HORIZON HEALTH CORP /DE/
EXECUTIVE RETENTION AGREEMENT
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>d07006exv10w1.txt
<DESCRIPTION>EXECUTIVE RETENTION AGREEMENT
<TEXT>
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                                                                    EXHIBIT 10.1


                          EXECUTIVE RETENTION AGREEMENT



     This Executive Retention Agreement (the "Agreement") is made the 1st day of
May, 2003 (the "Effective Date"), by and between Horizon Health Corporation, a
Delaware corporation acting by and through its hereunto duly authorized officer
(the "Company"), and James Ken Newman (the "Executive").

     WHEREAS, the Company desires to retain the services of the Executive in the
capacity of Chairman and Chief Executive Officer of the Company on a basis which
will provide for a continuity of management for the Company according to the
terms and conditions hereinafter set forth; and

     WHEREAS, the Executive is willing to serve in the capacity of Chairman and
Chief Executive Officer and, after his retirement, to provide consulting
services to the Company for such management continuity on such terms and
conditions;

     NOW, THEREFORE, in consideration of the premises and the mutual terms and
conditions herein contained, the Company and the Executive hereby agree as
follows:

     1.   Employment.

          (a) Retention. Subject to the provisions of Section 7 of this
     Agreement, in consideration of the compensation and benefits hereinafter
     specified, the Executive hereby agrees to be employed with the Company in
     the capacity of Chairman and Chief Executive Officer and to discharge his
     duties in such capacity. The Company hereby employs the Executive upon the
     terms and conditions hereinafter set forth.

          (b) Exclusive Services. During the term of his employment, the
     Executive shall devote his full working time, ability and attention to the
     business of the Company during the term of this Agreement and shall not,
     directly or indirectly, render any services of a business, commercial or
     professional nature to any other person, corporation or organization,
     whether for compensation or otherwise, without the prior knowledge and
     consent of the Board of Directors (the "Board") of the Company; provided,
     however, that the provisions of this Agreement shall not be construed as
     preventing the Executive from investing in other non-competitive businesses
     or enterprises if such investments do not require substantial services on
     the part of the Executive in the affairs or operations of any such business
     or enterprise so as to significantly diminish the performance by the
     Executive of his duties, functions and responsibilities under this
     Agreement.

          (c) Authority and Duties. During the term of his employment, the
     Executive shall have such authority and shall perform such duties,
     functions and responsibilities as are specified by the Bylaws of the
     Company and as are necessary or appropriate for the office of the Chairman
     and Chief Executive Officer of the Company and shall serve with the
     necessary power and authority commensurate with such position and
     consistent with the



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     manner with which the Executive has carried out the responsibilities of
     such office in the past.

     2.   Term.

          (a) Term. This Agreement shall have a term of five (5) years
     commencing on the Effective Date; subject, however, to automatic renewal
     and to earlier termination as hereinafter provided.

          (b) Automatic Renewal. Commencing on May 1, 2005, and continuing each
     and every day thereafter, the then remaining three year term of this
     Agreement shall be automatically extended for an additional day so that on
     each and every day after the first two years of the term of this Agreement
     there shall always be a remaining term of three (3) years unless and until
     the Company gives written notice to the Executive that the term of this
     Agreement shall not be further so extended, in which case the term of this
     Agreement shall not be further automatically extended after the date of
     receipt of such notice by the Executive; provided, however, that in no
     event shall the term of this Agreement be extended beyond August 31, 2013.

     3. Compensation. As compensation for his services rendered under this
Agreement as the Chairman and Chief Executive Officer of the Company, the
Executive shall be entitled to receive for his employment services the
following:

          (a) Base Salary. The Executive shall be paid an annual base salary of
     $400,000 per year, payable in equal monthly installments during the term of
     his employment, which shall be prorated for any partial employment month.
     Such base salary shall be subject to increase, but not decrease, by the
     Compensation Committee of the Board in its sole discretion.

          (b) Bonuses. For each fiscal year of the Company or portion thereof
     that expires during the term of the employment of the Executive beginning
     with the fiscal year ending August 31, 2003, the Compensation Committee
     shall adopt a bonus plan under which the Executive shall have the ability
     to earn a bonus in an amount up to one hundred percent (100%) of his base
     salary for each such respective fiscal year. The terms, conditions and
     performance criteria applicable to such bonuses shall be determined by the
     Compensation Committee of the Board. Any bonus payable with respect to any
     partial fiscal year of the Company that occurs during the term of the
     employment of the Executive shall be prorated based on the number of days
     of such fiscal year that occurred prior to the termination date of
     employment or retirement to consultant status, whichever is applicable.
     Each bonus payment due under this Section 3(b) shall be made to the
     Executive within 90 days after the end of the fiscal year with respect to
     which such bonus payment is due, regardless of whether or not the
     employment of the Executive or the term of this Agreement terminated prior
     to the due date of such payment.

          (c) Stock Options. The Executive shall be granted stock options to
     purchase 100,000 shares of Common Stock of the Company, at an exercise
     price equal to the closing price of the Company's Common Stock on the
     NASDAQ National Market on the


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     Effective Date and shall further provide that:

               (i) Vesting. Such stock options shall vest in two installments as
          follows: options for 50,000 shares shall vest on April 30, 2004 and
          options for 50,000 shares shall vest on April 30, 2005; provided that
          the Executive is still serving as the Chief Executive Officer of the
          Company on such respective vesting date and provided further that, in
          the event of the death of the Executive while serving as the Chief
          Executive Officer of the Company, the vesting of such options shall be
          accelerated and such options shall automatically fully vest as of the
          date of death.

               (ii) Term. All such stock options shall have a term of ten (10)
          years.

               (iii) Termination. All stock options granted to the Executive
          shall not terminate upon the retirement of the Executive so long as
          the Executive continues as a consultant to the Company.

     All stock options previously granted to the Executive by the Company prior
     to the Effective Date shall not be amended to incorporate the foregoing
     provisions of Section 3(c)(iii) above but such provisions shall be
     incorporated as a part of any stock options granted on or after the
     Effective Date. In addition, such stock options granted on the Effective
     Date and all stock options granted to the Executive after the Effective
     Date shall contain a provision that, upon termination of this Agreement
     (including as a result of a resignation with good reason as defined herein
     after the occurrence of a change of control as defined herein), except when
     such termination of this Agreement is by the Company with cause (as defined
     herein), all unvested stock options shall be accelerated and shall become
     immediately vested and exercisable irrespective of when such stock options
     otherwise would have vested.

          (d) Additional Compensation. The Executive shall be paid such
     additional compensation and bonuses, if any, as may be determined by the
     Compensation Committee of the Board from time to time, in its sole and
     absolute discretion.

     4.   Benefits.

          (a) During the term of this Agreement, in addition to the compensation
     to be paid to the Executive pursuant to Section 3 or Section 7 hereof, the
     Executive shall be included and entitled to participate in any hospital,
     surgical, and medical benefit plan, any group term life insurance policy,
     any disability insurance policy, any pension or profit sharing plan, or any
     other fringe benefits which may be extended generally to senior executive
     officers of the Company by the Board of Directors from time to time. The
     Company agrees that it shall provide such benefits to the Executive on the
     same basis as the Company makes such benefits available to its senior
     executive officers from time to time.

          (b) In order to permit the Executive to exercise stock options and
     sell shares of the Company in a manner that will not be disruptive on the
     public market for the Common Stock of the Company, the Company agrees that,
     during the period from August 1, 2003


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     to July 31, 2004, it will purchase from the Executive up to 50,000 shares
     of Common Stock of the Company that the Executive in his discretion may
     elect to sell to the Company at any time and from time to time during such
     period. The purchase price of any such shares that the Executive elects to
     sell shall be the closing price on the NASDAQ National Market on the date
     of the sale or sales. The obligation of the Company to purchase such shares
     shall be subject to and conditioned upon (i) compliance with all applicable
     corporate and securities laws requirements; (ii) satisfaction of all
     fiduciary duties of the Board of Directors of the Company and (iii)
     compliance with any applicable requirements under the bank credit facility
     of the Company.

     5. Reimbursement of Expenses. Subject to such reasonable rules and
procedures as from time to time are specified by the Company or the Board, the
Company shall reimburse the Executive on a timely basis for reasonable business
expenses necessarily incurred in the performance of his duties under this
Agreement.

     6. Place of Performance. During the term hereof, the principal executive
offices of the Company and the principal place for performance by the Executive
of his duties, functions and responsibilities under this Agreement shall be in
the Dallas, Ft. Worth, Denton, Texas metropolitan area.

     7. Consulting Services. At any time during the term of this Agreement, the
Executive may elect at his sole discretion to retire as the Chief Executive
Officer of the Company. In such event, the Executive shall be willing to
continue to serve as Chairman of the Company and shall become a consultant to
the Company and provide consulting services to the Company, and the Company
shall retain the Executive as an independent consultant, on the following terms
and conditions, to-wit:

          (a) Consulting Services. The Executive shall provide consulting
     services as an independent consultant and not as an employee with respect
     to such business and other matters pertaining to the Company as may be
     reasonably requested by the Company from time to time and shall be willing
     to serve as the Chairman of the Board of Directors of the Company.

          (b) Term. The term of this Agreement shall remain in effect without
     change notwithstanding such retirement and shall continue to be
     automatically renewed, subject to the provisions of Section 2(b) until
     terminated in accordance with the express terms of this Agreement.

          (c) Consulting Fees. The Company shall pay to the Executive an annual
     consultant fee for his consulting services in an amount equal to
     seventy-five percent (75%) of the annual base salary of the Executive in
     effect immediately prior to the date of retirement payable in equal monthly
     installments.

          (d) Bonuses. After the date of retirement, the Executive shall not be
     entitled to any bonuses under Section 3(b) of this Agreement except for any
     bonus earned up to the date of retirement even if payable at a later date.


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          (e) Stock Options. All stock options granted to the Executive prior to
     the date of retirement shall not be modified, accelerated, terminated or
     otherwise changed in any respect solely as a result of the retirement of
     the Executive to consultant status and shall continue in full force and
     effect. All stock options granted to the Executive shall expressly provide
     that such stock options shall not terminate as a result of the termination
     of employment of the Executive as a result of his retirement and that such
     stock options shall continue in full force and effect after the retirement
     of the Executive so long as he continues to be a consultant to the Company
     under this Agreement.

          (f) Benefits/Expenses. The Executive shall continue to receive the
     benefits as specified under Section 4 of this Agreement and to be
     reimbursed expenses as specified under Section 5 of this Agreement.

          (g) Office. The Executive shall be provided an office at the executive
     offices of the Company for performing his consulting services and shall be
     provided secretarial assistance for up to twenty (20) hours of secretarial
     time per week.

          (h) Other Terms. Except as expressly set forth above in this Section
     7, all of the terms and provisions of this Agreement shall continue in full
     force and effect notwithstanding the change in status of the Executive
     under this Agreement from that of an executive officer to that of a
     consultant.

     8. Confidentiality/Trade Secrets. The Executive acknowledges that his
position with the Company is one of trust and confidence both by reason of his
position and by reason of his access to and contact with the trade secrets and
confidential and proprietary business information of the Company. Both during
the term of this Agreement and thereafter, the Executive covenants and agrees as
follows:

          (a) that he will exercise diligence to protect and safeguard the trade
     secrets and confidential and proprietary information of the Company
     including but not limited to the identity of its patients, customers and
     suppliers, the identity of its officers and other key employees and their
     areas of expertise, its arrangements with patients, customers and
     suppliers, and its technical data, records, compilations of information,
     processes, and specifications relating to its patients, customers,
     suppliers, products and services;

          (b) that he shall not disclose any of such trade secrets and
     confidential and proprietary information, except as may be required in the
     course of his employment; and

          (c) that he shall not use, directly or indirectly, for his own benefit
     or for the benefit of another, any of such trade secrets and confidential
     and proprietary information.

All files, records, documents, drawings, specifications, memoranda, notes, or
other documents relating to the business of the Company, whether prepared by the
Executive or otherwise coming into his possession shall be the exclusive
property of the Company and shall be delivered to the Company and not retained
by the Executive upon termination of this Agreement for any reason whatsoever.


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     The Executive shall not be required to keep confidential or restrict the
use of any trade secrets or confidential and proprietary data and information of
the Company (i) which he may be required to disclose at the express direction of
any authorized government agency, pursuant to a subpoena or other court process,
or as otherwise required by any law, rule, regulation or order of any regulatory
body, (ii) which has become generally available to the public by means other
than a breach of this Agreement by the Executive, or (iii) as to which
disclosure or use the Board consents in writing in its sole and absolute
discretion.

     9. Non-Competition. The Executive covenants and agrees that during the term
of this Agreement and after termination of this Agreement for the period that
the Executive continues to receive payments under Section 15(c) of this
Agreement, if at all, (1) he shall not without the prior written consent of the
Board, in its sole discretion, directly or indirectly, as an employee, employer,
consultant, agent, principal, partner, shareholder, corporate officer, director
or through any kind of ownership or investment (other than ownership of
securities of publicly held corporations of which the Executive owns less than
five percent (5%) of any class of outstanding securities) or in any other
representative or individual capacity, engage in any business or render any
services to any business that is in competition with the business of the Company
and (2) he shall not encourage, solicit or induce, directly or indirectly, any
employee, manager, supervisor, officer or director of the Company to terminate
his or her employment with the Company or any affiliate of the Company.

     Notwithstanding any provision of this Section 9 to the contrary, the
Executive in his sole discretion may elect at any time twenty-four (24)months or
more after the date of termination of this Agreement to not receive any further
payments under Section 15(c) of this Agreement and, in such event, the
provisions of this Section 9 shall not apply from and after the last day of the
month with respect to which a payment is made under Section 15(c) of this
Agreement.

     As provided in Section 15(f) of this Agreement in the event that the
Executive resigns without cause at any time during the term of this Agreement,
the Executive shall be subject to the provisions of this Section 9 for a period
of twenty-four (24)months after the date of such resignation in consideration of
the payment of $1,000 per month by the Company to the Executive during such
period.

     10. Remedies for Breach of Covenants of the Executive. The covenants set
forth in Sections 8 and 9 of this Agreement shall continue to be binding upon
the Executive, notwithstanding the termination of this Agreement. It is
expressly agreed that the remedy at law for the breach of any such covenant is
inadequate and that injunctive relief, in addition to any other remedies that
may be available to the Company at law or in equity, shall be available to the
Company to prevent to the breach or any threatened breach thereof.

     11. Definition of Change of Control. For purposes of this Agreement,
"change of control" shall mean:

          (a) The acquisition by any individual, entity or group (within the
     meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
     1934, as amended (the "Exchange Act")) (an "Acquiring Person") of
     beneficial ownership (within the meaning of Rule 13d-3 promulgated under
     the Exchange Act) of 50% or more of either (i) the then outstanding


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     shares of common stock of the Company (the "Outstanding Company Common
     Stock") or (ii) the combined voting power of the then outstanding voting
     securities of the Company entitled to vote generally in the election of
     directors (the "Outstanding Company Voting Securities"); provided, however,
     that for purposes of this subsection (a), the following acquisitions shall
     not constitute a change of control: (i) any acquisition directly from the
     Company, (ii) any acquisition by the Company, (iii) any acquisition by any
     employee benefit plan (or related trust) sponsored or maintained by the
     Company or any corporation controlled by the Company.

          (b) Individuals who, as of the date hereof, constitute the Board (the
     "Incumbent Board") cease for any reason to constitute at least a majority
     of the Board; provided, however, that any individual becoming a director
     subsequent to the date hereof whose election or nomination for election by
     the Company's shareholders, was approved by a vote of at least a majority
     of the directors then comprising the Incumbent Board shall be considered as
     though such individual were a member of the Incumbent Board, but excluding,
     for this purpose, any such individual whose initial assumption of office
     occurs as a result of an actual or threatened election contest with respect
     to the election or removal of directors or other actual or threatened
     solicitation of proxies or consents by or on behalf of an Acquiring Person
     other than the Board; or

          (c) Approval by the shareholders of the Company of a complete
     liquidation or dissolution of the Company.

     12. Discharge with Cause. For the purposes of this Agreement, the Company
shall be deemed to have terminated the Executive for cause only if any one of
the following conditions existed:

          (a) the willful and continued failure of the Executive to perform
     substantially the Executive's duties with the Company or one of its
     affiliates (other than any such failure resulting from incapacity due to
     physical or mental illness), after a written demand for substantial
     performance is delivered to the Executive by the Board of Directors which
     specifically identifies the manner in which the Board of Directors believes
     the Executive has not substantially performed the Executive's duties; or

          (b) the willful engaging by the Executive in illegal conduct or gross
     misconduct which is materially and demonstrably injurious to the Company.

     Any termination with cause by the Company under subsections (a) and (b)
above shall be made in good faith at the sole discretion of the Board of
Directors of the Company.

     13. Resignation for Good Reason. For the purposes of this Agreement, the
Executive shall be deemed to have resigned for good reason if the Company
assigns to the Executive any duties inconsistent in any material respect with
the Executive's position (including status, office, title, and reporting
requirements), authority, duties or responsibilities or any other action by the
Company which results in material diminution in such position, authority, duties
or responsibilities of the Executive.

     14. Termination.


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          (a) Termination by the Executive with Cause. The Executive may, upon
     written notice effective immediately, terminate this Agreement "with cause"
     if any one of the following conditions exist:

               (i) If the Company breaches any material provision of this
          Agreement or fails to perform any of its obligations hereunder, and
          such breach or failure continues for at least ten days after the
          Executive provides written notice to the Company specifying in
          reasonable detail the nature of such breach or failure. It is
          expressly understood that (i) during the term of the employment of the
          Executive as an officer of the Company, a relocation of the principal
          corporate offices of the Company outside of Dallas, Ft. Worth, Denton,
          Texas metropolitan area without the prior consent of the Executive and
          (ii) the failure to timely pay any amounts due hereunder each shall
          constitute a material breach of this Agreement by the Company, or

               (ii) If the Executive resigns for good reason as defined in
          Section 13 of this Agreement.

     The resignation of the Executive at any time during the term of this
     Agreement when none of the foregoing conditions exist shall be deemed a
     resignation without cause by the Executive.

          (b) Termination by Company with Cause. The Board may, upon written
     notice effective immediately, terminate this Agreement if any one of the
     following conditions exist:

               (i) If "cause" exists as defined in Section 12 of this Agreement,
          or

               (ii) If the Executive should die (effective on the date of
          death).

     The termination of the Executive by the Company when none of the foregoing
     conditions exist shall be deemed to be a termination without cause.

     15. Post-Termination Matters

          (a) Salary and Employee Benefits. In the event of the termination of
     this Agreement by either party for any reason whatsoever, the Executive
     shall be entitled to his salary pursuant to Section 5(a) or his consulting
     fees pursuant to Section 7(c), as applicable, computed on a pro rata basis
     to and including such date of termination.

          (b) Bonus. During the term of his employment, in the event that this
     Agreement is terminated by the Company (other than with cause as described
     in Section 12 of this Agreement) or by the Executive with cause as
     described in Section 14 of this Agreement, the Executive shall be entitled
     to receive any bonus specified in Section 3(b) hereof calculated on a pro
     rata basis to the date of termination and payable at the same time when
     such bonus would have otherwise been payable.


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          (c) Severance Payment. In the event that this Agreement is terminated
     by the Company (other than with cause as described in Section 12 of this
     Agreement) or by the Executive with cause as described in Section 14 of
     this Agreement, the Executive shall be entitled to receive as a severance
     cash payment the full amount of the base salary (if such termination occurs
     while the Executive is an employee) or the full amount of the consulting
     fees (if such termination occurs while the Executive is a consultant) which
     would have been paid to the Executive over the then remaining unexpired
     term of this Agreement determined as if the Company had given notice of
     non-extension as contemplated by Section 2(b) of this Agreement effective
     on the date of termination, payable in equal consecutive monthly
     installments commencing on the first day of the month after the date of
     termination and continuing for such then unexpired term of this Agreement.

          Notwithstanding the foregoing, the Executive may elect in his sole
     discretion at any time twenty-four (24)months or more after the date of
     termination of this Agreement to not receive any further payments under
     this Section 15(c) and, in such event, the provisions of Section 9 of this
     Agreement shall not be applicable and shall have no further force or
     effect.

          (d) Vesting of Benefits. In the event that this Agreement is
     terminated by the Company (other than with cause as described in Section 12
     of this Agreement) or by the Executive with cause as described in Section
     14 of this Agreement (but only after a change of control has occurred in
     the event of a resignation for good reason), all stock options granted by
     the Company to the Executive (whether prior to or after the Effective
     Date), all contributions made by the Company for the account of the
     Executive to any pension, thrift or any other benefit plan, and all other
     benefits or bonuses which contain vesting or exercisability provisions
     conditioned upon or subject to the continued employment of the Executive,
     shall become fully vested and exercisable; provided, however, that if any
     such amount, benefit, or payment cannot become fully vested pursuant to
     such plan or arrangement on account of limitations imposed by law, the
     Executive shall be entitled, to the extent permitted by law, to receive
     from the Company an amount in cash payable within 30 days of the date of
     termination equal to the total amount of benefits or payments which the
     Executive will have to forfeit pursuant to such plan or arrangement on
     account of such termination of employment.

          (e) Continuation of Benefits. In the event that this Agreement is
     terminated by the Company (other than with cause as described in Section 12
     of this Agreement) or by the Executive with cause as described in Section
     14 of this Agreement, the Company shall continue the participation of the
     Executive on the same basis as extended to senior executive officers of the
     Company from time to time in all life, accident, disability, medical,
     dental and all other health plans maintained by the Company for its senior
     executives for the period equal to the unexpired term of this Agreement.

          (f) Resignation Without Cause by the Executive. In the event that the
     Executive resigns without cause during the term of this Agreement, then the
     Executive shall not be entitled to any of the benefits under Sections
     15(b)(c)(d) or (e) above, but shall be


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     obligated to comply with the provisions of Section 9 of this Agreement for
     a period of twenty-four (24)months in consideration of the payment of
     $1,000 per month by the Company to the Executive during such period.

          (g) Death Benefits. In the event that this Agreement is terminated due
     to the death of the Executive, the Company shall:

               (i) pay to the estate of the Executive or his designated
          beneficiary an amount equal to the annual base salary of the Executive
          in effect on the date of death if such termination occurs while the
          Executive is an employee or the annual consulting fee in effect on the
          date of death if such termination occurs while the Executive is a
          consultant, such amount of annual base salary or annual consulting fee
          for one year to be payable, however, in equal consecutive monthly
          installments over a period of twenty-four (24) months commencing on
          the first day of the month after the date of such termination; and

               (ii) shall continue the participation of the spouse of the
          Executive at the expense of the Company in all life, accident,
          disability, medical, dental and other health plans maintained by the
          Company for its senior executives for a period of twenty-four (24)
          months beginning with the first month after the date of such
          termination.

     16. Tax Matters. If the Executive is a disqualified individual (as the term
"disqualified individual" is defined in Section 280G of the Internal Revenue
Code) and if any portion of the severance benefits under this Agreement would be
an excess parachute payment (as the term "excess parachute payment" is defined
in Section 280G of the Code) but for the application of this sentence, then the
amount of the severance benefits otherwise payable to the Executive pursuant to
this Agreement will be reduced to the minimum extent necessary (but in no event
to less than zero) so that no portion of the severance benefits, as so reduced,
constitutes an excess parachute payment. The determination of whether any
reduction in the amount of the severance benefits is required pursuant to this
Section 16(a) will be made by the Company's independent accountants. The fact
that the Executive has his Severance Benefits reduced as a result of the
limitations set forth in this Section 16(a) will not of itself limit or
otherwise affect any rights of the Executive arising other than pursuant to this
Agreement.

     Notwithstanding the foregoing, in the event that the Company terminates
this Agreement without cause (as defined in Section 12 of this Agreement) and
any portion of the severance benefits payable hereunder in such event would be
an excess parachute payment, then the foregoing limitation specified in this
Section 16 shall not apply and, instead, the Company will also pay to the
Executive an additional amount in cash equal to the amount necessary to cause
the aggregate amount payable under this Agreement including such additional cash
payment (net of all taxes payable as a result of the application of Sections
280G and 4999 of the Code and net of all federal income taxes payable with
respect to such additional payment), to be equal to the aggregate amount payable
under this Agreement as if Sections 280G and 4999 of the Code (and any successor
provisions thereto) had not been enacted into law.

     17. General Provisions.


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          (a) Notices. Any notices to be given hereunder by either party to the
     other may be effected either by personal delivery or by fax in writing or
     by mail, registered or certified, postage prepaid, with return receipt
     requested. Personal delivery to the Board shall be to any member of the
     Board of Directors other than the Executive. Mailed notices shall be
     addressed as follows:

                      (1)    If to the Company:

                             Horizon Health Corporation
                             1500 Waters Ridge Drive
                             Lewisville, Texas 75057-6011
                             Attn:  Chairman of the Compensation Committee
                                    of the Board of Directors

                      (2)    If to the Executive:

                             James Ken Newman
                             700 El Paso
                             Denton, Texas 76205

Either party may change its address for notice by giving notice in accordance
with the terms of this Section 17(a) of this Agreement.

          (b) Law Governing. This Agreement shall be governed by and construed
     in accordance with the laws of the State of Texas.

          (c) Invalid Provisions. If any provision of this Agreement is held to
     be illegal, invalid or unenforceable under present or future laws effective
     during the term hereof, such provision shall be fully severable and this
     Agreement shall be construed and enforced as if such illegal, invalid or
     unenforceable provision had never comprised a part hereof; and the
     remaining provisions hereof shall remain in full force and effect and shall
     not be affected by the illegal, invalid or unenforceable provision or by
     its severance therefrom. Furthermore, in lieu of such illegal, invalid or
     unenforceable provision there shall be added automatically as part of this
     Agreement a provision as similar in terms to such illegal, invalid or
     unenforceable provision as may be possible and still be legal, valid or
     enforceable.

          (d) Entire Agreement. 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, including, without limitation, that certain Executive Retention
     Agreement, dated September 1, 1997, between the Executive and the Company
     which is superseded in its entirety by this Agreement. No terms, conditions
     or warranties, other than those contained herein, and no amendments or
     modifications hereto shall be binding unless made in writing and signed by
     the parties hereto.

          (e) Binding Effect. This Agreement shall extend to and be binding upon
     and inure to


                                       11



<PAGE>



     the benefit of the parties hereto, their respective heirs, representatives,
     successors and assigns. All of the provisions of this Agreement shall be
     fully applicable to any successor to the Company resulting from a change of
     control. The Company agrees that in the event of a tender or exchange
     offer, merger, consolidation or liquidation or any such similar event
     involving the Company, its securities or assets, it shall reveal the
     existence of this Agreement to the acquiring person or entity. The Company
     further agrees that if such action is not inconsistent with the best
     interests of the Company, it shall condition approval of any transactions
     proposed by the acquiror upon obtaining the consent, in writing, of the
     potential successor to the Company to be bound by this Agreement. In the
     event the Executive dies prior to the termination of this Agreement, any
     compensation or other payment due and owing to the Executive on or before
     the date of the Executive's death shall be paid to his estate, executors,
     administrators, heirs or legal representatives. Since the duties and
     services of the Executive hereunder are special, personal and unique in
     nature, the Executive may not transfer, sell or otherwise assign his
     rights, obligations or benefits under this Agreement.

          (f) Remedies. If the Executive or the Company shall file any judicial
     action for enforcement of this Agreement and successfully recover
     compensation or damages, the successful party shall be entitled to recover
     in such proceeding an additional amount equal to interest at ten percent
     (10%) per annum on the amount recovered from the date such amount was due
     and payable together with all expenses and reasonable attorneys' fees
     incurred in obtaining legal advice and counseling respecting his or its
     rights under this Agreement and in prosecuting and disposing of such
     action. The provisions of this Section shall be cumulative and without
     prejudice to any other right or remedy to which the Executive or the
     Company may be entitled either at law, in equity or under this Agreement
     and shall not constitute the exclusive remedy of the Executive or the
     Company for breach of this Agreement.

          (g) Waiver. The waiver by either party hereto of a breach of any term
     or provision of this Agreement shall not operate or be construed as a
     waiver of a subsequent breach of the same provisions by either party or of
     the breach of any other term or provision of this Agreement.

          (h) Titles. Titles of the paragraphs herein are used solely for
     convenience and shall not be used for interpretation or construing any
     word, clause, paragraph or provision of this Agreement.

          (i) Counterparts. This Agreement may be executed in two or more
     counterparts, each of which shall be an original, but which together shall
     constitute one and the same agreement.


                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)



                                       12


<PAGE>




        IN WITNESS WHEREOF, the Company and the Executive have executed this
Executive Retention Agreement as of the day and year first written above.

                                    COMPANY:

                                    HORIZON HEALTH CORPORATION

                                    By: /s/ William H. Longfield
                                        ----------------------------
                                        William H. Longfield
                                        Chairman of the Compensation Committee
                                        of the Board of Directors

                                    EXECUTIVE:

                                    /s/ James Ken Newman
                                    ----------------------------
                                    James Ken Newman



                                       13

</TEXT>
</DOCUMENT>
