and results of
operations of the Division would have been had it been a separate, stand-alone
entity during the periods presented. Management does not consider it practicable
to estimate what the results of operations would have been had the Division
operated as a separate, stand-alone entity.
6. SUBSEQUENT EVENT
Effective January 3, 1995, the Parent sold the assets and operations of the
Division to Specialty Healthcare Management, Inc. (Specialty) for cash and notes
payable of $3.95 million and the assumption of current liabilities of
approximately $2.8 million. In addition, the Parent also received warrants as
partial consideration that, if exercised, would provide the Parent with
approximately 15% of Specialty's outstanding common stock. Further, under the
asset sales agreement if Specialty is sold within two years subsequent to the
above purchase date, the Parent is entitled to receive 50% of the net proceeds
of the sale in excess of existing
F-25
<PAGE> 31
NATIONAL MEDICAL MANAGEMENT SERVICES
(A DIVISION OF NATIONAL MEDICAL ENTERPRISES, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
equity. Specialty was incorporated in August 1994 for the purpose of acquiring
the assets and operations of the Division and is effectively owned by the
Division's senior management.
As part of the sales agreement, the Parent will assign to Specialty service
contracts for facilities where such services are currently being provided. The
contracts with facilities owned by the Parent are for a one-year commitment
after the sale is completed.
F-26
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Incorporation of the Registrant, as
amended (filed herewith).
4.1 -- Specimen Common Stock Certificate of the Registrant
(filed herewith).
4.2 -- Rights Agreement dated February 6, 1997, between Horizon
Mental Health Management, Inc. and American Stock
Transfer & Trust Company, as Rights Agent (incorporated
herein by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form 8-A (Registration Number
000-22123) as filed with the Commission on February 7,
1997).
10.1 -- Share Exchange Reorganization Agreement dated as of April
25, 1997, among the Registrant, Howard B. Finkel, John
Harrison, Larry Reiff, Argentum Capital Partners, L.P.,
Denise Dailey, Ken Dorman, G. Phillip Woellner, and
Michael S. McCarthy, and Specialty Healthcare Management,
Inc., as amended by a First Amendment to Share Exchange
Reorganization Agreement dated as of July 2, 1997
(incorporated herein by reference to Appendix A to the
definitive Proxy Statement filed with the Commission by
the Registrant on July 11, 1997, relating to a Special
Meeting of Stockholders of the Registrant to be held on
August 11, 1997).
10.2 -- Post-Closing Escrow Agreement dated August 11, 1997
between the Registrant and Howard B. Finkel, as Agent
(filed herewith).
10.3 -- Registration Rights Agreement dated August 11, 1997,
between the Registrant and Howard B. Finkel, et al.
(filed herewith).
23.1 -- Consent of Price Waterhouse LLP (filed herewith).
23.2 -- Consent of Price Waterhouse LLP (filed herewith).
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
HORIZON HEALTH GROUP, INC.
I, the undersigned natural person of the age of eighteen (18) years or
more, acting as incorporator of a corporation under the General Corporation Law
of the State of Delaware, do hereby adopt the following Certificate of
Incorporation for such corporation.
ARTICLE I
The name of the corporation is Horizon Health Group, Inc. (the
"Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle County, Delaware 19801, and the name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
ARTICLE IV
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 authority to issue is 20,500,000 shares, consisting of
500,000 shares of Preferred Stock, $.10 par value per share, and 20,000,000
shares of Common Stock, $.01 par value per share.
COMMON STOCK
(a) Each share of Common Stock of the Corporation shall have
identical rights and privileges in every respect. The holders
of shares of Common Stock shall be entitled to vote upon all
matters submitted to a vote of the shareholders of the
Corporation and shall be entitled to one vote for each share
of Common Stock held.
<PAGE> 2
(b) Subject to the prior rights and preferences, if any,
applicable to shares of the Preferred Stock or any series
thereof, the holders of shares of the Common Stock shall be
entitled to receive such dividends (payable in cash, stock, or
otherwise) as may be declared by the board of directors at any
time or from time to time out of any funds legally available
therefor.
(c) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, after
distribution in full of the preferential amounts, if any, to
be distributed to the holders of shares of the Preferred Stock
or any series thereof, the holders of shares of the Common
Stock shall be entitled to receive all of the remaining assets
of the Corporation available for distribution to its
shareholders, ratably in proportion to the number of shares of
the Common Stock held by them. A liquidation, dissolution or
winding up of the Corporation, as such terms are used in this
Paragraph (c), shall not be deemed to be occasioned by or to
include any consolidation or merger of the Corporation with or
into any other corporation or corporations or a sale, lease,
exchange or conveyance of all or a part of the assets of the
Corporation.
PREFERRED STOCK
The Board of Directors of the Corporation is expressly authorized to
cause the Preferred Stock to be issued from time to time, in one or more
series, and in connection with each such series to determine and fix by the
resolution or resolutions providing for the issuance of such shares of
Preferred Stock the number and designation thereof, the powers, designations,
preferences, and relative, participating, optional or other rights, if any, or
the qualifications, limitations or restrictions thereof, if any, including but
not limited to with respect to the matters set forth below:
(a) The number of shares which shall constitute each such series
and the distinctive designation thereof;
(b) The voting powers, full, limited or contingent, if any, to
which holders of shares of each such series shall be entitled;
(c) The dividend rate or rates, if any, the terms, conditions and
dates upon which any such dividend or dividends shall be
payable, the relation which such dividend or dividends shall
bear to the dividends payable on any other class or classes or
series of capital stock, and whether such dividend or
dividends shall be cumulative or non-cumulative, in whole or
in part, participating or non- participating;
- 2 -
<PAGE> 3
(d) Whether or not the shares of such series shall be redeemable
and, if redeemable, the redemption price or prices and the
terms and conditions thereof;
(e) The terms and amount of any sinking fund provided for the
purchase or redemption of shares of such series, if any;
(f) The amount or amounts which shall be paid to the holders of
shares of such series in case of liquidation, dissolution or
winding up of the Corporation, whether voluntary or
involuntary, and the priority in which such payments shall be
made in relation to other series or classes of capital stock
of the Corporation;
(g) Whether or not the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class
of capital stock of the Corporation and, if convertible or
exchangeable, the conversion price or prices or rate or rates
of conversion or exchange and such other terms and conditions
of conversion or exchange as shall be stated in said
resolution or resolutions;
(h) The terms, conditions and amounts of any obligations of the
Corporation to repurchase the shares of such series, subject
to any applicable limitations imposed by law; and
(i) Such other designations, powers, preferences, rights,
qualifications, limitations, or restrictions thereof as it may
deem advisable, as permitted by law, and as shall be stated in
said resolution or resolutions.
(j) The shares of each class or series of the Preferred Stock may
vary from the shares of any other class or series thereof in
any or all of the foregoing respects. The board of directors
of the Corporation may increase the number of shares of the
Preferred Stock designated for any existing class or series by
a resolution adding to such class or series authorized and
unissued shares of the Preferred Stock not designated for any
other class or series. The board of directors of the
Corporation may decrease the number of shares of the Preferred
Stock designated for any existing class or series by a
resolution subtracting from such class or series authorized
and unissued shares of the Preferred Stock designated for such
existing class or series, and the shares so subtracted shall
become authorized, unissued and undesignated shares of the
Preferred Stock.
Except as otherwise required by law or by a resolution or resolutions
of the Board of Directors adopted pursuant to this Article IV, the holders of
the Preferred Stock shall not be entitled to vote at any meeting of
stockholders or otherwise to participate in any action taken by the Corporation
or its stockholders.
- 3 -
<PAGE> 4
GENERAL
(a) Subject to the foregoing provisions of this Certificate of
Incorporation, the Corporation may issue shares of its
Preferred Stock and Common Stock from time to time for such
consideration (not less than the par value thereof) as may be
fixed by the board of directors of the Corporation, which is
expressly authorized to fix the same in its absolute and
uncontrolled discretion subject to the foregoing conditions.
Shares so issued for which the consideration shall have been
paid or delivered to the Corporation shall be deemed fully
paid stock and shall not be liable to any further call or
assessment thereon, and the holders of such shares shall not
be liable for any further payments in respect of such shares.
(b) The Corporation shall have authority to create and issue
rights and options entitling their holders to purchase shares
of the Corporation's capital stock of any class or series or
other securities of the Corporation, as such rights and
options shall be evidenced by instrument(s) approved by the
board of directors of the Corporation. The board of directors
of the Corporation shall be empowered to set the exercise
price, duration, times for exercise, and other terms of such
options or rights; provided, however, that the consideration
to be received for any shares of capital stock subject thereto
shall not be less than the par value thereof.
ARTICLE V
The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors. The number of directors
constituting the Board of Directors shall be one or more as established from
time to time in the manner provided in the Bylaws of the Corporation. Each
director shall continue to hold office until the expiration of his or her term
or, if earlier, his or her removal, resignation or death.
The name and mailing address of the persons who are to serve as the
directors of the Corporation until the first annual meeting of the
stockholders, or until their respective successors are elected and qualified
are:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
James Ken Newman 700 El Paseo
Denton, Texas 76205
Bryan P. Marsal 15303 Dallas Parkway, Suite 1400
Dallas, Texas 75248
David T. Vandewater 15303 Dallas Parkway, Suite 1400
Dallas, Texas 75248
</TABLE>
- 4 -
<PAGE> 5
ARTICLE VI
The period of duration of the Corporation is perpetual.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
adopt, alter, amend or repeal the Bylaws of the Corporation except as otherwise
provided in the Bylaws.
ARTICLE VIII
Elections of Directors need not be by written ballot.
ARTICLE IX
To the full extent permitted by Delaware law, no director of the
Corporation shall be liable to the Corporation or its shareholders for monetary
damages for an act or omission in such director's capacity as a director of the
Corporation. Specifically, a director of the Corporation shall not be
personally liable to the Corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the directors' duty of loyalty to the Corporation or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit. The foregoing elimination
of liability to the Corporation or its shareholders for monetary damages is not
exclusive of any other rights or limitations of liability or indemnity to which
a director may be entitled under any other provision of the Certificate of
Incorporation or Bylaws of the Corporation, contract or agreement, vote of
shareholders and/or disinterested directors, or otherwise.
ARTICLE X
Meetings of the stockholders of the Corporation may be held within or
without the State of Delaware, as the Bylaws may provide. Unless otherwise
required by applicable law, the books and records of the Corporation may be
kept either within or outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in the Bylaws
of the Corporation.
ARTICLE XI
No contract or transaction between the Corporation and one or more of
its directors, officer, or shareholders or between the Corporation and any
person (as used herein "person" means other corporation, partnership,
association, firm, trust, joint venture, political subdivision, or
instrumentality) or other organization in which one or more of its directors,
officers, or shareholders are directors, officers, or shareholders or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee which authorizes the contract or
- 5 -
<PAGE> 6
transaction, or solely because his, her or their votes are counted for such
purpose, if: (i) the material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to the board
of directors or the committee, and the board of directors or the committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (ii) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the shareholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
shareholders); or (iii) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified by the board
of directors, a committee thereof, or the shareholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting
of the board of directors or of a committee which authorizes the contract or
transaction.
ARTICLE XII
The Corporation shall indemnify any person who was, is, or is
threatened to be made a part to a proceeding (as hereinafter defined) by reason
of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the Delaware General Corporation Law, as the
same exists or may hereafter be amended. Such right shall be a contract right
and as such shall run to the benefit of any director who is elected and accepts
the position of director of the Corporation or elects to continue to serve as a
director of the Corporation while this Article XII is in effect. Any repeal or
amendment of this Article XII shall be prospective only and shall not limit the
rights of any such director or the obligations of the Corporation with respect
to any claim arising from or related to the services of such director in any of
the foregoing capacities prior to any such repeal or amendment to this Article
XII. Such right shall include the right to be paid by the Corporation expenses
incurred in defending any such proceeding in advance of its final disposition
to the maximum extent permitted under the Delaware General Corporation Law, as
the same exists or may hereafter be amended. If a claim for indemnification or
advancement of expenses hereunder is not paid in full by the Corporation within
sixty (60) days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim, and if successful in whole or in part,
the claimant shall also be entitled to be paid the expenses of prosecuting such
claim. It shall be a defense to any such action that such indemnification or
advancement of costs of defense are not permitted under the Delaware General
Corporation Law, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its board of
directors or any committee thereof, independent legal counsel, or shareholders)
to have made its determination prior to the commencement of such action that
indemnification of, or advancement of costs of defense to, the claimant is
permissible in the circumstances nor an actual determination by the Corporation
(including its board of directors or any committee thereof, independent legal
counsel, or shareholders) that such indemnification or advancement is not
permissible shall be a defense to the action or create a presumption that
- 6 -
<PAGE> 7
such indemnification or advancement is not permissible. ln the event of the
death of any person having a right of indemnification under the foregoing
provisions, such right shall inure to the benefit of his or her heirs,
executors, administrators, and personal representatives. The rights conferred
above shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, bylaw, resolution of shareholders or
directors, agreement or otherwise.
The Corporation may additionally indemnify any employee or agent of
the Corporation to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, any appeal in such an action, suit or proceeding,
and any inquiry or investigation that could lease to such an action, suit or
proceeding.
ARTICLE XIII
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to such reservation.
ARTICLE XIV
The name and address of the incorporator is:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
David K. Meyercord 4300 NCNB Plaza
901 Main Street
Dallas, Texas 75202
</TABLE>
The undersigned, being the incorporator herein before named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this Certificate hereby declaring and certifying
that this is my act and deed and the facts stated herein are true, and
accordingly I have hereunto set my hand this 6th day of July, 1989.
/s/ David K. Meyercord
----------------------------------
David K. Meyercord
- 7 -
<PAGE> 8
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
HORIZON HEALTH GROUP, INC.
Horizon Health Group, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY THAT:
FIRST: The Board of Directors of the Corporation duly adopted
resolutions setting forth a proposed amendment to the Certificate of
Incorporation of the Corporation which amends the first paragraph of Article IV
thereof to decrease the number of shares of authorized Common Stock, declaring
said amendment to be advisable and calling for the same to be submitted to the
stockholders of the Corporation for consideration. The resolution setting
forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of the
Corporation be amended by changing the first paragraph of Article IV
thereof to reduce the authorized number of shares of Common Stock from
20,000,000 shares to 2,000,000 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 authority to
issue is 2,500,000 shares, consisting of 500,000
shares of Preferred Stock, $.10 par value per share,
and 2,000,000 shares of Common Stock, $.01 par value
per share.
SECOND: Thereafter, pursuant to Section 228 of the General
Corporation Law of the State of Delaware, the holders of all outstanding shares
of capital stock of all classes of the Corporation executed a written consent
adopting and approving the aforesaid amendment.
THIRD: Said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
- 1 -
<PAGE> 9
FOURTH: The capital of the Corporation shall not be reduced or
increased under or by reason of said amendments.
IN WITNESS WHEREOF, said Horizon Health Group, Inc. has caused this
Certificate to be signed by James Ken Newman, its President, and attested to by
James H. Johnson, its Assistant Secretary, this 14th day of August, 1989.
HORIZON HEALTH GROUP, INC.
By:/s/ James Ken Newman
--------------------------------
James Ken Newman, President
ATTEST:
/s/ James H. Johnson
- ---------------------------
James H. Johnson,
Assistant Secretary
STATE OF TEXAS )
) SS
COUNTY OF DALLAS )
On this 24th day of August, 1989, before me, Paula Lagergren, a Notary
Public in and for said State, personally appeared James Ken Newman, the
President of Horizon Health Group, Inc., known to me to be the person who
executed the within Certificate of Amendment to Certificate of Incorporation of
Horizon Health Group, Inc. on behalf of said corporation and acknowledged to me
that he executed said Certificate of Amendment as the act and deed of said
corporation for the purposes and in the capacity therein stated and that the
facts stated therein are true.
/s/ Paula Lagergren
-------------------------------
NOTARY PUBLIC
STATE OF TEXAS
My Commission Expires:
6/22/92
-------------------------------
- 2 -
<PAGE> 10
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT
It is hereby certified that:
(a) The name of the corporation (hereinafter called the "corporation") is
Horizon Health Group, Inc.
(b) The registered office of the corporation within the State of Delaware
is hereby changed to 32 Loockerman Square, Suite L-100, Dover, DE
19901
(c) The registered agent of the corporation within the State of Delaware
is hereby changed to The Prentice-Hall Corporation System, Inc., the
business office of which is identical with the registered office of
the corporation as hereby changed.
(d) The corporation has authorized the changes hereinbefore set forth by
resolution of its Board of Directors.
Signed on May 10, 1990.
/s/ James H. Johnson
----------------------------------
James H. Johnson,
Vice President
Attest:
/s/ David P. Gamble
- -----------------------------------
David P. Gamble, Asst. Secretary
- 1 -
<PAGE> 11
CERTIFICATE OF CHANGE OF REGISTERED AGENT
AND REGISTERED OFFICE
* * * * *
HORIZON HEALTH GROUP, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
The present registered agent of the corporation is The Prentice-Hall
Corporation System, Inc. and the present registered office of the corporation
is in the county of Kent
The Board of Directors of Horizon Health Group, Inc. adopted the
following resolution on the 30 day of October, 1990.
Resolved, that the registered office of
in the state of Delaware be and it hereby is changed to
Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, and the authorization of the
present registered agent of this corporation be and the same
is hereby withdrawn, and THE CORPORATION TRUST COMPANY, shall
be and is hereby constituted and appointed the registered
agent of this corporation at the address of its registered
office.
IN WITNESS WHEREOF, HORIZON HEALTH GROUP, INC. has caused this
statement to be signed by JAMES KEN NEWMAN, its President and attested by JERRY
G. BROWDER, its Secretary this 30 day of October, 1990.
By:/s/ James Ken Newman
-------------------------------
President
ATTEST:
/s/ Jerry G. Browder
- -------------------------------
Secretary
- 1 -
<PAGE> 12
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
HORIZON HEALTH GROUP, INC.
Horizon Health Group, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Company"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Company, at a meeting duly
held, adopted resolutions proposing and declaring advisable the following
amendment to the Certificate of Incorporation of the Company, and submitted
such amendment to the Stockholders of the Company for consideration thereof:
RESOLVED, that the name of the Company be changed to "Horizon
Mental Health Services, Inc." and that the Certificate of
Incorporation of the Company previously filed with the Secretary of
State of Delaware be amended as follows:
Article I is hereby amended in its entirety to read as
follows:
"The name of the corporation is Horizon Mental Health Services, Inc."
SECOND: That thereafter, the Stockholders of the Company entitled to
vote thereon approved and adopted the amendment by unanimous written consent in
accordance with sections 228 and 242 of the General Corporation Law of the
State of Delaware.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Horizon Health Group, Inc. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
James Ken Newman, its President, and James W. McAtee, its Secretary, this 6th
day of February, 1992.
HORIZON HEALTH GROUP, INC.
By:/s/ James Ken Newman
[SEAL] ---------------------------------
James Ken Newman, President
Attest:
By:/s/ James W. McAtee
---------------------------------
James W. McAtee, Secretary
- 1 -
<PAGE> 13
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
HORIZON MENTAL HEALTH SERVICES, INC.
Horizon Mental Health Services, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Company"),
DOES HEREBY CERTIFY THAT:
FIRST: The Board of Directors of the Company duly adopted a
resolution setting forth a proposed amendment to the Certificate of
Incorporation which amends the first paragraph of Article IV thereof to
increase the number of shares of authorized Common Stock, declaring said
amendment to be advisable and calling for the same to be submitted to the
stockholders of the Company for consideration. The resolution setting forth
the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of the Company be
amended by changing the first paragraph of Article IV thereof to
increase the authorized number of shares of Common Stock from
2,000,000 shares to 4,000,000 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 4,500,000 shares, consisting of 500,000
shares of Preferred Stock, $.10 par value per share, and
4,000,000 shares of Common Stock, $.01 par value per share.
SECOND: That thereafter, the Stockholders of the Company entitled to
vote thereon approved and adopted the amendment by unanimous written consent in
accordance with Sections 228 and 242 of the General Corporation Law of the
State of Delaware.
- 1 -
<PAGE> 14
THIRD: Said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: The capital of the Corporation shall not be reduced or
increased under or by reason of said amendments.
IN WITNESS WHEREOF, Horizon Mental Health Services, Inc. has caused
this certificate to be signed by James Ken Newman, its President, and attested
by James W. McAtee, its Secretary, this 4th day of April, 1994.
HORIZON MENTAL HEALTH SERVICES, INC.
By:/s/ James Ken Newman
---------------------------------
James Ken Newman, President
Attest:
By:/s/ James W. McAtee
---------------------------------
James W. McAtee, Secretary
- 2 -
<PAGE> 15
HORIZON MENTAL HEALTH SERVICES, INC.
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
The undersigned officers of Horizon Mental Health Services, Inc., a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Corporation"), do hereby certify
as follows:
(e) That the Board of Directors of the Corporation at a regularly
scheduled Board of Directors Meeting on August 25, 1994, and in accordance with
Sections 141 (f) and 242 of the General Corporation Law of the State of
Delaware, unanimously adopted resolutions proposing that ARTICLE I of the
Certificate of Incorporation of the Corporation, be amended as set forth in
Exhibit A attached hereto (the "Amendment") and directed that the Amendment be
submitted to the stockholders of the Corporation entitled to vote thereon for
its consideration and approval.
(f) That the stockholders of the Corporation entitled to vote
thereon approved and adopted the Amendment by written consent in accordance
with Sections 228 and 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned offices of the Corporation do
hereby certify under penalties of perjury that this Certificate of Amendment is
the act and deed of the Corporation and the facts stated herein are true and
accordingly have hereto set our hands this 16th day of September, 1994.
HORIZON MENTAL HEALTH SERVICES, INC.
By:/s/ James Ken Newman
[SEAL] ---------------------------------
James Ken Newman, President
Attest:
By:/s/ James W. McAtee
---------------------------------
James W. McAtee, Secretary
- 1 -
<PAGE> 16
EXHIBIT A
RESOLVED, that the Certificate of Incorporation of the Company,
previously filed with the Delaware Secretary of State, be amended as follows:
Article I of the Certificate of Incorporation is hereby amended in its
entirety to read as follows:
The name of the corporation is Horizon Mental Health Management, Inc.
- 2 -
<PAGE> 17
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
HORIZON MENTAL HEALTH MANAGEMENT, INC.
Horizon Mental Health Management, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"),
DOES HEREBY CERTIFY THAT:
FIRST: The Board of Directors of the Corporation duly adopted a
resolution setting forth a proposed amendment to the Certificate of
Incorporation of the Corporation which amends the first paragraph of Article IV
thereof to increase the number of shares of authorized Common Stock, declaring
said amendment to be advisable and calling for the same to be submitted to the
stockholders of the Corporation for consideration. The resolution setting
forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by changing the first paragraph of Article IV thereof to
increase the number of authorized shares of Common Stock from
4,000,000 shares to 10,000,000 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 10,500,000 shares, consisting of 500,000
shares of Preferred Stock, $.10 par value per share, and
10,000,000 shares of Common Stock, $.01 par value per share.
SECOND: Thereafter, the stockholders of the Corporation entitled to
vote thereon approved and adopted the foregoing amendment by written consent in
accordance with Section 228 of the General Corporation Law of the State of
Delaware, and any written notice required by Section 228 of the General
Corporation Law of the State of Delaware was duly given as provided in said
Section 228.
- 1 -
<PAGE> 18
THIRD: Said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: The capital of the Corporation shall not be reduced or
increased under or by reason of said amendments.
IN WITNESS WHEREOF, Horizon Mental Health Management, Inc. has caused
this certificate to be signed by James Ken Newman, its President, this 31st day
of January, 1995.
HORIZON MENTAL HEALTH MANAGEMENT, INC.
By:/s/ James Ken Newman
---------------------------------
James Ken Newman, President
- 2 -
<PAGE> 19
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
HORIZON MENTAL HEALTH MANAGEMENT, INC.
Horizon Mental Health Management, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"),
DOES HEREBY CERTIFY THAT:
FIRST: The Board of Directors of the Corporation duly adopted a
resolution setting forth a proposed amendment to the Certificate of
Incorporation of the Corporation which amends the first paragraph of Article IV
thereof to increase the number of shares of authorized Common Stock, declaring
said amendment to be advisable and calling for the same to be submitted to the
stockholders of the Corporation for consideration. The resolution setting
forth the proposed amendment is as follows:
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 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.
SECOND: Thereafter, the stockholders of the Corporation entitled to
vote thereon approved and duly adopted the foregoing amendment in accordance
with Section 242 of the General Corporation Law of the State of Delaware at the
Annual Meeting of Stockholders of the Corporation held on January 29, 1997.
THIRD: The capital of the Corporation shall not be reduced or
increased under or by reason of said amendment.
- 1 -
<PAGE> 20
IN WITNESS WHEREOF, Horizon Mental Health Management, Inc. has caused
this certificate to be signed by James Ken Newman, its President, this 4th day
of February, 1997.
HORIZON MENTAL HEALTH MANAGEMENT, INC.
By:/s/ James Ken Newman
---------------------------------
James Ken Newman, President
- 2 -
<PAGE> 21
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
HORIZON MENTAL HEALTH MANAGEMENT, INC.
Horizon Mental Health Management, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"),
DOES HEREBY CERTIFY THAT:
FIRST: The Board of Directors of the Corporation duly adopted a
resolution setting forth a proposed amendment to the Certificate of
Incorporation of the Corporation which amends Article I thereof to change the
name of the Corporation, declaring said amendment to be advisable and calling
for the same to be submitted to the stockholders of the Corporation for
consideration. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Incorporation of Horizon Mental
Health Management, Inc., as heretofore amended, be further amended by
changing Article I thereof so that, as hereby amended, Article I
shall be and read in its entirety as follows:
The name of the Corporation is Horizon Health Corporation.
SECOND: Thereafter, the stockholders of the Corporation entitled to
vote thereon approved and duly adopted the foregoing amendment in accordance
with Section 242 of the General Corporation Law of the State of Delaware at the
Special Meeting of Stockholders of the Corporation held on August 11, 1997.
THIRD: The capital of the Corporation shall not be reduced or
increased under or by reason of said amendment.
IN WITNESS WHEREOF, Horizon Mental Health Management, Inc. has caused
this certificate to be signed by James W. McAtee, its Executive Vice President
- - Finance & Administration, as of the 11th day of August, 1997.
HORIZON MENTAL HEALTH MANAGEMENT, INC.
By: /s/ JAMES W. MCATEE
---------------------------------
James W. McAtee, Executive Vice
President - Finance & Administration
<PAGE> 1
EXHIBIT 4.1
HORIZON
HEALTH
NUMBER CORPORATION SHARES
A DELAWARE CORPORATION
C
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR CERTAIN DEFINITIONS
IN NEW YORK, NEW YORK AND LEGENDS
CUSIP 44041Y 10 4
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
HORIZON HEALTH CORPORATION, transferable on the books of the Corporation by the
holder hereof, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed or accompanied by a proper assignment. This
certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ JAMES W. MCATEE /s/ ROBERT SETTON
Secretary President
[SEAL]
HORIZON HEALTH CORPORATION
CORPORATE
DELAWARE
Countersigned and Registered
American Stock Transfer & Trust Company
(New York, New York) Transfer Agent and Registrar
By
Authorized Signature
<PAGE> 2
HORIZON HEALTH CORPORATION
The Corporation will furnish without charge to each stockholder who so
requests, a copy of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof of the Corporation and the qualifications, limitations or
restrictions of such preferences and/or rights. Such request may be made to
the Secretary of the Corporation at its principal office.
The Board of Directors of the Corporation has authority to fix the dividend
rights, dividend rate, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and other rights and terms of one or more series of
Preferred Stock, and also has the authority to fix the number of shares
constituting any series and the denominations of such series or all or any of
them.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the ------ --------
entireties (Cust) (Minor)
JT TEN - as joint tenants with Under Uniform Gifts to
right of survivorship Minors
and not as tenants Act
in common ------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
--------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
----------------------------------------------------------------------------
PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shares
----------------------------------------------------------------------
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
--------------------------------------------------------------------
to register the transfer of the said stock on the books of the within-named
Corporation, with full power of substitution in the premises.
Dated
---------------------------------
--------------------------
NOTICE: THE SIGNATURES TO THIS ASSIGNMENT SIGNATURE
MUST CORRESPOND WITH THE NAMES AS
WRITTEN UPON THE FACE OF THE --------------------------
CERTIFICATE IN EVERY PARTICULAR SIGNATURE
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
THE SIGNATURES(S) SHOULD BE
GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE
PROGRAM), PURSUANT TO SEC RULE
17Ad-15.
SIGNATURES GUARANTEED BY:
-----------------------------------
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in the Rights Agreement between Horizon Mental Health
Management, Inc., predecessor by name change to Horizon Health Corporation (the
"Company") and American Stock Transfer & Trust Company (the "Rights Agent")
dated as of February 6, 1997 (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on file at the
principal executive offices of the Company. Under certain circumstances, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect on the date of
mailing, without charge promptly after receipt of a written request therefor.
UNDER CERTAIN CIRCUMSTANCES, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS,
WAS OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR
ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.
The Rights shall not be exercisable by a holder in any jurisdiction where the
requisite qualification to the issuance to such holder of the Rights or the
exercise by such holder of the Rights in such jurisdiction, shall not have been
obtained or obtainable.
<PAGE> 1
EXHIBIT 10.2
POST-CLOSING ESCROW AGREEMENT
This Post-Closing Escrow Agreement (the "Agreement") is made as of
August 11, 1997 by and among Horizon Health Corporation, a Delaware corporation
formerly known as Horizon Mental Health Management, Inc. ("Horizon"), and
Howard B. Finkel ("Finkel").
WHEREAS, Horizon, and Howard B. Finkel, John Harrison, Larry Reiff,
Argentum Capital Partners, L.P. a Delaware limited partnership, Denise Dailey,
Ken Dorman, G. Phillip Woellner, Michael S. McCarthy and NME Management
Services, Inc., a Delaware corporation (collectively the "Shareholders") and
Specialty Healthcare Management, Inc., a Delaware corporation ("Specialty"),
entered into that certain Share Exchange Reorganization Agreement, dated as of
April 25, 1997 (the "Reorganization Agreement"), providing for the exchange of
all of the shares of capital stock of Specialty by the Shareholders for shares
of Common Stock, $.01 par value per share, of Horizon ("Horizon Stock"); and
WHEREAS, pursuant to the Reorganization Agreement, the Shareholders
agreed that Horizon would hold in escrow, for the purposes, and on and subject
to the terms and conditions, hereinafter set forth, 51,282 shares of Horizon
Stock, representing a portion of the purchase price paid to Shareholders under
the Reorganization Agreement; and
WHEREAS, Finkel and the Shareholders have agreed that Finkel shall act
as the agent and attorney-in-fact for all the Shareholders under this
Agreement; and
WHEREAS, the transactions contemplated by the Reorganization Agreement
have been consummated on the date hereof and the parties desire to effectuate
the provisions of the Reorganization Agreement with respect to such
post-closing escrow;
NOW, THEREFORE, in consideration of the premises and the mutual terms
and conditions hereof, the parties hereby agree as follows:
1. Escrow Shares. Horizon agrees to hold in escrow the 51,282 shares
of Horizon Stock (the "Escrow Shares"), which constitute a portion of the
shares of Horizon Stock issued to the Shareholders in the Share Exchange
pursuant to the Reorganization Agreement, strictly in accordance with the terms
of this Agreement. The respective interests of the Shareholders in the Escrow
Shares as of the date of this Agreement are in the same proportions as was the
Shareholders' respective ownership interests in Specialty as set forth on
Exhibit A of the Reorganization Agreement. The receipt and delivery by the
Shareholders of the Escrow Shares is hereby acknowledged by Horizon.
2. Terms of Escrow. The Escrow Shares shall be held as a fund
available to satisfy any obligations of the Shareholders to Horizon which may
arise under Section 7.5 or Article VIII of the Reorganization Agreement in the
manner set forth below:
(a) In the event that Horizon shall assert a claim or claims
against the Shareholders arising out of or relating to any matter with
respect to which Horizon asserts that it is entitled to receive an
adjustment under Section 7.5 of the Agreement with respect to an
account receivable in arbitration on the
Page 1
<PAGE> 2
Closing Date or to be indemnified by the Shareholders pursuant to
Article VIII of the Reorganization Agreement (collectively, the
"Claims"; singularly a "Claim"), Horizon shall furnish written notice
of the Claim (the "Notice of Claim") to Finkel. The Notice of Claim:
(i) shall state in reasonable detail the nature of the alleged
liability; (ii) shall state the amount that Horizon claims it is
entitled to receive from the Escrow Shares based upon the Claim; and
(iii) shall further provide a particularized statement explaining the
basis for the estimate of the Claim. Finkel shall have thirty (30)
days after receipt of the Notice of Claim in which to advise Horizon
that the Shareholders dispute the Claim by delivering written notice
of the Shareholders' dispute (the "Notice of Dispute") to Horizon. The
Notice of Dispute may contest all or any portion of the Notice of
Claim based on a dispute concerning the existence of a Claim, the
Shareholders' liability, the estimated amount of the alleged loss or
any other related matter.
(b) If Finkel shall not deliver a Notice of Dispute within such
thirty (30) day period, the Shareholders shall be deemed to have
acknowledged that Horizon is entitled to amount as set forth in the
Notice of Claim and shall be deemed to have directed Horizon to
release to Horizon for cancellation the number of Escrow Shares which
are equal to the dollar amount of the Claim divided by $23.25 (which
is the per share dollar equivalent amount of the Escrow Shares as
determined pursuant to the Reorganization Agreement). In the event a
Notice of Dispute is timely delivered but only a portion of a Claim is
disputed, then the number of Escrow Shares equal to the undisputed
portion of the Claim divided by $23.25 shall be promptly released to
Horizon for cancellation. It is expressly understood that, in the
event of a stock dividend or stock split by Horizon, such dollar
amount shall be proportionately adjusted for the purposes of this
Section.
(c) Subject to the Shareholders' right to dispute a Claim, once
a Notice of Claim is delivered by Horizon, Horizon shall not permit
the Escrow Shares to be reduced by distribution to the Shareholders to
a dollar amount which is less than the difference between the
aggregate dollar amount of all Claims for which a Notice of Claim has
delivered in accordance with the terms of Section 3(a) above less the
amount of $50,000 (unless any such claim is not subject to the
Threshold limitation as specified in Section 8.6(b) of the
Reorganization Agreement and such fact is so stated in the Notice of
Claim). Furthermore, if the amount of any Claim or the aggregate
amount of all Claims should ever exceed the aggregate dollar
equivalent amount of all the Escrow Shares held by Horizon, then no
portion of the Escrow Shares shall be distributed pursuant to Section
3(d) below. If the Shareholders dispute that there is a reasonable
basis for the Claim or the reasonableness of the amount being held in
escrow with respect to the Claim, such matter shall be subject to
arbitration pursuant to Section 10 of this Agreement.
(d) On the date which is six (6) months after the date of this
Agreement (the "Release Date"), Horizon shall irrevocably and
unconditionally distribute to the Shareholders the Escrow Shares (less
the number of Escrow Shares previously released to Horizon for
cancellation to satisfy Claims pursuant to the terms of this
Agreement) to the extent the dollar equivalent amount of the Escrow
Shares exceeds the aggregate dollar amount of any then existing Claim
or Claims for which a Notice of Claim was delivered by Horizon on or
prior to the Release Date in accordance with the terms of Section 3(a)
above less $50,000 (unless any such Claim relates to an adjustment
under Section 7.5 of the Agreement or is not subject to the Threshold
limitation as specified in Section 8.6(b) of the Reorganization
Agreement and such fact is so stated in the Notice of Claim). The
portion of the Escrow Shares, if any, retained after the Release Date
shall be distributed to the Shareholders or Horizon, as appropriate,
in one or more distributions, from time to time, as and when there is
a final resolution of each such Claim; provided,
Page 2
<PAGE> 3
however, that no distribution will be made upon final resolution of a
Claim if the amount of the remaining unresolved Claims exceed the
dollar equivalent amount of the Escrow Shares then held by Horizon.
(e) Unless delivery is made in person at Horizon's office or
unless Horizon is properly instructed in writing by Finkel to make
delivery in such other manner, Horizon shall be deemed to have
properly delivered to the Shareholders such Escrow Shares as the
Shareholders are entitled to receive, upon placing the same in United
States Mail in a suitable package or envelope, registered or certified
mail, return receipt requested, postage prepaid, addressed to Finkel
at the address listed in Section 4 hereof or such other address as may
be furnished to Horizon in writing.
(f) Any cash or stock dividends or other distributions with
respect to the Escrow Shares, to the extent paid or distributed prior
to release of the Escrow Shares to the Shareholders pursuant to the
terms hereof, shall be held by Horizon as a part of the Escrow Shares
subject to this Agreement.
3. Non-Waiver. Nothing contained in this Agreement shall be deemed
or construed to release or waive any of the rights or obligations of Horizon or
the Shareholders under the Reorganization Agreement, and all rights and
remedies of the Shareholders and Horizon under this Agreement are cumulative of
all other rights which either of them may have under the Reorganization
Agreement, by law or otherwise.
4. Notices. Any notices, claims or demands which any party is
required or may desire to give to another under or in conjunction with this
Agreement shall be in writing, and shall be given by addressing the same to
such other party(ies) at the address set forth below, and by: (i) depositing
the same so addressed, postage prepaid, first class, certified or registered,
in United States mail, return receipt requested, (herein referred to as
"Mailing"); (ii) overnight delivery by a nationally recognized overnight
courier service (e.g. UPS, Federal Express); (iii) delivering the same
personally to such other party(ies); or (iv) transmitting by facsimile and
Mailing the original. Any notice shall be deemed to have been given five (5)
U.S. Post Office delivery days following the date of Mailing; one business day
after timely delivery to an overnight courier; if by personal delivery, upon
such delivery; or if by facsimile, the day of transmission if made within
customary business hours, or if not transmitted within customary business hours
the following business day.
(a) If to Finkel:
Howard B. Finkel
768 Chimney Creek
Golden, CO 80401
Facsimile Number: (303) 526-4205
With a copy to:
Howrey & Simon
1299 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2402
Attn: Roger A. Klein, Esq.
Facsimile Number: (202) 383-6610
Page 3
<PAGE> 4
(b) If to Horizon:
Horizon Mental Health Management, Inc.
1500 Waters Ridge Drive
Lewisville, Texas 75057
Attn: Mr. James Ken Newman, President
Facsimile Number: (972) 420-8282
With a copy to:
Strasburger & Price, L.L.P.
901 Main Street, Suite 4300
Dallas, Texas 75202
Attn: David K. Meyercord, Esq.
Facsimile Number: (214) 651-4330
Any of the parties hereto may change the address for notices to be sent to it
by written notice delivered pursuant to the terms of this section.
5. Entire Agreement; Amendments. This Agreement sets forth the
entire understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject matter
hereof. No terms, conditions or agreements other than those contained herein,
and no amendments or modifications hereto shall be valid unless made in writing
and signed by the parties hereto.
6. Capitalized Terms. Capitalized terms in this Agreement which
are not otherwise defined herein shall have the same meanings as are provided
for such terms in the Reorganization Agreement.
7. Binding Effect. This Agreement shall extend to and be binding
upon and inure to the benefit of the parties hereto, their respective
successors and assigns.
8. Waiver; Remedies. Waiver by any party hereto of any breach of or
exercise of any rights under this Agreement shall not be deemed to be a waiver
of similar or other breaches or rights or a future breach of the same duty. The
failure of a party to take any action by reason of any such breach or to
exercise any such right shall not deprive any party of the right to take any
action at any time while such breach or condition giving rise to such right
continues. The parties shall have all remedies permitted to them by this
Agreement or law, and all such remedies shall be cumulative.
9. Attorney's Fees and Costs. In the event of a breach by any party
to this Agreement and commencement of a subsequent legal action in a court of
law or forum of arbitration, the prevailing party in any such dispute shall be
entitled to reimbursement of reasonable attorney's fees and court costs,
including, but not limited to, the costs of expert witnesses, transportation,
lodging and meal costs of the parties and witnesses, costs of transcript
preparation and other reasonable and necessary direct and incidental costs of
such dispute. "Prevailing party" is the party in whose favor final judgment is
rendered if, but only if, such judgment is in excess of any amounts offered in
settlement by the adverse party or parties.
Page 4
<PAGE> 5
10. Arbitration.
(a) Arbitration Procedure. In the event of a dispute
regarding any matters arising out of or relating to this Agreement
(including, but not limited to, actions for injunctive or declaratory
relief) (hereinafter collectively "arbitrable issues") that cannot be
settled by agreement between the parties, such controversy or dispute
shall be submitted for arbitration in Denver, Colorado, and for this
purpose each party hereby expressly consents to such arbitration in
such forum. The arbitration process shall proceed as follows:
(1) Step One. In the event of a dispute, the
disputing party (herein so called) may at any time notify the
other party ("answering party") in writing that the disputing
party demands to pursue arbitration as provided in Step Two
below, setting forth in specific terms the disputing party's
proposed statement of the matters in dispute to be submitted
to arbitration and the name and address of the arbitrator
selected by the disputing party. Within five (5) business
days following receipt of the disputing party's written
arbitration demand complying with the requirements of this
Step One, the answering party shall notify the disputing
party in writing, setting forth in specific terms the
answering party's proposed statement of the matter in dispute
and identifying the name and address of the arbitrator
selected by such answering party.
(2) Step Two. The two (2) arbitrators so selected
shall meet and confer within twenty (20) business days after
receipt by the disputing party of the answering party's
written notice as called for under Step One above, and if
they are unable within said twenty (20) day period to reach a
decision on the matters in dispute, they shall, at the
expiration of said twenty (20) day period, jointly select a
neutral third arbitrator. If said arbitrators are unable to
choose a neutral third arbitrator, any party may request the
American Arbitration Association ("AAA") to appoint an
additional arbitrator from its National Panel of Commercial
Arbitrators. Any party to this Agreement may advise the AAA
that time is of the essence and that the parties to this
Agreement would like such selection as soon as is reasonably
possible, it being expressly understood that in such AAA
selection process the selection is in the sole discretion of
the AAA, and that the AAA shall not be required by reason of
this Agreement to consult with the parties to this Agreement
in said selection process; provided that all arbitrators,
including the additional arbitrator selected by the AAA,
shall be disinterested individuals knowledgeable in
commercial transactions. Upon selection of the additional
arbitrator, all arbitrators shall within ten (10) business
days thereafter convene an arbitration proceeding at a date,
time and place (in metropolitan Denver, Colorado) designated
by said arbitrators by a majority vote, written notice of
which shall be given to the parties not later than seven (7)
calendar days prior to said hearing date. At the hearing,
each party may be represented by counsel and present
testimony and evidence. If at the commencement of the hearing
the parties cannot agree on a joint statement of the matters
in dispute to be submitted to the arbitrators, the
arbitrators shall be empowered to frame the submission
issue(s). A Certified Court Reporter's transcript may be
demanded by any party or by the arbitrators and said official
transcript shall be prepared, completed, and delivered to the
arbitrators with copies to each party within ten (10)
business days following the conclusion of the hearing.
Arbitration sessions following the initial session, if
necessary, shall be scheduled by the arbitrators so that the
arbitration proceedings (i.e., presentation of evidence
and/or oral arguments) are completed within twenty (20) days
of the initial session. Each party shall be given the
opportunity to file with the
Page 5
<PAGE> 6
arbitrators simultaneous written briefs five (5) business
days following receipt by the arbitrators of the official
transcript but, if no transcript is demanded as provided in
this Agreement, said briefs shall be filed simultaneously
five (5) business days following conclusion of the hearing.
Copies of any such briefs shall be provided to the other
party concurrently upon filing with the arbitrators.
(3) Step Three. Within ten (10) business days
following the receipt by the arbitrators of the brief(s) (or
within ten (10) business days following conclusion of the
hearing if all parties waive briefs), the arbitrators shall
make and deliver to the parties their decision and award in
writing. The arbitrators shall have the authority to enter
any award or to grant any relief which could be obtained in a
court of competent jurisdiction and reasonable attorneys',
arbitrators' and experts' fees and expenses of arbitration
may be awarded as the arbitrators see fit, consistent with
the provisions of this Agreement. The arbitrators shall have
no authority to modify, amend or alter the provisions of this
Agreement and shall base their decision and award on
applicable law, the language contained in this Agreement and
the facts giving rise to the dispute as presented on the
record at the hearing. The arbitrators shall issue a written
opinion explaining the basis for their findings.
(b) Self-Execution. It is expressly understood between the
parties that this Article 10 is a selfexecuting arbitration provision
and that any party may unilaterally select an arbitrator if the other
party refuses to arbitrate. It is further expressly agreed that said
unilaterally-selected arbitrator may proceed to arbitrate the issue(s)
and the arbitration and decision shall be self-executing and therefore
shall not require the order of any Court to proceed. The parties may,
however, mutually stipulate in writing to extend or to shorten the
prescribed time periods (including a stipulation to expedite the
referral and submission to arbitration). All provisions of this
Agreement not in dispute shall be observed and performed without
interruption during the pendency of any proceeding called for under
this Article 10.
(c) Arbitrator's Fees. If an additional arbitrator is
required pursuant to Step Two under Section (a) above, each party
shall pay its pr rata share of any required retainer or other payments
required by such arbitrator upon such arbitrator's demand, with the
ultimate responsibility for the arbitrators' fees to be determined by
the arbitrators in the final arbitration award pursuant to Step Three
of Section (a) above; otherwise, each party shall bear its own costs
and expenses in connection with any proceedings under this Article 10
and, in any event, each party shall pay the fees of the arbitrator it
selects.
(d) Rules Governing Arbitration. In all other respects,
the arbitration shall be conducted pursuant to the then-existing
Commercial Rules of the AAA to the extent such rules are not
inconsistent with any provision of this Agreement. Subject to the
foregoing, the arbitrators shall determine the scope and extent of
permissible discovery, if any.
(e) Entry of Award. The award of the arbitrators may be
entered as a final judgment by any court of competent jurisdiction.
(f) Injunctive Relief. Notwithstanding the provisions of
this Article 10 to the contrary, each party shall be entitled to seek
temporary or preliminary injunctive relief from a court of competent
jurisdiction if the failure to immediately obtain injunctive relief
will result in irreparable harm to that
Page 6
<PAGE> 7
party. The jurisdiction of the court shall extend only to such relief
and any request for permanent injunctive relief shall remain subject
to the arbitration provisions of this Agreement.
11. Termination. This Agreement shall terminate at such time as
all of the Escrow Shares shall have been released in accordance with the terms
and conditions of this Agreement.
12. Agent. It is expressly understood that Finkel is and shall act
hereunder as an agent and attorney-in-fact for and on behalf of all the
Shareholders under the Reorganization Agreement pursuant to the provisions of
the Reorganization Agreement. All allocations and distributions of the Escrow
Shares to the Shareholders shall be the responsibility of Finkel, and Horizon
shall have no obligation or liability with respect thereto.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
Page 7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Post-Closing
Escrow Agreement as of the day herein first written above.
SHAREHOLDERS:
/s/ Howard B. Finkel
--------------------------------------------
Howard B. Finkel
Individually and as agent and
attorney-in-fact for the Shareholders
HORIZON:
HORIZON HEALTH
CORPORATION, a Delaware
corporation formerly known
as HORIZON MENTAL HEALTH
MANAGEMENT, INC.
By: /s/ James W. McAtee
----------------------------------------
James W. McAtee
Executive Vice President
Page 8
<PAGE> 1
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), is entered into
as of August 11, 1997, by and between Horizon Health Corporation, a Delaware
corporation formerly known as Horizon Mental Health Management, Inc.
("Horizon"), and Howard B. Finkel, John Harrison, Larry Reiff, Argentum Capital
Partners, L.P. a Delaware limited partnership, Denise Dailey, Ken Dorman, G.
Phillip Woellner, Michael S. McCarthy and NME Management Services, Inc., a
Delaware corporation (individually a "Shareholder" and collectively the
"Shareholders").
WHEREAS, Horizon and the Shareholders are simultaneously consummating
the transactions contemplated by that certain Share Exchange Reorganization
Agreement (the "Reorganization Agreement"), dated April 25, 1997, by and among
Horizon, the Shareholders and Specialty Healthcare Management, Inc., a Delaware
corporation ("Specialty"); and
WHEREAS, the Shareholders pursuant to the Reorganization Agreement
received unregistered shares of Common Stock of Horizon in a private offering
transaction (the "Share Exchange"); and
WHEREAS, Horizon and the Shareholders agreed to enter into this
Agreement pursuant to the Reorganization Agreement simultaneously with the
Share Exchange;
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
6. Definitions.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, $.01 par value, of Horizon
issued in the Share Exchange pursuant to the Reorganization Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means a Shareholder or any assignee or transferee of a
Registrable Security.
"Registrable Securities" means the shares of Common Stock issued to
the Shareholders in the Share Exchange pursuant to the Reorganization
Agreement, other than the shares of Common Stock held in escrow under the
Post-Closing Escrow Agreement executed pursuant to the Reorganization
Agreement. Any Registrable Security will cease to be a Registrable Security
when (i) a registration statement covering such Registrable Security has been
declared effective by the Commission and the Registrable Security has been
disposed of pursuant to such effective registration statement, (ii) the
Registrable Security is sold under circumstances in which all of the applicable
conditions of Rule 144 (or any similar provisions then in force) under the
Securities Act are met or (iii) the Registrable Security has been otherwise
transferred, Horizon has delivered a new certificate or other evidence of
ownership for the Registrable Security not bearing a legend restricting further
transfer, and the Registrable Security may be resold without subsequent
registration under the Securities Act.
Page 1
<PAGE> 2
"Registration Statement" means the registration statement contemplated
by this Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to the Registration Statement.
"Underwriters" means a securities dealer which purchases any
Registrable Securities as principal and not as part of such dealer's
market-making activities.
7. Unregistered Securities.
Each Shareholder acknowledges that the shares of Common Stock
issued in the Share Exchange are unregistered securities and are subject to
Rule 144 under the Securities Act for the purposes of any resales of shares of
the Common Stock. Each Shareholder hereby represents and warrants to, and
agrees with, Horizon as follows:
(a) The Shareholder will not sell or otherwise transfer
any of the Common Stock in violation of the Securities Act or the
rules and regulations promulgated thereunder. The Shareholder has not
and will not, in any event, sell or otherwise transfer or enter into
any contract or otherwise agree to sell or otherwise transfer any of
the Common Stock until such time as financial results covering at
least thirty days of combined operations of Horizon and Specialty
after the Share Exchange have been published and distributed to the
stockholders of Horizon.
(b) The Shareholders hereby consent to the placing of a
legend on the certificate or certificates evidencing the Common Stock
referring to the issuance thereof in a private offering transaction
under the Securities Act and to the giving of stop transfer
instructions to the transfer agent for the Common Stock with respect
to such certificate or certificates. The legend will state in
substance:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 or the Blue Sky
Laws of any state and may not be sold or otherwise
transferred in the absence of (a) an effective registration
statement for the sale of such shares under the Securities
Act of 1933 or (b) an opinion of counsel reasonably
satisfactory to Horizon to the effect that the transfer may
be made without such registration."
(c) Except as set forth herein, each Shareholder
understands that Horizon is under no obligation to take any action to
facilitate the sale, transfer or other disposition by any Shareholder,
or on behalf of any Shareholder, of any of the Common Stock.
(d) In the event of any sale or transfer of any of the
Common Stock in a transaction not involving a sale pursuant to Rule
144 under the Securities Act or not involving a sale in a registered
public offering, the Shareholder will obtain from each transferee of
the Common Stock in such transaction a letter agreement substantially
similar to this Section 2 or a letter containing such other
information reasonably required by Horizon to evidence an exception
from the applicable registration requirements of federal or state
securities laws, which is binding and enforceable by Horizon against
the transferee.
Page 2
<PAGE> 3
It is understood and agreed that the legend set forth in paragraph (b)
above shall be removed, and the related stock transfer restrictions shall be
lifted forthwith in connection with the sale or other transfer of Common Stock
(i) if the sale or other transfer of the shares of Common Stock shall have been
registered under the Securities Act, or (ii) if the sale or other transfer of
the shares of Common Stock is not so registered, the Shareholder is not at the
time of such sale or other transfer an affiliate of Horizon and has held the
Stock for at least one year (or such other period as may be prescribed by the
Securities Act and the rules and regulations thereunder) and Horizon, for at
least twelve months immediately preceding the sale or other transfer, has filed
with the Commission all of the reports it is required to file under Exchange
Act, or (iii) if Horizon shall have received either a letter from the staff of
the Commission or an opinion of legal counsel acceptable to Horizon, to the
effect that the stock transfer restrictions and the legend are not required and
may be removed.
8. The Registration Statement.
(a) Registration Statement. Subject to the provisions of
this Section 3, Horizon agrees that it shall prepare and file with the
Commission as soon as practicable after the date hereof, but in no event
earlier than October 15, 1997, a registration statement (the "Registration
Statement") on any form for which Horizon then qualifies and Horizon considers
appropriate and which is available to sell the Registrable Securities;
provided, however, that it is understood that Horizon shall be required to
proceed with the Registration Statement only after its 1997 fiscal year-end
audited financial statements are available to be used for the purposes of the
Registration Statement. Horizon further agrees to use its best efforts to cause
the Registration Statement to be filed and declared effective within thirty
(30) days after the Horizon 1997 fiscal year-end audited financial statements
are available. Prior to the filing of the Registration Statement, Horizon shall
request from each Holder the number of shares of Registrable Securities owned
by the Holder desired to be included in the Registration Statement. Subject to
the provisions of Section 3(b) below, Horizon will include in the Registration
Statement all Registrable Securities with respect to which Horizon has received
written requests for inclusion therein within twenty (20) days after the
receipt by the applicable Holder of Horizon's notice. Each such request from a
Holder will specify the number of shares of Registrable Securities to be
registered. Unless the Holder or Holders of a majority of the Registrable
Securities to be registered in the Registration Statement shall consent in
writing, Horizon shall not be permitted to include any other securities under
the Registration Statement.
(b) Underwritten Offering. Horizon may elect to proceed
with the Registration Statement pursuant to Section 3(a) above in the form of
an underwritten offering and, in such event, the Holders participating in the
Registration Statement hereby agree that the offering shall be in the form of
an underwritten offering. In such event, Horizon shall select the managing
underwriter(s) and such additional investment bankers and managers to be used
in connection with the offering; provided, that such underwriter and additional
investment bankers and managers must be reasonably satisfactory to the Holders
participating in the Registration Statement. If the managing underwriter or
underwriters of such offering advise Horizon and the Holders in writing that in
their opinion the number of shares of Registerable Securities requested to be
included in such offering is sufficiently large to materially and adversely
affect the success of such offering, Horizon will only include in the
Registration Statement the Registrable Securities (and no securities offered by
Horizon or any other party) limited to an aggregate number of the Registrable
Securities which in the opinion of such managing Underwriter or Underwriters
can be sold without any such material adverse effect, and such amount shall be
allocated to the Holders of Registrable Securities based on the number of
Registrable Securities requested to be included in the Registration Statement.
As to any Registrable Securities requested to be included in the offering by
the Holders, but not included due to such opinion of the Managing Underwriters,
the Holders of such Registrable Securities shall have the piggyback
registration rights provided under Section 4 below.
Page 3
<PAGE> 4
(c) Other Form of Offering. In the event that Horizon
elects not to proceed or is unable to effect the offering pursuant to the
Registration Statement as an underwritten offering, then Horizon shall
nevertheless still be obligated to proceed with the Registration Statement and
an offering of the Registerable Securities on a non-underwritten basis;
provided, however, that Horizon agrees to proceed in such event in the same
manner and at the same times as specified in Section 3(a) but provided further,
however, that the Holders agree that, in such event, the Shareholders shall
initially for at least a two week period after the effective date of the
Registration Statement attempt to sell the Registerable Securities through
block sales arranged by a broker/dealer selected by Horizon and reasonably
satisfactory to the Holders.
(d) Effective Registration and Expenses. A registration
will not count as the Registration Statement until it has become effective
(unless the Holders withdraw the Registrable Securities, in which case such
registration will count as the Registration Statement unless the Holders of
such Registrable Securities agree to pay all Registration Expenses (as
hereinafter defined)). Except as provided above, Horizon will pay all
Registration Expenses in connection with any Registration Statement whether or
not it becomes effective.
9. Finkel Piggyback Registration Rights.
(a) If at any time after the offering pursuant to the
Registration Statement contemplated under Section 3 above is completed and
before the expiration of one(1) year after the date of this Agreement, the
Company proposes for any reason to register any shares of Common Stock under
the Securities Act (other than pursuant to a registration statement on Form S-4
or Form S-8 (or a similar or successor form) with respect to an offering of
Common Stock by the Company for its own account or for the account of any of
its security holders, it shall at each such time promptly give written notice
to Howard B. Finkel ("Finkel") of its intention to do so (but in no event less
than ten days before the anticipated filing date). Such notice shall offer
Finkel the opportunity to register such number of shares of Registrable
Securities as Finkel may request.
(b) The Company shall use its best efforts to cause the
managing Underwriter or Underwriters of a proposed underwritten offering to
permit the shares of Registrable Securities requested by Finkel to be included
in the registration statement for such offering to be included (on the same
terms and conditions as the Common Stock of the Company included therein to the
extent appropriate). Notwithstanding the foregoing, if in the reasonable
judgment of the managing Underwriter or Underwriters, due to the size of the
offering which the Company or such other persons or entities intend to make,
the success of the offering would be adversely affected by inclusion of the
Registrable Securities requested to be included by Finkel then, if the offering
is by the Company for its own account or is an offering by other holders
registering shares of Common Stock of the Company pursuant to demand
registration rights, then the number of shares of Common Stock to be offered
for the account of Finkel and any other holders registering shares of Common
Stock of the Company pursuant to similar piggyback registration rights, if any,
shall be reduced pro rata based on the relative percentage ownership of all
shares of Common Stock then outstanding owned by Finkel and such other holders
to the extent necessary to reduce the total number of shares of Common Stock to
be included in such offering to the amount recommended by such managing
Underwriter or Underwriters.
10. Holdback Agreements.
(a) Restrictions on Public Sale by Holders of Registrable
Securities. Each Holder whose securities are included in a Registration
Statement agrees not to effect any public sale or distribution of the issue
being registered or a similar security of Horizon or any securities convertible
into or exchangeable or exercisable
Page 4
<PAGE> 5
for such securities, including a sale pursuant to Rule 144 or Rule 144A under
the Securities Act, during the ten days prior to, and during the 90-day period
beginning on, the effective date of the Registration Statement (except as part
of such registration), if and to the extent requested by Horizon in the case of
a non-underwritten public offering or if and to the extent requested by the
managing Underwriter or Underwriters in the case of an underwritten public
offering.
(b) Restrictions on Public Sale By Horizon. Horizon agrees
not to effect any public sale or distribution of any securities similar to
those being registered, or any securities convertible into or exchangeable or
exercisable for such securities (except pursuant to a registration statement on
Form S-4 or S-8 or any substitute form therefor that may be adopted by the
Commission), during the ten days prior to, and during the 90-day period
beginning on, the effective date of the Registration Statement (except as part
of the Registration Statement where the Holders of a majority of the
Registrable Securities to be included in the Registration Statement consent).
11. Registration Procedures.
In connection with the Registration Statement, Horizon will:
(a) prepare and file with the Commission a registration
statement on any form for which Horizon then qualifies and which Horizon shall
deem appropriate and which form shall be available for the sale of the
Registrable Securities to be registered thereunder in accordance with the
intended method of distribution thereof, and use its best efforts to cause such
filed registration statement to become effective; provided, (i) that at least
five days before filing a registration statement or prospectus or as promptly
as practicable prior to filing any amendments or supplements thereto, Horizon
will furnish to one counsel selected by the Holders of a majority of the
Registrable Securities covered by such registration statement copies of all
such documents proposed to be filed, which documents will be subject to the
review of such counsel, and (ii) that after the filing of the registration
statement, Horizon will promptly notify each Selling Holder of Registrable
Securities covered by such registration statement of comments received from, or
any stop order issued or threatened by, the Commission and take all reasonable
actions required to respond to such comments or, as the case may be, prevent
the entry of such stop order or to remove it if it has been entered;
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective pursuant to Section 3 for a period of not less than ninety (90) days
or such shorter period which will terminate when all Registrable Securities
covered by such registration statement have been sold (but not before the
expiration of the period referred to in subsection 4(3) of the Securities Act
and Rule 174 thereunder, if applicable) and comply with the provisions of the
Securities Act applicable to it with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Selling Holders
thereof set forth in much registration statement;
(c) furnish to each Selling Holder, prior to filing the
registration statement, if requested, copies of such registration statement as
proposed to be filed, and thereafter furnish to such Selling Holder such number
of copies of such registration statement, each amendment and supplement thereto
(in each case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus), and such other
documents as such Selling Holder may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Selling Holder;
Page 5
<PAGE> 6
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
states as any Selling Holder reasonably (in light of such Selling Holder's
intended plan of distribution) requests and do any and all other acts and
things which may be reasonably necessary to enable such Selling Holder to
consummate the disposition in such states of the Registrable Securities owned
by such Selling Holder; provided that Horizon will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subsection, (ii) subject itself
to taxation in any such jurisdiction, or (iii) consent to general service of
process in any such jurisdiction;
(e) use its best efforts to cause such Registrable
Securities to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of Horizon to enable the Selling Holder or Selling Holders thereof
to consummate the disposition of such Registrable Securities; provided that
Horizon will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subsection, (ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction;
(f) notify each Selling Holder of such Registrable
Securities, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the occurrence of an event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading and promptly make available to each Selling
Holder any such supplement or amendment;
(g) enter into and perform customary agreements (including
an underwriting agreement in customary form with the managing Underwriter, if
any) and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of such Registrable Securities;
(h) make available for inspection by any Selling Holder of
such Registrable Securities, any Underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant, or other
professional retained by any such Selling Holder or Underwriter (collectively,
the "Inspectors"), all financial and other records, pertinent corporate
documents, and properties of Horizon (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause Horizon's officers, directors, and employees to
supply all information reasonably requested by any such Inspectors in
connection with such registration statement. Records which Horizon determines,
in good faith, to be confidential and which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) in the
judgment of counsel to Horizon the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in such registration statement or
(ii) the release of such Records is ordered pursuant to a subpoena or other
order from a court or government agency of competent jurisdiction. Each Selling
Holder of such Registrable Securities agrees that information obtained by it as
a result of such inspections shall be deemed confidential and shall not be used
by it as the basis for any market transactions in the securities of Horizon
unless and until such is made generally available to the public. Each Selling
Holder of such Registrable Securities further agrees that it will, upon
learning that disclosure of such Records is sought in a court or government
agency of competent jurisdiction, give notice to Horizon and allow Horizon, at
its expense, to undertake appropriate action to prevent disclosure of the
Records deemed confidential;
(i) if such sale is pursuant to an underwritten offering,
use its best efforts to obtain a comfort letter or comfort letters from
Horizon's independent public accountants in customary form and covering such
Page 6
<PAGE> 7
matters of the type customarily covered by comfort letters as the Selling
Holders of a majority of the Registrable Securities or the managing Underwriter
reasonably request;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as reasonably practicable, an
earnings statement covering a period of 12 months, beginning within three
months after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act;
and
(k) use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
issued by Horizon are then listed, or on the Nasdaq National Market, if
applicable, provided that the applicable listing requirements are satisfied.
Horizon may require each Selling Holder of Registrable
Securities to promptly furnish in writing to Horizon such information regarding
the distribution of the Registrable Securities as it may from time to time
reasonably request and such other information as may be legally required in
connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice
from Horizon of the happening of any event of the kind described in subsection
6(f) hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subsection 6(f) hereof and,
if so directed by Horizon such Selling Holder, will deliver to Horizon all
copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. If Horizon shall give such notice,
Horizon shall extend the period during which such registration statement shall
be maintained effective (including the period referred to in subsection 6(b)
hereof) by the number of days during the period from and including the date of
the giving of notice pursuant to subsection 6(f) hereof to the date when
Horizon shall make available to the Selling Holders of Registrable Securities
covered by such registration statement a prospectus supplemented or amended to
conform with the requirements of subsection 6(f) hereof.
l2. Registration Expenses.
In connection with the Registration Statement required to be
filed hereunder, Horizon shall pay the following registration expenses (the
"Registration Expenses"): (i) all registration and filing fees; (ii) fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities); (iii) printing expenses; (iv) internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties); (v) fees and expenses
incurred in connection with the listing of the Registrable Securities if
Horizon shall choose to list such Registrable Securities; (vi) fees and
disbursements of counsel for Horizon and customary fees and expenses for
independent certified public accountants retained by Horizon (including the
expenses of any comfort letters or costs associated with the delivery by
independent certified public accountants of a comfort letter or comfort letters
requested pursuant to subsection 6(i) hereof); and (vii) fees and expenses of
any special experts retained by Horizon in connection with such registration.
Horizon shall not have any obligation to pay any underwriting fees, discounts,
or commissions attributable to the sale of Registrable Securities, or any
out-of-pocket expenses or fees, including attorney's fees, of the Holders or
Finkel.
Page 7
<PAGE> 8
13. Indemnification; Contribution.
(a) Indemnification by Horizon. Horizon agrees to
indemnify and hold harmless each Selling Holder of Registrable Securities, its
officers, directors, shareholders, partners, trustees, beneficiaries and
agents, and each person or entity, if any, who controls such Selling Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; except insofar as such
losses, claims, damages, liabilities, or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to Horizon by such Selling Holder or on such
Selling Holder's behalf expressly for use therein; provided, that with respect
to any untrue statement or omission or alleged untrue statement or omission
made in any preliminary prospectus, the indemnity agreement contained in this
subsection shall not apply to the extent that any such loss, claim, damage,
liability, or expense results from the fact that a current copy of the
prospectus was not sent or given to the person asserting any such loss, claim,
damage, liability, or expense at or prior to the written confirmation of the
sale of the Registrable Securities to such person if it is determined that it
was the responsibility of such Selling Holder to provide such person with a
current copy of the prospectus and such current copy of the prospectus would
have cured the defect giving rise to such loss, claim, damage, liability or
expense. Horizon also agrees to indemnify any Underwriters of the Registrable
Securities, their officers and directors, and each person who controls such
Underwriters on substantially the same basis as that of the indemnification of
the Selling Holders provided in this section 8(a).
(b) Indemnification by Holders of Registrable Securities.
Each Selling Holder agrees to indemnify and hold harmless Horizon, its
directors and officers, and each person, if any, who controls Horizon within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, to the same extent as the foregoing indemnity from Horizon to
such Selling Holder, but only with respect to information furnished in writing
by such Selling Holder or on such Selling Holder's behalf expressly for use in
any registration statement or prospectus relating to the Registrable
Securities, any amendment or supplement thereto, or any preliminary prospectus.
In case any action or proceeding shall be brought against Horizon or its
directors or officers, or any such controlling person, in respect of which
indemnity may be sought against such Selling Holder, such Selling Holder shall
have the rights and duties given to Horizon, and Horizon or its directors or
officers or such controlling person shall have the rights and duties given to
such Selling Holder, by the preceding subsection. Each Selling Holder also
agrees to indemnify and hold harmless Underwriters of the Registrable
Securities, their officers and directors, and each person who controls such
Underwriters on substantially the same basis as that of the indemnification of
Horizon provided in this section 8(b).
(c) Conduct of Indemnification Proceedings. If any action
or proceeding (including any governmental investigation) shall be brought or
asserted against any person entitled to indemnification under subsections (a)
or (b) above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who has agreed to provide such indemnification (an
"Indemnifying Party"), the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all expenses. Such Indemnified Party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the Indemnifying
Party has agreed to pay such fees and expenses
Page 8
<PAGE> 9
or (ii) the named parties to any such action or proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised by counsel that there
is a conflict of interest on the part of counsel employed by the Indemnifying
Party to represent such Indemnified Party (in which case, if such Indemnified
Party notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party; it being understood, however,
that the Indemnifying Party shall not, in connection with any one such action
or proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for all such Indemnified Parties, which firm shall be designated in
writing by such Indemnified Parties). The Indemnifying Party shall not be
liable for any settlement of any such action or proceeding effected without its
written consent, but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action or proceeding, the
Indemnifying Party shall indemnify and hold harmless such Indemnified Parties
from and against any loss or liability (to the extent stated above) by reason
of such settlement or judgment.
(d) Contribution. If the indemnification provided for in
this Section 8 is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities, or judgments referred to herein, then
each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities, and judgments as between Horizon
on the one hand and each Selling Holder on the other, in such proportion as is
appropriate to reflect the relative fault of Horizon and of each Selling Holder
in connection with such statements or omissions, as well as any other relevant
equitable considerations. The relative fault of Horizon on the one hand and of
each Selling Holder on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
Horizon and the Selling Holders agree that it would not be
just and equitable if contribution pursuant to this subsection 8(d) were
determined by pro rata allocation (even if the Selling Holders were treated as
one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding subsection shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection 8(d), no
Selling Holder shall be required to contribute any amount in excess of the
amount by which the total price at which the securities of such Selling Holder
were offered to the public exceeds the amount of any damages which such Selling
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Subsection 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) Survival. The indemnity and contribution agreements
contained in this Section 8 shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement or any
Page 9
<PAGE> 10
underwriting agreement, (ii) any investigation made by or on behalf of any
Indemnified Party or by or on behalf of Horizon, and (iii) the consummation of
the sale or any successive resale of the Registrable Securities.
14. Participation in Underwritten Registrations.
No person or entity may participate in any underwritten
registration hereunder unless such person or entity (a) agrees to sell such
person's or entity's securities on the basis provided in any underwriting
arrangements approved by the persons or entities entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and this Agreement.
15. Miscellaneous.
(a) Remedies. Each Holder of Registrable Securities, in
addition to being entitled to exercise all rights provided herein and granted
by law, including recovery of damages, will be entitled to specific performance
of its rights under this Agreement. Horizon agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of the provisions of this Agreement and hereby agrees to waive the defense in
any action for specific performance that remedy at law would be adequate. Each
party waives all provisions of law requiring that a bond be posted in order to
effectuate any remedy under this Agreement.
(b) No Inconsistent Agreements. Horizon will not on or
after the date of this Agreement enter into any agreement with respect to its
securities which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. Horizon has no outstanding agreement with respect to its
securities granting any registration rights to any other person.
(c) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified, or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless
Horizon has obtained the written consent of the Holders of at least a majority
of the Registrable Securities; provided that with respect to any such waiver or
consent relating to Registration Statement, Horizon shall obtain the consent of
the Holders of a majority of the Registrable Securities subject to such
registration.
(d) Notices. Any notices, claims or demands which any
party is required or may desire to give to another under or in conjunction with
this Agreement shall be in writing, and shall be given by addressing the same
to such other party(ies) at the address set forth below, and by (i) depositing
the same so addressed, postage prepaid, first class, certified or registered,
in the United States mail (herein referred to as "Mailing"), (ii) overnight
delivery by a nationally recognized overnight courier service (e.g. UPS,
Federal Express), (iii) delivering the same personally to such other
party(ies), or (iv) transmitting by facsimile and Mailing the original. Any
notice shall be deemed to have been given five (5) U.S. Post Office delivery
days following the date of Mailing; one business day after timely delivery to
an overnight courier; if by personal delivery, upon such delivery; or if by
facsimile, the day of transmission if made within customary business hours, or
if not transmitted within customary business hours, the following business day.
Page 10
<PAGE> 11
If to Horizon:
Horizon Mental Health Management, Inc.
1500 Waters Ridge Drive
Lewisville, Texas 75057-6011
Attention: James Ken Newman
Facsimile Number: (972) 420-8282
With a copy to:
Strasburger & Price, L.L.P.
901 Main Street, Suite 4300
Dallas, Texas 75202
Attention: David K. Meyercord, Esq.
Facsimile Number: (214) 651-4330
If to the Shareholders:
To the respective addresses
set forth on Exhibit A to the
Reorganization Agreement
With a copy to:
Howrey & Simon
1299 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2402
Attention: Roger A. Klein, Esq.
Facsimile Number: (202) 383-6610
Any of the parties hereto may change the address for notices to be sent to it
by written notice delivered pursuant to the terms of this section.
(e) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of
Horizon and the Holders.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term of this Agreement, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part of this
Agreement; and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement. Furthermore,
in lieu of each such illegal, invalid or unenforceable provision,
Page 11
<PAGE> 12
there shall be added automatically as a part of this Agreement a provision as
similar in terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
(h) Entire Agreement. This Agreement is intended by
Horizon and the Holders as a final expression of their agreement and is
intended to be a complete and exclusive statement of their agreement and
understanding in respect of the subject matter contained herein. This Agreement
supersedes all prior agreements and understandings between Horizon and the
Holders with respect to such subject matter. This Agreement may be amended only
in writing executed by Horizon and the Holders of a majority of the Registrable
Securities.
(i) Third Party Beneficiaries. This Agreement is intended
for the benefit of Horizon and the Holders and their respective successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person or entity.
(j) Attorney's Fees. In any proceeding brought to enforce
any provision of this Agreement, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to its costs and expenses and
any other available remedy.
(k) Governing Law. This agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to principles of conflicts or choice of law.
(l) Effectiveness. This Agreement shall become effective
as of the day first set forth above.
(m) Counterparts. This Agreement may be executed in a
number of identical counterparts and it shall not be necessary for Horizon and
the Holders to execute each of such counterparts, but when both have executed
and delivered one or more of such counterparts, the several parts, when taken
together, shall be deemed to constitute one and the same instrument,
enforceable against each in accordance with its terms. In making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart executed by the party against whom enforcement of this
Agreement is sought.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
Page 12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first above written.
HORIZON: SHAREHOLDERS:
HORIZON HEALTH CORPORATION, /s/ Howard B. Finkel
a Delaware corporation formerly known as ----------------------------------
HORIZON MENTAL HEALTH HOWARD B. FINKEL
MANAGEMENT, INC.
By:/s/ James W. McAtee /s/ John Harrison
---------------------------------- ----------------------------------
Title: Executive Vice President JOHN HARRISON
Name: James W. McAtee
/s/ Larry Reiff
----------------------------------
LARRY REIFF
ARGENTUM CAPITAL PARTNERS, L.P.
By:/s/ Daniel Raynor
-------------------------------
Name: Daniel Raynor
Title: Chairman
/s/ Denise Dailey
-----------------------------------
DENISE DAILEY
/s/ Ken Dorman
-----------------------------------
KEN DORMAN
/s/ G. Phillip Woellner
-----------------------------------
G. PHILLIP WOELLNER
/s/ Michael S. McCarthy
-----------------------------------
MICHAEL S. MCCARTHY
NME MANAGEMENT SERVICES, INC.
By:/s/ Lawrence G. Hixon
-------------------------------
Name: Lawrence G. Hixon
Title: Vice President
Page 13
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-2938) of Horizon Health Corporation (formerly
named Horizon Mental Health Management, Inc.) of our report on Specialty
Healthcare Management, Inc. dated April 25, 1997 appearing on page F-9 of this
Form 8-K.
PRICE WATERHOUSE LLP
Dallas, Texas
August 25, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-2938) of Horizon Health Corporation (formerly
named Horizon Mental Health Management, Inc.) of our report on National Medical
Management Services, a division of National Medical Enterprises, Inc., dated May
8, 1997, appearing on page F-20 of this Form 8-K.
PRICE WATERHOUSE LLP
Dallas, Texas
August 25, 1997
