<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Horizon Health Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
HORIZON HEALTH CORPORATION
1500 WATERS RIDGE DRIVE
LEWISVILLE, TEXAS 75057-6011
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 28, 1999
To the Stockholders of
Horizon Health Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Horizon Health Corporation (the "Company") will be held at the executive offices
of the Company located at 1500 Waters Ridge Drive, Lewisville, Texas 75057-6011,
on Thursday, January 28, 1999, at 9:00 a.m., Central Time, for the following
purposes:
1. To elect eight directors to serve for the ensuing year;
2. To consider and vote upon a proposal to ratify the appointment
of PricewaterhouseCoopers LLP as the independent accountants
for the Company for the fiscal year ending August 31, 1999;
and
3. To transact such other business as may properly come before
the Annual Meeting and any and all adjournments thereof.
The close of business on December 11, 1998 has been fixed by the Board
of Directors as the record date for determining stockholders entitled to notice
of and to vote at the Annual Meeting. A list of stockholders eligible to vote at
the Annual Meeting will be available for inspection at the Annual Meeting, and
during business hours from January 11, 1999 to the date of the Annual Meeting at
the executive offices of the Company located at 1500 Waters Ridge Drive,
Lewisville, Texas 75057-6011.
You are cordially invited to attend the Annual Meeting. Whether or not
you plan to attend the Annual Meeting, it is important that you ensure your
representation by completing, signing, dating and promptly returning the
enclosed proxy card. A return envelope, which requires no postage if mailed in
the United States, has been provided for your use. If you attend the Annual
Meeting, you may revoke your proxy and vote in person if you wish.
By Order of the Board of Directors,
JAMES W. McATEE
President
December 18, 1998
<PAGE> 3
HORIZON HEALTH CORPORATION
1500 WATERS RIDGE DRIVE
LEWISVILLE, TEXAS 75057-6011
--------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
---------------------
TO BE HELD JANUARY 28, 1999
This Proxy Statement is furnished in connection with the solicitation
on behalf of the Board of Directors of Horizon Health Corporation, a Delaware
corporation (the "Company" or "Horizon"), of proxies for use at the Annual
Meeting of Stockholders of the Company (the "Annual Meeting") to be held at the
executive offices of the Company located at 1500 Waters Ridge Drive, Lewisville,
Texas 75057-6011, on Thursday, January 28, 1999, at 9:00 a.m., Central Time, and
at any and all adjournments thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. This Proxy Statement and
the accompanying proxy card are first being mailed on or about December 18, 1998
to stockholders of the Company entitled to notice of and to vote at the Annual
Meeting. Only holders of record of the Common Stock, $.01 par value ("Common
Stock"), of the Company at the close of business on December 11, 1998, will be
entitled to notice of and to vote at the Annual Meeting. As of that date, there
were 6,866,750 shares of Common Stock outstanding. Each share of Common Stock
entitles the record holder to one vote. There is no cumulative voting.
The holders of a majority of the issued and outstanding shares of
Common Stock entitled to vote at the Annual Meeting must be present in person or
represented by proxy at the Annual Meeting in order to have a quorum for the
Annual Meeting. Directors will be elected at the Annual Meeting by a plurality
of the votes of the shares present in person or represented by proxy at the
Annual Meeting and entitled to vote on the election of directors. Accordingly,
the eight nominees for director receiving the highest number of affirmative
votes cast on the election of directors at the Annual Meeting will be elected as
directors. The affirmative vote of the holders of a majority of the shares of
Common Stock which are actually present in person or represented by proxy at the
Annual Meeting and entitled to vote thereat will be required to approve all
other matters to be acted upon at the Annual Meeting. Abstentions will be
counted for purposes of determining the presence or absence of a quorum, but not
voted. Abstentions will therefore have the same effect as votes against any
proposal requiring the affirmative vote of a majority of the shares present and
entitled to vote thereon. Broker non-votes will be counted only for purposes of
determining the presence or absence of a quorum, but will have no effect on the
outcome of the matters to be acted upon at the Annual Meeting.
If the accompanying proxy card is properly signed and received by the
Company prior to the Annual Meeting and not revoked, it will be voted in
accordance with the instructions contained therein. If no instructions are
given, the persons designated as proxies in the accompanying proxy card will
vote "FOR" the election as directors of those persons named below and "FOR" all
other proposals set forth therein.
The Board of Directors is not currently aware of any matters other than
those referred to herein which will come before the Annual Meeting. If any other
matter is properly presented at the Annual Meeting for action, the persons named
in the accompanying proxy card will vote the proxy in their own discretion on
such matter.
<PAGE> 4
You may revoke your proxy at any time before it is actually voted at
the Annual Meeting by delivering written notice of revocation to the Secretary
of the Company, by submitting a subsequently dated proxy, or by attending the
Annual Meeting and giving notice to the Secretary of the Company in writing that
the proxy is withdrawn. Attendance at the Annual Meeting will not, by itself,
constitute revocation of the proxy.
The cost of soliciting proxies in the accompanying form will be borne
by the Company. Proxies may also be solicited personally or by telephone by
officers or employees of the Company, none of whom will receive additional
compensation therefor. The Company's regularly retained investor communications
firm, Corporate Communications, Inc., may also be called upon to solicit proxies
by telephone or mail. The Company will reimburse brokerage houses and other
nominees for their reasonable expenses in forwarding proxy materials to
beneficial owners of Common Stock.
The Company's executive offices are located at 1500 Waters Ridge Drive,
Lewisville, Texas 75057- 6011. Its telephone number is (972) 420-8200.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
GENERAL INFORMATION
As set by the Board of Directors pursuant to the Bylaws of the Company,
the authorized number of directors of the Company is eight. Eight directors will
be elected at the Annual Meeting, to hold office until the next annual meeting
of stockholders of the Company and until their respective successors are duly
elected and qualify, or until their earlier death, resignation or removal. All
director nominees named below are currently serving as directors of the Company
with terms expiring at the Annual Meeting. The Board of Directors has no reason
to believe that any of the nominees will not serve if elected, but if any of
them become unavailable to serve as a director, and if the Board designates a
substitute nominee, the persons named in the accompanying proxy card will vote
for the substitute nominee designated by the Board.
INFORMATION REGARDING NOMINEES
Set forth below is certain information with respect to each director
nominee. Additional information regarding certain of the nominees is set forth
in other sections of this Proxy Statement.
<TABLE>
<CAPTION>
NAME AGE TITLE DIRECTOR SINCE
- ---- ---- ----- --------------
<S> <C> <C> <C>
James Ken Newman 55 Chairman of the Board of Directors July 1989
James W. McAtee 53 President, Chief Executive Officer, Chief July 1995
Financial Officer, Treasurer and
Secretary; Director
Jack R. Anderson 73 Director December 1990
George E. Bello 63 Director April 1995
William H. Longfield 60 Director July 1995
Donald E. Steen 52 Director April 1995
James E. Buncher 62 Director August 1997
Howard B. Finkel 49 Director August 1997
</TABLE>
James Ken Newman has been the Chairman since February 1992. From July
1989 until September 1997, he served as President of the Company and from July
1989 until October 1998, he served as Chief Executive Officer of the Company.
2
<PAGE> 5
James W. McAtee has been President and Chief Executive Officer of the
Company since November 1998 and Chief Financial Officer, Treasurer and Secretary
of the Company since September 1990. He served as Executive Vice President -
Finance & Administration of the Company from February 1992 until October 1998.
He was a Senior Vice President of the Company from September 1990 to February
1992.
Jack R. Anderson has been President of Calver Corporation, a health
care consulting and investment firm, and a private investor, since 1982. Mr.
Anderson currently serves on the board of directors of PacificCare Health
Systems, Inc. and Genesis Health Ventures, Inc. Mr. Anderson is a member of the
Compensation and Option Committee of the Board of Directors of the Company.
George E. Bello has been Executive Vice President and Controller and a
member of the board of directors of Reliance Group Holdings, Inc., an insurance
holding company, since August 1981. Mr. Bello also currently serves on the board
of directors of Zenith National Insurance Corp. and LandAmerica Financial Group,
Inc. Mr. Bello is a member of the Audit Committee of the Board of Directors of
the Company.
William H. Longfield has been the Chairman and Chief Executive Officer
of C.R. Bard, Inc., a multi- national developer, manufacturer and marketer of
health care products, since September 1995. Mr. Longfield was President and
Chief Executive Officer of C.R. Bard, Inc. from October 1993 to September 1995,
President and Chief Operating Officer from September 1991 to October 1993 and
Executive Vice President and Chief Operating Officer from February 1989 to
September 1991. Mr. Longfield currently serves on the board of directors of C.R.
Bard, Inc., HCR Manor Care, Inc. and The West Company. Mr. Longfield is a member
of the Compensation and Option Committee of the Board of Directors of the
Company.
Donald E. Steen has been Chairman of United Surgical Partners, Inc., a
surgery operations company, since February 1998. From October 1994 to December
1997, Mr. Steen was President of the International Group of Columbia/HCA
Healthcare Corporation, a health care services corporation primarily involved in
the ownership and operation of hospitals and providing related services. From
September 1981 to October 1994, Mr. Steen was the President and Chief Executive
Officer of Medical Care America, Inc., a corporation that operated ambulatory
surgery centers. Medical Care America, Inc. was acquired by Columbia/HCA
Healthcare Corporation in October 1994. Mr. Steen is a member of the Audit
Committee of the Board of Directors of the Company.
James E. Buncher has been a private investor since September 1997. Mr.
Buncher was also President and Chief Executive Officer of Community Dental
Services, Inc., a corporation operating dental practices in California, from
October 1997 until July 1998. Mr. Buncher was the President of Health Plans
Group of Value Health, Inc., a national specialty managed care company, from
September 1995 to September 1997 and served as Chairman, President and Chief
Executive Officer of Community Care Network, Inc., a Value Health subsidiary,
from August 1992 to September 1997. In September 1997, Value Health was acquired
by a third party and Mr. Buncher resigned his positions with that company. He
currently serves on the board of directors of Alliance Imaging, Inc.
Howard B. Finkel was the Chairman and Chief Executive Officer of
Specialty Healthcare Management, Inc. ("Specialty") from January 1, 1995 until
August 11, 1997, when Specialty was acquired by the Company. From 1984 to
December 31, 1994, he was the President of the National Medical Management
Services division of National Medical Enterprises, Inc., a health care services
company primarily involved in the ownership and operation of hospitals and
providing related services. Mr. Finkel is currently a private investor.
SHARES REPRESENTED BY THE ACCOMPANYING PROXY CARD WILL BE VOTED "FOR"
THE ELECTION OF THE NOMINEES NAMED ABOVE EXCEPT TO THE EXTENT AUTHORITY TO VOTE
FOR ONE OR MORE NOMINEES IS WITHHELD. AS INDICATED ON THE PROXY CARD,
STOCKHOLDERS MAY (I) VOTE FOR THE ENTIRE SLATE OF NOMINEES, (II) WITHHOLD
AUTHORITY TO VOTE FOR THE ENTIRE SLATE OF NOMINEES OR (III) BY WRITING THE NAME
OF ONE OR MORE NOMINEES IN THE SPACE PROVIDED ON THE PROXY CARD, WITHHOLD
AUTHORITY TO VOTE FOR SUCH SPECIFIED NOMINEE OR NOMINEES.
3
<PAGE> 6
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors of the Company held four meetings during the
fiscal year ended August 31, 1998. The only standing committees of the Board of
Directors are the Compensation and Option Committee and the Audit Committee.
During the fiscal year ended August 31, 1998, each current director of the
Company attended at least 75% of the aggregate of the total number of meetings
of the Board of Directors of the Company (except for Howard B. Finkel who
attended two of such meetings), and of the committees of the Board on which the
respective director served, that were held during the period for which each such
person has been a director or served on such committee, as the case may be.
Compensation and Option Committee. The Compensation and Option
Committee reviews and sets from time to time the salaries and annual incentive
bonuses for the Chief Executive Officer of the Company and each of the officers
of the Company directly reporting to the Chief Executive Officer, and also
administers the stock option plans of the Company. The Compensation and Option
Committee met three times during the fiscal year ended August 31, 1998. Jack R.
Anderson and William H. Longfield currently are the members of the Compensation
and Option Committee. Keith B. Pitts resigned as a member of such committee in
October 1997 concurrently with his voluntary resignation from the Board of
Directors of the Company. On October 17, 1997, the Board of Directors appointed
Mr. Longfield as a member of such committee.
Audit Committee. The principal functions of the Audit Committee are to
make recommendations to the Board of Directors as to the selection of the
independent auditors for the Company, and to review and consult with the Board
of Directors and management regarding the scope and results of any outside audit
of the Company and other auditing and accounting matters. The Audit Committee
met once during the fiscal year ended August 31, 1998. George E. Bello and
Donald E. Steen currently are the members of the Audit Committee and were the
only members of such committee during fiscal 1998.
4
<PAGE> 7
EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding
compensation earned by or awarded to the Chief Executive Officer and the other
executive officers of the Company named below (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- -------------
OTHER
ANNUAL SECURITIES ALL OTHER
FISCAL COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) (2) OPTIONS (#)(3) (4)
- --------------------------- ---- --------- -------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
James Ken Newman................. 1998 $ 281,942 $ 50,000 --- 60,000 $ 2,375
Chief Executive Officer (5) 1997 252,634 252,548 --- --- 3,007
1996 229,932 283,833 --- 30,000 2,501
Robert A. Lefton................. 1998 225,201 --- $ (7,244) 35,000 2,375
President and Chief Operating 1997 180,033 108,000 5,283 --- 3,007
Officer (6) 1996 159,474 79,734 119,097 45,000 2,501
James W. McAtee.................. 1998 241,811 --- --- 35,000 2,375
Executive Vice President - 1997 226,317 171,168 --- --- 3,007
Finance & Administration (6) 1996 211,317 140,096 --- 22,500 2,501
Gary A. Kagan.................... 1998 220,537 155,706 --- 7,500 2,375
Executive Vice President - 1997 208,054 157,794 --- --- 3,007
Development 1996 195,692 64,876 --- 27,000 2,501
John F. DeVaney.................. 1998 190,045 --- --- 5,000 2,375
Senior Vice President - 1997 180,065 108,000 45,939 --- 3,007
Rehab Operations (7) 1996 151,232 75,600 28,898 45,000 2,501
</TABLE>
- -----------
(1) Represents the amounts earned in the fiscal year indicated, irrespective
of when amounts were paid by the Company. The bonus amounts shown include
incentive bonuses. In addition, for Messrs. Newman and McAtee in fiscal
1996, Messrs. McAtee and Kagan in fiscal 1997 and Messrs. Newman and Kagan
in fiscal 1998, the bonus amounts shown include bonuses earned in those
fiscal years under the contingent bonus plan. See "Other Compensation
Arrangements - Contingent Bonuses." The incentive bonus amounts included
for Mr. Kagan were calculated based on the number of new management
contract locations that opened in the fiscal year in question,
irrespective of when the contracts were signed. Such incentive bonus
amounts included for Mr. Kagan as to any fiscal year do not include
amounts accrued as of the end of such fiscal year for signed contracts
where the contract location was not opened as of the end of the fiscal
year, since the bonuses are to be paid only if and when such contract
locations open.
(2) The amounts shown include reimbursements for relocation expenses of $5,083
in fiscal 1997 and $116,647 in fiscal 1996 for Mr. Lefton, and $45,224 in
fiscal 1997 and $28,723 in fiscal 1996 for Mr. DeVaney, respectively. In
addition, the amount shown in fiscal 1998 represents a reimbursement from
Mr. Lefton to the Company of proceeds from the sale of a club membership
which the Company had previously reimbursed as a relocation expense to Mr.
Lefton.
5
<PAGE> 8
(3) The number of options granted in fiscal 1996 are adjusted to reflect the
three-for-two stock split effected by the Company as a 50% stock dividend
in January 1997.
(4) The amounts shown for each fiscal year consist of Company contributions
made in that fiscal year to the 401(k) Plan of the Company on behalf of
the Named Executive Officers with respect to the prior calendar year.
(5) Mr. Newman retired as Chief Executive Officer and an employee of the
Company effective October 31, 1998.
(6) Effective November 1, 1998, Mr. McAtee was elected Chief Executive Officer
and President of the Company and Mr. Lefton was elected Executive Vice
President - Operations of the Company.
(7) Mr. DeVaney resigned as an officer and employee of the Company effective
November 6, 1998.
STOCK OPTION GRANTS
The following table sets forth information regarding the grant of
options to purchase shares of Common Stock to the Named Executive Officers in
the fiscal year ended August 31, 1998.
OPTION GRANTS IN FISCAL YEAR ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF EXERCISE ANNUAL RATES OF STOCK
UNDERLYING TOTAL OPTIONS OR PRICE APPRECIATION FOR
OPTIONS GRANTED TO BASE OPTION TERM (3)
GRANTED (1) EMPLOYEES IN PRICE (2) EXPIRATION --------------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5% 10%
- ------------------------ -------------------- --------------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James Ken Newman........ 60,000 33.8% $ 23.75 9/1/07 $ 896,183 $ 2,271,023
Robert A. Lefton........ 35,000 19.7 23.75 9/1/07 522,773 1,324,763
James W. McAtee......... 7,500 4.2 23.75 9/1/07 112,023 283,878
Gary A. Kagan........... 5,000 2.8 23.75 9/1/07 74,682 189,252
John F. DeVaney......... 35,000 19.7 23.75 9/1/07 522,773 1,324,763
</TABLE>
- ----------
(1) The options vest and are exercisable cumulatively in 20% annual
installments commencing two years after the date of grant. Exercisability
of the options may be accelerated in the event of the commencement of a
tender offer for shares of the Company, the signing of an agreement for
certain mergers or consolidations involving the Company or for the sale of
all or substantially all assets of the Company, a change in any
consecutive two-year period in the majority of the members of the Board of
Directors of the Company serving on the Board at the beginning of such
period, and certain other extraordinary corporate transactions. The
options are subject to early termination in the event of the optionee's
cessation of service with the Company.
(2) The exercise price per share of the options equaled the reported closing
price of the Common Stock on the date of grant. Subject to the terms of
the applicable option agreements, the exercise price may be paid in cash
or in shares of Common Stock owned by the optionee, or a combination of
the foregoing.
(3) There is no assurance that the actual stock price appreciation over the
ten-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock does in
fact appreciate over the option term, no value will be realized from the
option grants.
AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND OPTION VALUES AT FISCAL YEAR-END
The following table sets forth, for each Named Executive Officer,
information regarding stock options exercised during the fiscal year ended
August 31, 1998, the number of shares covered by both exercisable
6
<PAGE> 9
and unexercisable stock options as of August 31, 1998, and the value of stock
options outstanding as of August 31, 1998.
AGGREGATED OPTION EXERCISES
IN FISCAL YEAR ENDED AUGUST 31, 1998
AND OPTION VALUES AS OF AUGUST 31, 1998
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ON YEAR-END (#) FISCAL YEAR-END (1)
EXERCISE VALUE ---------------------------- ----------------------------
NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James Ken Newman.......... 50,000 $1,100,000 336,415 132,444 $1,588,062 $140,064
Robert A. Lefton.......... 13,500 290,800 21,750 76,625 52,969 19,141
James W. McAtee........... --- --- 211,762 80,754 964,253 80,178
Gary A. Kagan............. 95,000 1,919,473 98,697 74,896 330,339 132,465
John F. DeVaney........... 16,250 338,662 29,688 47,562 71,788 15,350
</TABLE>
- --------
(1) Calculated based on the closing price of the Common Stock of $6.625 per
share as reported on the Nasdaq National Market on August 31, 1998, the
last trading day of fiscal 1998, less the applicable exercise price. The
values shown for Mr. Lefton and Mr. DeVaney were calculated by including
as an addition to the per share exercise price of certain options granted
to such individuals in fiscal 1993 and fiscal 1994 the amount per share
paid by such individuals to purchase such options.
OTHER COMPENSATION ARRANGEMENTS
Executive Retention Agreement
Effective September 1, 1997, the Company entered into an Executive
Retention Agreement with James Ken Newman. Pursuant to the Executive Retention
Agreement, Mr. Newman agreed to continue to serve as Chairman and Chief
Executive Officer of the Company, subject to his right to retire as Chief
Executive Officer at any time during the term of the agreement. Mr. Newman
elected to retire as Chief Executive Officer of the Company on October 31, 1998,
at which time he became a consultant to the Company for the remaining term of
the agreement. Mr. Newman served as President of the Company from July 1989
until September 1997, as Chief Executive Officer of the Company from July 1989
until October 1998, and as Chairman since February 1992.
The Executive Retention Agreement has a five year term, subject to
automatic renewal so that it maintains a three year term at all times until the
Company elects to terminate such automatic renewal provision which it can elect
to do at any time. Under the agreement, Mr. Newman receives as a consultant
annual compensation equal to seventy-five percent (75%) of his annual base
salary at the time of retirement, which was $280,000. Mr. Newman was also
provided a bonus plan under the agreement which, if performance criteria to be
established as a part of the plan are satisfied, permitted Mr. Newman to earn an
annual bonus up to 100% of his annual base salary. Following his retirement, Mr.
Newman is not entitled to any such bonuses other than any bonus earned up to the
date of retirement. Any stock options granted to Mr. Newman during the term of
the agreement are to have a ten year term and vest not less than 10% per year at
the end of each of the first eight years and be fully vested at the end of nine
years, subject, however, to acceleration upon the occurrence of certain events.
All stock options granted to Mr. Newman prior to the date of his retirement do
not change in any respect as a result of his retirement to consultant status.
The agreement contains certain confidentiality and noncompetition
provisions. The noncompetition agreements stay in place so long as Mr. Newman
receives severance payments under the agreement, which will be for the remaining
term of the agreement in the event of termination of the agreement under certain
7
<PAGE> 10
conditions. Mr. Newman may limit the term of the noncompetition agreement to 24
months by electing to forego any additional severance payments after such
period. In the event Mr. Newman voluntarily resigns, no severance payments are
payable but he will be subject to the noncompetition agreement for 24 months
after the date of resignation.
The agreement has certain provisions for the acceleration of the
vesting of stock options and the resignation of Mr. Newman for good reason after
the occurrence of a change of control of the Company.
Employment Agreements
The Company has entered into an employment agreement with Mr. Kagan.
Under his employment agreement, Mr. Kagan is entitled to a base salary that is
subject to increase, but not decrease, by the Board of Directors of the Company.
The annual base salary for Mr. Kagan was $224,720 as of August 31, 1998. The
employment agreement also allows Mr. Kagan to participate in the insurance and
other fringe benefit plans provided to the Company's employees generally from
time to time.
Mr. Kagan's employment agreement is terminable by either party thereto
with or without cause upon at least 30 days prior written notice. In addition,
either party may terminate the employment agreement "with cause" under certain
circumstances. Mr. Kagan can terminate with cause if the Company materially
breaches or fails to perform under the agreement. The Company may terminate with
cause if Mr. Kagan (i) is unable to perform his duties due to illness, injury or
incapacity for more than six months or death, (ii) is convicted of a felony or
(iii) breaches or neglects to perform under the agreement. If the employment
agreement is terminated without cause by the Company or with cause by Mr. Kagan,
Mr. Kagan will be entitled to receive (i) any bonus previously earned, (ii) a
severance cash payment equal to one year's base salary, payable in twelve equal
monthly installments and (iii) accelerated vesting of all outstanding stock
options and other benefits or bonuses or, alternatively, with respect to any
benefits or bonuses that cannot be fully vested pursuant to applicable law, will
be entitled to receive if allowed by law cash equal to the amount of benefits or
bonuses forfeited. Mr. Kagan's employment agreement contains certain
noncompetition and nonsolicitation covenants binding on him during the
employment term and for specified periods thereafter unless the employment
agreement is terminated by the Company without cause or by Mr. Kagan with cause.
The employment agreement also contains certain confidentiality and nondisclosure
covenants on the part of Mr.
Kagan that survive termination for any reason.
The Company has also entered into employment agreements with Messrs.
Lefton and DeVaney. Under their employment agreements, each such Named Executive
Officer is entitled to a base salary that is subject to increase by the Company.
The annual base salaries for Mr. Lefton and Mr. DeVaney were $225,000 and
$190,000, respectively, as of August 31, 1998. The employment agreements also
allow Messrs. Lefton and DeVaney to participate in the insurance and other
fringe benefit plans provided to the Company's employees generally from time to
time.
The term of Messrs. Lefton and DeVaney's employment agreements are
until December 31, 1999 and are automatically renewable thereafter for
successive one year terms. However, such agreements are terminable by either
party thereto with or without cause effective immediately upon written notice.
In addition, the Company may terminate each employment agreement "with cause" if
the employee (i) is convicted of a felony, (ii) commits any material act of
dishonesty against the Company, or (iii) willfully and materially breaches or
fails to perform under the agreement. In the event of a permanent disability of
the employee, the employment of the disabled employee is continued but his
compensation is reduced to three-fourths of the base salary then in effect. The
employment agreements provide that if they are terminated without cause by the
Company, the affected employee will be entitled to receive severance pay equal
to the lesser of (i) one year's base salary, or (ii) the amount of current base
salary times the number of months remaining on the then term of the agreement,
such severance amount payable in monthly installments. The employment agreements
have provisions for the acceleration of the vesting of certain stock options and
restricted stock awards in the event that the Company terminates the agreement
without cause or if the
8
<PAGE> 11
employee resigns for good reason following the occurrence of a change of control
of the Company. The employment agreements also contain certain noncompetition
covenants, binding on the employee during their employment terms and for
specified periods thereafter, and confidentiality and nondisclosure covenants on
the part of Messrs. Lefton and DeVaney.
Mr. DeVaney voluntarily resigned as an officer and employee of the
Company and terminated his employment agreement effective November 6, 1998.
President and CEO Compensation Arrangement
In connection with the election of James W. McAtee as President and
Chief Executive Officer of the Company effective November 1, 1998, the
Compensation and Option Committee of the Company authorized an increase in Mr.
McAtee's annual base salary to $325,000 and adjusted his annual bonus to be up
to 100% of his annual base salary based upon the performance of the Company.
Such annual bonus would be earned on a prorated basis commencing at 0% of the
annual base salary in the event that the Company achieves 85% or less of
budgeted earnings per share for the fiscal year and graduated up to 100% of
annual base salary in the event the Company achieves 100% or more of budgeted
earnings per share for the fiscal year. In addition, the Committee approved a
grant of stock options for 300,000 shares of Common Stock of the Company vesting
in four equal annual installments on September 1 of each year commencing
September 1, 1999. The exercise price of the stock options is $7.00, the closing
price of the Common Stock of the Company on the Nasdaq National Market on
September 1, 1998.
Contingent Bonuses
In January 1995, the Compensation and Option Committee approved
contingent bonuses applicable to Messrs. Newman, McAtee and Kagan. The aggregate
amounts of such bonuses which may be earned by Messrs. Newman, McAtee and Kagan
are $216,904, $123,176 and $206,000, respectively. Each such individual will be
entitled to receive 25% of his aggregate potential bonus on or after October 31,
1995, 1996, 1997 and 1998, on a cumulative basis, but only if the conditions
discussed below are satisfied. The bonuses will be considered earned by the
executive officer and payable by the Company only if (i) each respective bonus
is utilized to pay the exercise price of stock options for the purchase of
Common Stock and (ii) the executive officer has remained in the continuous
employment of the Company until the date when each such bonus, or portion
thereof, is paid. The bonuses may be payable in one or more installments as and
when the executive officer elects to exercise stock options, provided that the
conditions to the receipt of the bonus have been satisfied on the payment date
thereof. In fiscal 1996, $54,000 and $13,346 of such bonuses were paid to
Messrs. Newman and McAtee, respectively, and used to pay the exercise price of
stock options for the purchase of Common Stock exercised by them in such fiscal
year. In fiscal 1997, $35,404 and $67,794 of such bonuses were paid to Messrs.
McAtee and Kagan, respectively, and used to pay the exercise price of stock
options for the purchase of Common Stock exercised by them in such fiscal year.
In fiscal 1998, $50,000 and $86,706 of such bonuses were paid to Messrs. Newman
and Kagan, respectively, and used to pay the exercise price of stock options for
the purchase of Common Stock exercised by them in such fiscal year. Such
payments represent the only bonus payments made by the Company through August
31, 1998 under the contingent bonus plan.
DIRECTOR COMPENSATION
The Company's Second Amended and Restated 1995 Stock Option Plan for
Eligible Outside Directors (the "Director Plan") provides for a one-time formula
grant of stock options to purchase 15,000 shares of Common Stock to each
non-employee director of the Company upon such director's initial election to
the Board of Directors if the director satisfies certain criteria specified in
such plan, as well as an annual formula grant of stock options to purchase 3,000
shares of Common Stock to each eligible non-employee director who is reelected
to the Board of Directors at an annual meeting of stockholders of the Company
after the expiration of at least one year from the initial grant referred to
above and who meets certain other
9
<PAGE> 12
specified criteria. In addition to the formula stock options described above,
the Compensation and Option Committee has authority under the Director Plan to
grant discretionary stock options to non-employee directors upon such terms as
are determined by such committee. Stock options granted to directors under such
plan vest and become exercisable in five equal cumulative annual installments on
each annual anniversary of the grant date. Such stock options terminate on the
date any optionee ceases to be a director of the Company for any reason other
than death (in the event of the optionee's death, stock options vested at the
date of death are exercisable for one year thereafter).
Upon their reelection to the Board of Directors in January 1998, each
of Messrs. Bello, Longfield and Steen received formula grants of stock options
to purchase 3,000 shares of Common Stock under the Director Plan. Each one of
these three individuals and Messrs. Buncher and Finkel, if reelected to the
Board of Directors at the Annual Meeting, will receive formula grants of stock
options to purchase 3,000 shares of Common Stock under such plan. Any such
additional stock options will be granted on the date of the Annual Meeting at an
exercise price equal to the closing price of the Common Stock on the Nasdaq
National Market on that date.
Directors of the Company do not receive any other compensation for
service on the Board of Directors or any committee thereof, but are reimbursed
for their out-of-pocket expenses incurred in attending meetings of the Board of
Directors.
COMPENSATION AND OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation and Option Committee of the Board of Directors of the
Company reviews and approves the salaries and annual incentive bonuses of the
Chief Executive Officer of the Company and each of the officers of the Company
directly reporting to the Chief Executive Officer and all grants of options to
purchase shares under the Company's stock option plans to eligible directors,
officers, employees and consultants of the Company. At all times during the
fiscal year ended August 31, 1998, the Compensation and Option Committee was
composed exclusively of directors who were "non-employee directors" and "outside
directors" as defined by applicable Securities and Exchange Commission
("Commission") rules and Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), respectively. The members of such Committee are neither
employees nor former employees of the Company nor have such individuals
participated in any of the Company executive or other employee compensation
programs. At the beginning of fiscal 1998, the Committee was composed of two
directors, Mr. Anderson and Mr. Pitts. Mr. Pitts voluntarily resigned from the
Board of Directors on October 6, 1997. On October 17, 1997, the Board of
Directors appointed Mr. Longfield as a member of the Committee. Mr. Pitts did
not participate in the preparation of this report.
Horizon's executive compensation policy is designed and administered to
provide a competitive compensation program that will enable Horizon to attract,
motivate, reward and retain executives who have the skills, education,
experience and capabilities required to discharge their duties in a competent
and efficient manner. The compensation policy is based on the principle that the
financial rewards to the executive should be aligned with the financial
interests of the stockholders of Horizon.
Horizon's executive compensation strategy has three separate elements,
consisting of base salary, annual incentive compensation and long-term incentive
compensation (stock options). The following is a summary of the policies
underlying each element.
BASE SALARY
Gary A. Kagan, Executive Vice President - Development, and Robert
Lefton, Executive Officer Operations, are the only executive officers who are
parties to employment agreements with the Company.
10
<PAGE> 13
See "Other Compensation Arrangements." The agreements permit, but do not
require, increases to their base salaries, and also contemplate the opportunity
for an annual incentive bonus. The Compensation and Option Committee reviews the
base salaries of Messrs. Kagan and Lefton (as well as the Chief Executive
Officer and the other officers directly reporting to the Chief Executive
Officer) periodically, considering factors such as individual and corporate
performance, and individual experience, expertise and years of service.
In determining the Chief Executive Officer's overall compensation, as
well as the compensation of the other officers, the Compensation and Option
Committee also reviews certain compensation levels at other companies including
selected peer companies. Such other companies are not necessarily the same as
the companies in the peer group index in the Performance Graph section of this
Proxy Statement because the Compensation and Option Committee believes that the
Company competes for executive talent with companies in addition to those in its
peer group. The Compensation and Option Committee does not attempt to set base
salaries at any particular level based on such surveys, but rather uses such
surveys to obtain an overview of compensation levels in general.
No particular weight is given by the Compensation and Option Committee
to any of the foregoing factors, and decisions as to adjustments in base
salaries are primarily subjective. In August 1997, the base salaries of each of
the Company's six highest paid officers were reviewed and certain increases
approved for some of the officers to be effective at various dates during fiscal
1998. In July 1998, the Compensation and Option Committee reviewed and increased
Mr. McAtee's base salary effective as of August 1, 1998.
ANNUAL INCENTIVE COMPENSATION
For services rendered during fiscal 1998, some of Horizon's executive
officers received cash bonuses upon the completion of such fiscal year. All such
cash bonuses were awarded based upon performance criteria. For fiscal 1998, the
performance criteria were set based upon the Board-approved budget which was
consistent with the then current public expectation of earnings per share for
the Company.
Mr. Newman's bonus potential for fiscal 1998 was set by his Executive
Retention Agreement at 100% of his annual base salary. Mr. McAtee's bonus was
set at up to 60% of his average base salary for the fiscal year and was based
upon the Company achieving the Board-approved budget. Mr. Lefton's bonus was set
at up to 75% of his average base salary for the fiscal year and was based upon
the Company achieving the same Board-approved budget. Messrs. Newman, McAtee and
Lefton received no cash bonus for fiscal 1998, based upon the Company's failure
to reach targeted earnings per share.
Mr. Kagan's bonus was set at a designated amount for each new
management contract signed during the fiscal year above a specified minimum
number of new contracts.
Mr. DeVaney's bonus was set at up to 60% of his average base salary for
fiscal 1998, with 50% of the bonus based upon the financial results of his area
of responsibility and 50% of the bonus based upon the Company achieving the
Board-approved budget. Mr. DeVaney did not receive any cash bonus for fiscal
1998, based upon his resignation of employment from the Company.
In addition, the Regional Vice Presidents of the Company had bonuses
set at up to 50% of their average base salary for fiscal 1998, with 100% of the
bonus based upon the financial results of their regions, along with achieving
certain contract retention targets.
LONG-TERM INCENTIVES
The Compensation and Option Committee is authorized to grant incentive
and nonqualified stock options to key employees of the Company, including
officers. Such option grants are intended to provide long-term incentive to
increase stockholder value by improving corporate performance and profitability.
Stock option grants provide an incentive that focuses the executive's attention
on managing the Company from the perspective of an owner with an equity stake in
the business. These grants also help ensure that operating decisions are based
on long-term results that benefit the Company and ultimately the stockholders.
Currently, stock options are not necessarily granted annually, but are granted
from time to time at the
11
<PAGE> 14
discretion of the Compensation and Option Committee. While no specific formula
is used to determine stock option grants made to any particular grantee, grants
are generally based upon a subjective evaluation of non-objective factors such
as the grantee's past contribution toward Company performance and expected
contribution to meeting long-term strategic goals of the Company.
Section 162(m) of the Code imposes a $1,000,000 limit on the amount of
compensation that will be deductible for Federal income tax purposes by the
Company each fiscal year with respect to each of the Chief Executive Officer and
the four other most highly compensated executive officers of the Company. The
base salary and annual incentive compensation level of the Company's executive
officers is currently well below this limit. The Company believes that the
limitation of Section 162(m) does not apply to compensation earned or that may
be earned with respect to the stock options granted to the Executive Officers
under the stock option plans of the Company during or prior to the fiscal year
ended August 31, 1998. The structure of the 1998 Stock Option Plan is intended
to make grants thereunder qualify as "performance-based compensation" not
subject to the limitation of Section 162(m).
Compensation and Option Committee
Jack R. Anderson
William H. Longfield
12
<PAGE> 15
PERFORMANCE GRAPH
The following graph shows a comparison of the total cumulative
stockholder return for the Company, the Total Return Index for Nasdaq Stock
Market (US Companies) (the "Nasdaq (US) Index") and a peer group selected by the
Company, for the period from March 14, 1995 (the date on which the Common Stock
was first registered under Section 12 of the Securities Exchange Act of 1934)
through August 31, 1998. The comparison below assumes $100 was invested on March
14, 1995 in each of the Common Stock, shares comprising the Nasdaq (US) Index
and the common stock of the peer group, and assumes reinvestment of dividends.
Neither the Company nor any companies in the peer group, except American
Healthcorp. Inc., paid any dividends during such period.
HORIZON HEALTH CORPORATION
Total Cumulative Shareholder Return for
Four-Year Period Ending August 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
3/14/95 8/31/95 8/31/96 8/31/97 8/31/98
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HORIZON 100.00 150.00 220.00 356.25 99.37
- ------------------------------------------------------------------------------------------------------
NASDAQ 100.00 126.67 142.84 199.28 189.51
- ------------------------------------------------------------------------------------------------------
Peer Group 100.00 113.06 123.34 186.76 231.77
- ------------------------------------------------------------------------------------------------------
</TABLE>
The peer group consists of the following publicly traded companies in
the health management services industry: Air Methods Corp., American Healthcorp.
Inc., Comprehensive Care Corp., Hemacare Corp., Medquist, Inc., Northstar Health
Services Inc. and Rehabcare Group, Inc.
13
<PAGE> 16
SECURITY OWNERSHIP BY MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
Set forth below is certain information with respect to the beneficial
ownership of Common Stock as of December 14, 1998, by (i) each person who, to
the knowledge of the Company based upon statements filed as of December 14, 1998
with the Commission pursuant to Section 13(d) or 13(g) of the Securities
Exchange Act of 1934, as amended, beneficially owns more than 5% of the
outstanding Common Stock, (ii) each current director (which constitutes all
nominees for director) of the Company, (iii) each Named Executive Officer and
(iv) all directors and Named Executive Officers of the Company as a group.
Except as indicated below, to the Company's knowledge each person named has sole
voting and investment power with respect to all shares shown as beneficially
owned by such person.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
----------------------------------------------------
NAME NUMBER PERCENT
----------------------- -------------------------
<S> <C> <C>
James Ken Newman (1)(2)........................................ 612,657 8.4%
Jack R. Anderson (1)(3)........................................ 409,800 6.0
Joseph A. Cohen (1)............................................ 348,500 5.1
George E. Bello (4)............................................ 328,283 4.8
James W. McAtee (5)............................................ 330,451 4.7
Howard B. Finkel............................................... 238,600 3.5
Gary A. Kagan (6).............................................. 139,653 2.0
Robert A. Lefton (7)........................................... 27,621 *
Donald E. Steen (4)............................................ 27,283 *
William H. Longfield (4)....................................... 26,283 *
James E. Buncher (8)........................................... 25,480 *
John F. DeVaney ............................................... 8,614 *
All directors and Named Executive Officers as a group
(11 persons)(9)............................................... 2,174,725 28.3
</TABLE>
- ----------
* Less than 1%.
(1) The address of James Ken Newman is 700 El Paseo, Denton, Texas 76205.
The address of Jack R. Anderson is 16475 Dallas Parkway, Suite 735,
Dallas, Texas 75248. The address of Joseph A. Cohen is c/o The Garnet
Group, 825 Third Ave., 40th Floor, New York, New York 10022.
(2) Includes 16,000 shares of Common Stock held by a limited partnership
for which Mr. Newman serves as an officer and director of the corporate
general partner and 51,500 shares of Common Stock held by a foundation
of which Mr. Newman is a director and officer. Also includes 384,918
shares of Common Stock issuable upon the exercise of immediately
exercisable stock options.
(3) Excludes 100,000 shares of Common Stock owned by Mr. Anderson's spouse,
for which he disclaims any beneficial ownership.
(4) Includes 9,264 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options and 519 shares of Common Stock
issuable upon the exercise of stock options exercisable within 60 days.
(5) Includes 19,998 shares of Common Stock held in trust for the benefit of
Mr. McAtee's children. Also includes 239,669 shares of Common Stock
issuable upon the exercise of immediately exercisable stock options.
(6) Consists of 139,653 shares of Common Stock issuable upon the exercise
of immediately exercisable stock options.
(7) Includes 20,500 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options and 1,875 shares of Common Stock
issuable upon the exercise of stock options exercisable within 60 days.
14
<PAGE> 17
(8) Includes 480 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options.
(9) Includes 816,444 shares of Common Stock issuable upon the exercise of
stock options held by certain directors and Named Executive Officers
that are immediately exercisable or will be exercisable within 60 days.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires directors and certain officers of the Company, and persons who
beneficially own more than ten percent of the Common Stock, to file reports of
ownership and changes in ownership with the Commission. Such persons are
required to furnish the Company with copies of all Section 16(a) reports they
file. Based solely upon a review of the copies of such reports furnished to the
Company, the Company believes that during the fiscal year ended August 31, 1998
all Section 16(a) filing requirements applicable to its directors, officers and
greater than ten percent beneficial stockholders were complied with, except that
the required initial filing of a Form 3 by Cliff Gardner (following his election
as the Principal Accounting Officer of the Company) inadvertently was made late.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The stockholders are asked to ratify the appointment of
PricewaterhouseCoopers LLP as the independent accountants for the Company for
the fiscal year ending August 31, 1999. PricewaterhouseCoopers LLP, a certified
public accounting firm, has served as the independent accountants for the
Company since 1991. Representatives of PricewaterhouseCoopers LLP are expected
to be present at the Annual Meeting to respond to appropriate questions and to
make such statements as they may desire.
Ratification of the appointment of the independent accountants is not a
matter which is required to be submitted to a vote of stockholders, but the
Board of Directors considers it appropriate for the stockholders to express or
withhold approval of the appointment. If stockholder approval should not be
obtained, the Board of Directors would consider an alternative appointment for
fiscal 1999.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT
ACCOUNTANTS FOR THE COMPANY FOR THE FISCAL YEAR ENDING AUGUST 31, 1999, AND YOUR
PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Horizon acquired Specialty Healthcare Management, Inc. on August 11,
1997 in exchange for the issuance by Horizon to the Specialty stockholders of
1,400,000 shares of Common Stock of Horizon. At the time of the acquisition,
Howard B. Finkel was the Chairman of the Board and Chief Executive Officer of
Specialty. Pursuant to the terms of the Specialty acquisition agreement, the
Company agreed to appoint Mr. Finkel as a director of the Company effective
immediately after consummation of the acquisition. In addition, the Company
agreed to use its best efforts to cause Mr. Finkel to be nominated and elected
as a member of the Board of Directors so long as he beneficially owns not less
than 5% of the outstanding Common Stock of the Company. Mr. Finkel is currently
a member of the Board of Directors of the Company and is a nominee for
reelection as a director at the Annual Meeting. However, his nomination as a
director is no longer pursuant to the Specialty acquisition agreement since as
of December 14, 1998 he beneficially owned only approximately 3.5% of the Common
Stock of the Company. See "Proposal No. 1 - Election of Directors."
15
<PAGE> 18
In connection with the Specialty acquisition agreement, the Company
also entered into a registration rights agreement with the former Specialty
stockholders, including Mr. Finkel. Pursuant to the registration rights
agreement, the Company filed a registration statement with the Commission, which
was declared effective on January 23, 1998 (the "Registration Statement"), and
Mr. Finkel sold 425,000 shares of Common Stock of the Company pursuant thereto.
The registration rights agreement also granted certain piggyback registration
rights in favor of Mr. Finkel that took effect after the offering pursuant to
the Registration Statement and expired in August 1998. Mr. Finkel no longer has
any demand or piggyback registration rights with respect to the Common Stock of
the Company.
In the Specialty agreement, Mr. Finkel agreed to certain noncompetition
and other covenants in favor of the Company. The noncompetition covenants of Mr.
Finkel are to remain in effect until the later of August 11, 2000 or two years
after Mr. Finkel ceases to be a member of the Board of Directors of the Company.
Mr. Finkel also agreed to certain confidentiality, nondisclosure and
nondisparagement covenants in favor of the Company.
Donald E. Steen, a director of the Company, was President of the
International Group of Columbia/HCA Healthcare Corporation ("Columbia/HCA") from
October 1994 to December 1997. At August 31, 1998, the Company had mental health
management contracts with 27 hospitals directly or indirectly owned by
Columbia/HCA. These 27 contracts accounted for 12.5% of the Company's revenues
for the fiscal year ended August 31, 1998. In the aggregate, including contracts
terminated at any time during the fiscal year, revenues generated by hospitals
directly or indirectly owned by Columbia/HCA accounted for 15.4% of the
Company's revenues for the fiscal year ended August 31, 1998. Of the 27
Columbia/HCA contracts at August 31, 1998, nine contracts contain a provision
limiting the number of contracts which Columbia/HCA can cancel without cause to
33.3% during any calendar year.
PROPOSALS BY STOCKHOLDERS
Proposals by stockholders intended to be presented at the first annual
meeting of stockholders of the Company after the Annual Meeting must be received
at the executive offices of the Company no later than August 19, 1999, to be
included in the Company's proxy statement and form of proxy relating to that
meeting. Any stockholder who wishes to bring a proposal before such annual
meeting of stockholders, but does not wish to include it in the Company's proxy
materials, must provide written notice of the proposal to the Company's
Secretary at the executive offices of the Company by November 3, 1999.
OTHER BUSINESS
The Board of Directors is aware of no other matter that will be
presented for action at the Annual Meeting. If any other matter requiring a vote
of the stockholders properly comes before the Annual Meeting, the persons
authorized under management proxies will vote and act on such matter according
to their own discretion and judgment.
ANNUAL REPORT
The Company's Annual Report to Stockholders, which contains audited
consolidated financial statements of the Company for the fiscal year ended
August 31, 1998, is being mailed to stockholders of record with this Proxy
Statement. The Annual Report to Stockholders does not form a part of the proxy
solicitation materials.
UPON THE WRITTEN REQUEST OF ANY PERSON WHO IS A RECORD HOLDER OF COMMON
STOCK AS OF THE CLOSE OF BUSINESS ON DECEMBER 11, 1998, THE COMPANY WILL PROVIDE
WITHOUT CHARGE TO SUCH PERSON A COPY OF
16
<PAGE> 19
THE ANNUAL REPORT ON FORM 10-K OF THE COMPANY FOR THE FISCAL YEAR ENDED AUGUST
31, 1998 AS FILED WITH THE COMMISSION (EXCLUDING EXHIBITS). ANY SUCH WRITTEN
REQUEST MUST BE DIRECTED TO HORIZON HEALTH CORPORATION, 1500 WATERS RIDGE DRIVE,
LEWISVILLE, TEXAS 75057-6011, ATTENTION: MS. CHERYL M. SMITH.
JAMES W. McATEE
President
<PAGE> 20
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HORIZON HEALTH CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 28, 1999
The undersigned hereby constitutes and appoints JAMES W. McATEE and ROBERT
A. LEFTON, each with power to act with or without the other and with full power
of substitution, as Proxies of the undersigned to represent and to vote all
shares of the Common Stock of Horizon Health Corporation (the "Company")
standing in the name of the undersigned, at the Annual Meeting of Stockholders
of the Company to be held at the executive offices of the Company located at
1500 Waters Ridge Drive, Lewisville, Texas 75057-6011, on Thursday, January 28,
1999, at 9:00 a.m., Central Time, and at any and all adjournments thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR THE EIGHT NOMINEES OF THE BOARD OF DIRECTORS LISTED IN
PROPOSAL 1 AND FOR THE APPROVAL OF PROPOSAL 2. IF THE EXECUTED PROXY DOES NOT
WITHHOLD AUTHORITY TO VOTE FOR THE ELECTION OF A NOMINEE FOR DIRECTOR IN
PROPOSAL 1, THE PROXY WILL BE DEEMED TO GRANT AUTHORITY TO VOTE FOR THE ELECTION
OF SUCH NOMINEE AND WILL BE SO VOTED. THE PROXIES NAMED HEREIN ARE EACH
AUTHORIZED TO VOTE IN THEIR DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE ANNUAL MEETING AND ANY AND ALL ADJOURNMENTS THEREOF.
The undersigned hereby revokes any proxy or proxies heretofore given. This
Proxy may be revoked at any time before it is exercised by following the
procedures stated in the Proxy Statement.
(PLEASE MARK, SIGN AND DATE ON THE OTHER SIDE AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE.)
A [X] Please mark your votes as in this example.
WITHHOLD
FOR all nominees listed AUTHORITY
(except as listed to the to vote for all
contrary below) nominees listed
1. Election of [ ] [ ]
Directors.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, MARK THE FOR BOX AND WRITE EACH SUCH NOMINEE'S
NAME IN THE SPACE PROVIDED BELOW:
- --------------------------------------------------
NOMINEES: James Ken Newman
James W. McAtee
Jack R. Anderson
George E. Bello
William H. Longfield
Donald E. Steen
James E. Buncher
Howard B. Finkel
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as the [ ] [ ] [ ]
independent accountants for the Company for the fiscal year ending August
31, 1999.
3. The Proxies are authorized to vote in their discretion upon such other
matters as may properly come before the Annual Meeting and any and all
adjournments thereof.
PLEASE MARK, SIGN AND DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE.
SIGNATURE __________________________________________________ Dated _______________ SIGNATURE ___________________Dated______________
IF HELD JOINTLY
</TABLE>
NOTE: Please date and sign exactly as name appears hereon. When shares of
Common Stock are owned by joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporate name
by President or other authorized officer. If a partnership, please sign
in full partnership name by authorized person.
<PAGE> 21
December 18, 1998
Participants Owning Horizon Common Stock
Through Horizon Health Corporation
Employees Savings and Profit Sharing Plan
Re: Your Opportunity to Tell the Trustee How You Want the Horizon
Stock in Your 401(k) Plan Account Voted At Annual Meeting of
Stockholders
Dear Participant:
An Annual Meeting of Stockholders (the "Annual Meeting") of Horizon
Health Corporation, a Delaware corporation (the "Company" or "Horizon"), will be
held at the executive offices of the Company located at 1500 Waters Ridge Drive,
Lewisville, Texas 75057-6011, on Thursday, January 28, 1999, at 9:00 a.m.,
Central Time, for the purposes set forth in the accompanying Notice of Annual
Meeting of Stockholders. Only holders of record of the Common Stock, $.01 par
value ("Common Stock"), of the Company at the close of business on December 11,
1998 (the "Record Date"), will be entitled to vote at the Annual Meeting.
Chase Bank of Texas, National Association, as Trustee (the "Trustee")
of the Horizon Health Corporation Employees Savings and Profit Sharing Plan (the
"Plan"), is the holder of the shares of Common Stock of Horizon held in your
individual Plan account as of the Record Date. As more fully described below,
the Trustee hereby requests your directions as to how you want the Trustee to
vote or cause to be voted at the Annual Meeting the shares of Common Stock held
in your individual Plan account as of the Record Date.
You should find the following items enclosed:
o A "Proxy Statement" including a Notice of Annual Meeting of
Stockholders and describing the matters to be voted on at the
Annual Meeting. The matters currently anticipated to be voted
on at the Annual Meeting consist of (a) the election of eight
directors of the Company to serve for the ensuing year, and
(b) a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the independent accountants for
the Company for the fiscal year ending August 31, 1999. All of
these matters, together with other information regarding the
Annual Meeting, are described in more detail in the
accompanying Proxy Statement.
o The Company's Annual Report to Stockholders for the fiscal
year ended August 31, 1998.
o A "Voting Direction" card.
<PAGE> 22
o A pre-addressed postage-paid return envelope that you may use
to return your Voting Direction card to American Stock
Transfer & Trust Company, the Transfer Agent for the Common
Stock of the Company (the "Transfer Agent").
Please read the Proxy Statement for a more detailed explanation of the
matters to be considered and voted on at the Annual Meeting before completing
your Voting Direction card. Also, please note that you do not have to complete
and submit any proxy form, or otherwise grant any proxy to any person, since you
are not the holder of record of shares of Horizon Common Stock held in your Plan
account at the Record Date. Under the terms of the Plan, however, you have the
right to direct the Trustee as to how you want the Trustee to vote or cause to
be voted the shares of Horizon stock held in your account in the Plan at the
Record Date. All you have to do to exercise this right is follow the
instructions in this letter and in the attached Voting Direction card.
EXPLANATION OF VOTING RULES OF THE PLAN
All voting rights of shares of Horizon Common Stock held in a
participant's Plan account belong to that participant. The participant may
exercise such voting rights by supplying written voting instructions to the
Trustee using the card enclosed for this purpose. Under the terms of the Plan,
the Trustee will vote or cause to be voted shares of Horizon Common Stock held
in the participant's account at the Record Date in accordance with the
participant's written instructions. Any shares of Common Stock as to which a
participant does not supply to the Trustee timely voting instructions will not
be voted.
Pursuant to these requirements of the Plan, the Transfer Agent is
delivering this letter and the enclosed materials to you to request your
direction as to how you want the Trustee to vote or cause to be voted at the
Annual Meeting the shares of Horizon Common Stock held in your individual Plan
account at the Record Date.
STEPS YOU NEED TO TAKE TO INSTRUCT THE TRUSTEE HOW TO VOTE THE SHARES OF HORIZON
COMMON STOCK HELD IN YOUR INDIVIDUAL ACCOUNT IN THE PLAN
Once you have reached a decision concerning how you want the shares of
Common Stock held in your Plan account at the Record Date to be voted on the
matters to be considered at the Annual Meeting, you need to do the following:
STEP 1: Mark your choice as to each such matter on your Voting
Direction card, date the card, and sign it.
STEP 2: Mail your Voting Direction card to American Stock Transfer &
Trust Company using the enclosed pre-addressed, U.S. mail postage-paid return
envelope, so that it will be RECEIVED by no later than 5:00 p.m. E.S.T. on
January 25, 1999.
If the Transfer Agent does not receive your Voting Direction card by
January 25, 1999, or if the Transfer Agent receives your Voting Direction card
by January 25, 1999, but it is not signed, the shares of Horizon Common Stock
held in your Plan account at the Record Date will not be voted.
<PAGE> 23
CHANGING OR REVOKING YOUR VOTING DIRECTION CARD
If, after submitting your Voting Direction card, you want to change
your vote, you must obtain a new Voting Direction card from the Transfer Agent
by writing, faxing, or telephoning the Transfer Agent at the following address,
phone number, or fax number:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10269-0436
Telephone No.: (800) 937-5449
Fax No.: (718) 921-8336
The address above is the same address as the address on the return envelope
included with this letter and on the Voting Direction card.
Your properly completing and signing and timely returning a new Voting
Direction card to the Transfer Agent will revoke any and all Voting Direction
cards previously submitted by you. You may also revoke your Voting Direction by
notifying the Transfer Agent in a signed writing of your decision to revoke it,
but in such a case, if you do not also timely submit a new valid Voting
Direction card to the Transfer Agent, your shares will be treated as if you had
not submitted a Voting Direction card. After January 25, 1999, you may not
change or revoke your Voting Direction.
YOUR VOTING DIRECTION CARD WILL BE KEPT CONFIDENTIAL
Neither the Trustee nor the Transfer Agent will release your Voting
Direction card or any copy of it, or otherwise divulge how you directed the
Trustee to vote, to any person, including the Company or any of its individual
officers or employees, except as the Trustee or the Transfer Agent may be
compelled to do so by law. The Trustee does not know of any law currently in
existence that would compel it to disclose your Voting Direction to any person.
Enclosures
<PAGE> 24
EMPLOYEES SAVINGS AND PROFIT SHARING PLAN
HORIZON HEALTH CORPORATION
VOTING DIRECTION FOR ANNUAL MEETING OF STOCKHOLDERS
OF HORIZON HEALTH CORPORATION
TO BE HELD ON JANUARY 28, 1999
The undersigned hereby directs Chase Bank of Texas, National Association,
as Trustee (the "Trustee") of Horizon Health Corporation Employees Savings and
Profit Sharing Plan (the "Plan"), to vote, at the Annual Meeting of Stockholders
of Horizon Health Corporation to be held on January 28, 1999, and at any and all
adjournments thereof, all of the shares of Common Stock of Horizon Health
Corporation, a Delaware corporation ("Horizon"), held in my individual Plan
account as of the record date of the vote as set forth on the reverse side of
this Voting Direction card.
WHEN PROPERLY EXECUTED, THIS VOTING DIRECTION WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED PLAN PARTICIPANT. IF NO DIRECTION IS GIVEN,
THIS VOTING DIRECTION WILL BE VOTED FOR THE EIGHT NOMINEES OF THE BOARD OF
DIRECTORS LISTED IN PROPOSAL 1 AND FOR THE APPROVAL OF PROPOSAL 2. IF THE
EXECUTED VOTING DIRECTION DOES NOT WITHHOLD AUTHORITY TO VOTE FOR THE ELECTION
OF A NOMINEE FOR DIRECTOR IN PROPOSAL 1, THE VOTING DIRECTION WILL BE DEEMED TO
GRANT AUTHORITY TO VOTE FOR THE ELECTION OF SUCH NOMINEE AND WILL BE SO VOTED.
THE TRUSTEE IS AUTHORIZED TO VOTE IN ITS DISCRETION UPON SUCH OTHER BUSINESS AS
MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY AND ALL ADJOURNMENTS
THEREOF.
The undersigned hereby revokes any and all Voting Direction cards
heretofore given. This Voting Direction may be revoked at any time before it is
exercised by following the procedures stated in the Participant Direction letter
accompanying this Voting Direction card.
(PLEASE MARK, SIGN AND DATE ON THE OTHER SIDE AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE.)
A [X] Please mark your votes as in this example.
WITHHOLD
FOR all nominees listed AUTHORITY
(except as listed to the to vote for all
contrary below) nominees listed
1. Election of [ ] [ ]
Directors.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, MARK THE FOR BOX AND WRITE EACH SUCH NOMINEE'S
NAME IN THE SPACE PROVIDED BELOW:
- -----------------------------------------------
NOMINEES: James Ken Newman
James W. McAtee
Jack R. Anderson
George E. Bello
William H. Longfield
Donald E. Steen
James E. Buncher
Howard B. Finkel
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as the [ ] [ ] [ ]
independent accountants for the Company for the fiscal year ending August
31, 1999.
3. The Trustee is authorized to vote in its discretion upon such other matters
as may properly come before the Annual Meeting and any and all adjournments
thereof.
PLEASE MARK, SIGN AND DATE AND RETURN THIS VOTING DIRECTION PROMPTLY IN THE
ENCLOSED ENVELOPE.
SIGNATURE ___________________________________________ Dated_________________ TITLE _______________________ Dated__________________
(if applicable)
</TABLE>
NOTE: Please date and sign exactly as name appears hereon. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such.
