Document:

<PAGE>
                                                                    EXHIBIT 10.3

        SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

         THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(the "Amendment"), dated as of October 4, 2002 is among HORIZON HEALTH
CORPORATION, a Delaware Corporation (the "Parent"), HORIZON MENTAL HEALTH
MANAGEMENT, INC., a Delaware Corporation (the "Borrower"), each of the banks or
other lending institutions party hereto, JPMORGAN CHASE BANK (formerly known as
The Chase Manhattan Bank, who was the successor in interest by merger to Chase
Bank of Texas, National Association, formerly known as Texas Commerce Bank
National Association), as the agent (the "Agent").

                                    RECITALS:

         A. The Parent, the Borrower, the Agent, and certain banks and other
lending institutions have entered into that certain Second Amended and Restated
Credit Agreement dated as of May 23, 2002 (as amended by that certain First
Amendment to Second Amended and Restated Credit Agreement dated as of September
25, 2002, and as the same may hereafter be further amended or otherwise
modified, herein the "Agreement").

         B. The Parent wishes to repurchase shares of its stock on the open
market or though privately negotiated transactions in an amount not to exceed
$7,500,000.

         C. In connection with the Parent's repurchase of shares of its stock,
the Parent and the Borrower have requested that the Agent and the Banks amend
certain provisions of the Agreement. Subject to satisfaction of the conditions
set forth herein, the Agent and the Banks party hereto are willing to amend the
Agreement as herein set forth

         NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows effective as of the
date hereof unless otherwise indicated:

                                   ARTICLE I.

                                   Definitions

         Section 1.1. Definitions. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.

                                   ARTICLE II.

                                   Amendments

         Section 2.1. Amendment to Section 10.4 - RESTRICTIONS ON DIVIDENDS AND
OTHER DISTRIBUTIONS. Section 10.4 of the Agreement is amended by: (a) deleting
the word "and" at the end of clause (ii); (b) replacing the period at the end of
clause (iii) with a semicolon and the word "and"; and (c) adding a new clause
(iv) thereto which shall read in its entirety as set forth in clause (iv) below:

         (iv) during the period from October 4, 2002 through April 4, 2002,
         Parent may repurchase shares of its stock on the open market or through
         privately negotiated transactions (in addition to those purchased under
         clause (iii) of this Section 10.4); provided that (A) no Default exists
         or would result therefrom, (B) the aggregate amount paid by Parent for
         such repurchases completed during such period does not exceed Seven
         Million Five Hundred Thousand Dollars ($7,500,000), (C) as of the date
         of any such repurchase, the ratio of pro forma Indebtedness outstanding
         as of the date of any such

SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 1
<PAGE>

         repurchase (after giving effect to any borrowings made in connection
         therewith to fund the purchase thereof) to the Adjusted EBITDA for the
         most recently completed four (4) Fiscal Quarter period as of the date
         of such repurchase, does not exceed 1.50 to 1.00, and (D) [IF THE
         AMOUNT OF ANY SUCH REPURCHASE IS GREATER THAN $100,000 THEN AS OF THE
         DATE OF ANY SUCH REPURCHASE,] [AS SOON AS AVAILABLE, AND IN ANY EVENT
         WITHIN FIFTEEN (15) DAYS AFTER THE END OF EACH MONTH ENDING DURING SUCH
         PERIOD,] Parent delivers to Agent a certificate completed and executed
         by the chief executive or chief financial officer of Parent setting
         forth in reasonable detail the calculations required to establish
         compliance with clauses (B) and (C) of this clause (iv) and stating
         that no Default exists [OR WOULD RESULT FROM ANY SUCH REPURCHASE] [OR
         EXISTED DURING SUCH MONTH].

         Section 2.2. Amendment to Section 11.1 - CONSOLIDATED NET WORTH. The
first sentence of Section 11.1 of the Agreement is amended by: (a) replacing the
period at the end of clause (d) thereof with the word "minus"; and (b) adding a
new clause (e) thereto which shall read in its entirety as set forth in clause
(e) below:

         (e) the lesser of $7,500,000 or the aggregate amount paid by Parent for
         its repurchase of shares of its stock on the open market or through
         privately negotiated transactions pursuant to clause (iv) of Section
         10.4.

         Section 2.3. Amendment to Exhibit C - COMPLIANCE CERTIFICATE. Exhibit C
to the Agreement is amended in its entirety to read as set forth on Exhibit A
attached hereto.

                                  ARTICLE III.

                              Conditions Precedent

         Section 3.1. Conditions. The effectiveness of Article 2 of this
Amendment is subject to the satisfaction of the following conditions precedent:

                  (a) The Agent shall have received all of the following, each
dated (unless otherwise indicated) the date of this Amendment, in form and
substance satisfactory to the Agent:

                           (i) Amendment Fee. Payment of the amendment fee
required by Section 4.6 of this Amendment.

                           (ii) Additional Information. Such additional
documentation, approvals, opinions, and information as Agent or its legal
counsel Jenkens & Gilchrist, a Professional Corporation, may request; and

                  (b) The representations and warranties contained herein and in
all other Loan Documents, as amended hereby, shall be true and correct in all
material respects as of the date hereof as if made on the date hereof, except
for such representations and warranties limited by their terms to a specific
date;

                  (c) No Default or Event of Default shall have occurred and be
continuing; and

SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 2
<PAGE>

         (d) All proceedings taken in connection with the transactions
contemplated by this Amendment and all documentation and other legal matters
incident thereto shall be satisfactory to the Agent and its legal counsel
Jenkens & Gilchrist, a Professional Corporation.

                                  ARTICLE IV.

                                  Miscellaneous

         Section 4.1. Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement and the other Loan
Documents are ratified and confirmed and shall continue in full force and
effect.

         Section 4.2. Representations and Warranties. Borrower hereby represents
and warrants to the Agent and the Banks as follows: (a) after giving effect to
this Amendment, no Default exists; (b) after giving effect to this Amendment,
the representations and warranties set forth in the Loan Documents are true and
correct in all material respects on and as of the date hereof with the same
effect as though made on and as of such date except with respect to any
representations and warranties limited by their terms to a specific date; and
(c) the execution, delivery, and performance of this Amendment has been duly
authorized by all necessary action on the part of Parent, Borrower, and each
Obligated Party and does not and will not (i) violate any provision of law
applicable to the Borrower, the Parent, or any Obligated Party, the certificate
of incorporation, bylaws, partnership agreement, membership agreement, or other
applicable governing document of the Borrower, the Parent, or any Obligated
Party or any order, judgment, or decree of any court or agency of government
binding upon the Borrower, the Parent, or any Obligated Party, (ii) conflict
with, result in a breach of or constitute (with due notice of lapse of time or
both) a default under any material contractual obligation of the Borrower, the
Parent, or any Obligated Party, (iii) result in or require the creation or
imposition of any material lien upon any of the assets of the Borrower, the
Parent, or any Obligated Party, or (iv) require any approval or consent of any
Person under any material contractual obligation of the Borrower, the Parent, or
any Obligated Party.

         IN ADDITION, TO INDUCE THE AGENT AND THE BANKS TO AGREE TO THE TERMS OF
THIS AMENDMENT, THE BORROWER, THE PARENT, AND EACH OBLIGATED PARTY (BY IT
EXECUTION BELOW) REPRESENTS AND WARRANTS THAT AS OF THE DATE OF ITS EXECUTION OF
THIS AMENDMENT THERE ARE NO CLAIMS OR OFFSETS AGAINST OR DEFENSES OR
COUNTERCLAIMS TO ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS AND IN ACCORDANCE
THEREWITH IT:

                  (a) WAIVER. WAIVES ANY AND ALL SUCH CLAIMS, OFFSETS, DEFENSES
         OR COUNTERCLAIMS, WHETHER KNOWN OR UNKNOWN, ARISING PRIOR TO THE DATE
         OF ITS EXECUTION OF THIS AMENDMENT AND

                  (b) RELEASE. RELEASES AND DISCHARGES THE AGENT AND THE BANKS,
         AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
         SHAREHOLDERS, AFFILIATES AND ATTORNEYS (COLLECTIVELY THE "RELEASED
         PARTIES") FROM ANY AND ALL OBLIGATIONS, INDEBTEDNESS, LIABILITIES,
         CLAIMS, RIGHTS, CAUSES OF ACTION OR DEMANDS WHATSOEVER, WHETHER KNOWN
         OR UNKNOWN, SUSPECTED OR UNSUSPECTED, IN LAW OR EQUITY, WHICH THE
         BORROWER OR ANY OBLIGATED PARTY EVER HAD, NOW HAS, CLAIMS TO HAVE OR
         MAY HAVE AGAINST ANY RELEASED PARTY ARISING PRIOR TO THE DATE HEREOF

SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 3
<PAGE>

         AND FROM OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS
         CONTEMPLATED THEREBY.

         Section 4.3. Survival of Representations and Warranties. All
representations and warranties made in this Amendment shall survive the
execution and delivery of this Amendment, and no investigation by the Agent or
any Bank or any closing shall affect the representations and warranties or the
right of the Agent or any Bank to rely upon them.

         Section 4.4. Reference to Agreement. Each of the Loan Documents,
including the Agreement, are hereby amended so that any reference in such Loan
Documents to the Agreement shall mean a reference to the Agreement as amended
hereby.

         Section 4.5. Expenses of Agent. As provided in the Agreement, the
Borrower agrees to pay on demand all costs and expenses incurred by the Agent in
connection with the preparation, negotiation, and execution of this Amendment,
including without limitation, the costs and fees of the Agent's legal counsel.

         Section 4.6. Amendment Fee. The Borrower agrees to pay to each Bank, on
the date hereof, an amendment fee in the amount of $15,000 each, in
consideration for the Banks' agreement to enter into this Amendment.

         Section 4.7. Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.

         Section 4.8. Applicable Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas and the applicable
laws of the United States of America.

         Section 4.9. Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of the Agent, each Bank and the Borrower and their
respective successors and assigns, except the Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the Banks.

         Section 4.10. Counterparts. This Amendment may be executed in one or
more counterparts and on telecopy counterparts, each of which when so executed
shall be deemed to be an original, but all of which when taken together shall
constitute one and the same agreement.

         Section 4.11. Effect of Waiver. No consent or waiver, express or
implied, by the Agent or any Bank to or for any breach of or deviation from any
covenant, condition or duty by the Borrower or any Obligated Party shall be
deemed a consent or waiver to or of any other breach of the same or any other
covenant, condition or duty.

         Section 4.12. Headings. The headings, captions, and arrangements used
in this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.

SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 4
<PAGE>

         Section 4.13. ENTIRE AGREEMENT. THIS AMENDMENT EMBODIES THE FINAL,
ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR
ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS
OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.

         Executed as of the date first written above.

                                    PARENT AND BORROWER:

                                    HORIZON HEALTH CORPORATION
                                    HORIZON MENTAL HEALTH MANAGEMENT, INC.

                                    By:
                                       ----------------------------------------
                                    Name:
                                         --------------------------------------
                                         Authorized Officer for both Parent and
                                         Borrower

                                    AGENT AND BANKS:

                                    JPMORGAN CHASE BANK (formerly known as The
                                    Chase Manhattan Bank, who was successor-in-
                                    interest by merger to the Chase Bank of
                                    Texas, National Association who was formerly
                                    known as TEXAS COMMERCE BANK NATIONAL
                                    ASSOCIATION), individually as a Bank, as
                                    Agent, and as Issuing Bank

                                    By:
                                       ----------------------------------------
                                       D. Scott Harvey, Senior Vice President

                                    BANK OF AMERICA, NATIONAL ASSOCIATION

                                    By:
                                       ----------------------------------------
                                       Daniel H. Penkar, Senior Vice President

SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 5
<PAGE>

                             OBLIGATED PARTY CONSENT

         Each Obligated Party (i) consents and agrees to this Second Amendment
to Second Amended and Restated Credit Agreement; (ii) agrees that the Guaranty,
Subsidiary Security Agreement, and the Subsidiary Pledge Agreement to which it
is a party shall remain in full force and effect and shall continue to be the
legal, valid, and binding obligation of such Obligated Party enforceable against
it in accordance with its terms; (iii) agrees that the "Obligations" as defined
in the Agreement as amended hereby (including, without limitation, all
obligations, indebtedness, and liabilities arising in connection with the
Letters of Credit) are "Obligations" as defined in the Guaranty; and (iv) agrees
that any reference to the "Borrower" in the Guaranty, Subsidiary Security
Agreement or Subsidiary Pledge Agreement shall mean Horizon Mental Health
Management, Inc. as the "Borrower" hereunder successor by assumption to the
obligations of the Parent.

                               OBLIGATED PARTIES:

                               MENTAL HEALTH OUTCOMES, INC.
                               SPECIALTY REHAB MANAGEMENT, INC.
                               HHMC PARTNERS, INC.
                               HORIZON BEHAVIORAL SERVICES, INC.
                               FLORIDA PSYCHIATRIC ASSOCIATES, INC.
                               HORIZON BEHAVIORAL SERVICES OF FLORIDA, INC.
                               FPMBH OF TEXAS, INC.
                               HMHM OF TENNESSEE, INC.
                               OCCUPATIONAL HEALTH CONSULTANTS OF AMERICA, INC.
                               EMPLOYEE ASSISTANCE SERVICES, INC.
                               HORIZON BEHAVIORAL SERVICES IPA, INC.
                               HORIZON BEHAVIORAL SERVICES OF NEW JERSEY, INC.
                               HORIZON BEHAVIORAL SERVICES OF NEW YORK, INC.
                               PROCARE ONE NURSES, LLC

                               By:
                                  ---------------------------------------------
                               Name:
                                    -------------------------------------------
                                    Authorized Officer for each Obligated Party

SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 6
<PAGE>

                                    EXHIBIT A
                                       TO
                           HORIZON HEALTH CORPORATION
        SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

                             Compliance Certificate

EXHIBIT A - Cover Page

<PAGE>

                             COMPLIANCE CERTIFICATE
                                     for the
                     Fiscal Quarter ending ________ __, ____

To:      JPMorgan Chase Bank
         P.O. Box 660197
         Dallas, Texas 75266-0197
         Fax No.:  (972) 888-7837
         Telephone No.:  (972) 888-7802
         Attention:  D. Scott Harvey
                     Steve Lewis

Ladies and Gentlemen:

         This Compliance Certificate (the "Certificate") is being delivered
pursuant to Section 9.1(c) of that certain Second Amended and Restated Credit
Agreement (as amended, the "Agreement") dated as of May 23, 2002, among the
Horizon Health Corporation ("Parent"), Horizon Mental Health Management, Inc.
("Borrower"), the banks and lending institutions named therein (the "Banks") and
JPMorgan Chase Bank, as agent for the Banks ("Agent"). All capitalized terms,
unless otherwise defined herein, shall have the same meanings as in the
Agreement. All the calculations set forth below shall be made pursuant to the
terms of the Agreement.

         The undersigned, as an authorized financial officer of Parent, and not
individually, does hereby certify to the Agents and the Banks that:

<Table>
<S>                                                                                           <C>    <C>   <C>
1.       DEFAULT.

         No Default has occurred and is continuing or if a Default has occurred
         and is continuing, I have described on the attached Exhibit A the
         nature thereof and the steps taken or proposed to remedy such Default.

2.      SECTION 9.1 - FINANCIAL STATEMENTS AND RECORDS

        (a)  Annual audited financial statements of Parent and the                            Yes     No   N/A
             Subsidiaries on or before ninety (90) days after the end
             of each Fiscal Year.

        (b)  Quarterly unaudited financial statements of Parent and the                       Yes     No   N/A
             Subsidiaries within forty-five (45) days after the end of
             each Fiscal Quarter

        (c)  Financial Projections of Parent and Subsidiaries within                          Yes     No   N/A
             forty-five (45) days after the beginning of each Fiscal
             Year.

3.       SECTION 9.10(d) - INSIGNIFICANT SUBSIDIARIES

         EBITDA for the Insignificant Subsidiaries for the most
         recently completed four Fiscal Quarter period not to exceed:          $  250,000

         Actual EBITDA for the Insignificant Subsidiaries for the most
         recently completed four Fiscal Quarter period:                        $              Yes    No
                                                                                ---------
</Table>

Compliance Certificate - Page 1
<PAGE>

<Table>
<S>                                                                                           <C>    <C>   <C>
4.      SECTION 9.10(e)  - RESTRICTED SUBSIDIARIES

         EBITDA for the Restricted Subsidiaries for the most recently
         completed four Fiscal Quarter period not to exceed 10% of
         line 12(f):                                                           $
                                                                                ---------

         Actual EBITDA for the Restricted Subsidiaries for the most
         recently completed four Fiscal Quarter period:                        $              Yes          No
                                                                                ---------

5.      SECTION 10.1  - DEBT

        (a)  Purchase money not to exceed:                                     $  500,000
             Actual Outstanding:                                               $              Yes    No
                                                                                ---------

        (b)  Guarantees of surety, appeal bonds, etc. not to exceed:           $1,000,000
             Actual Outstanding:                                               $              Yes    No
                                                                                ---------

        (c)  Aggregate Debt of newly acquired or merged Subsidiaries
             not to exceed:                                                    $1,000,000
             Actual Outstanding:                                               $              Yes    No
                                                                                ---------

        (d)  Other Debt not to exceed:                                         $  250,000
             Actual Outstanding:                                               $              Yes    No
                                                                                ---------

6.      SECTION 10.4 - RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS
         The total aggregate amount of redemptions or repurchases
         exercised by employees and directors in connection with the
         exercise by such Person of stock options granted to such
         Person under Parent's benefit programs in any Fiscal Year
         shall not exceed:                                                     $1,000,000     Yes    No
         Actual Expended:                                                      $
                                                                                ---------

7.      SECTION 10.5 - INVESTMENTS

        (a)  Aggregate amount of loans to physicians employed by a
             Subsidiary not to exceed (calculated net of bad debt
             reserve):                                                         $  500,000

             Actual Outstanding:                                               $              Yes    No
                                                                                ---------

        (b)  Aggregate amount of investments in or contributions to wholly
             owned Subsidiaries not to exceed:                                 $  250,000

             Actual Outstanding:                                               $              Yes    No
                                                                                ---------

        (c)  Gross aggregate amount of loans, advances, and investments in
             or contributions to Valley Rehabilitation Hospital, LLP
             not to exceed:                                                    $1,500,000

             Actual Aggregate Amount:                                          $              Yes    No
                                                                                ---------

        (d)  Aggregate amount of investments in HBS CA not to exceed the
             lesser of $1,500,000 or the minimum amount for compliance
             with minimum net worth requirements under Knox Keene Act:         $
                                                                                ---------
</Table>

Compliance Certificate - Page 2
<PAGE>

<Table>
<S>                                                                                           <C>    <C>   <C>
             Actual Aggregate Amount:                                          $              Yes    No
                                                                                ---------

        (e)  Aggregate amount of investments in Insights in addition to the    $1,000,000
             Purchase Price paid  for Insights not to exceed:
             Actual Aggregate Amount:                                          $              Yes    No
                                                                                ---------

8.      SECTION 10.8 - ASSET DISPOSITIONS

        (a)  Aggregate book value of assets disposed during any
             12-month period not to exceed:                                    $  500,000

        (b)  Total book value of asset dispositions for 12-month period
             most recently ending:                                             $              Yes    No
                                                                                ---------

9.       SECTION 10.11 - PREPAYMENT OF DEBT

        (a)  Aggregate amount of Debt, other than the Obligations,
             prepaid or optionally redeemed during period from the
             Closing Date to the Termination Date not to exceed:               $  300,000

        (b)  Total amount of Debt, other than the Obligations, prepaid
             or optionally redeemed:                                           $              Yes    No
                                                                                ---------

10.     SECTION 11.1 - CONSOLIDATED NET WORTH

        (a)  Base Consolidated Net Worth                                       $
                                                                                ---------

        (b)  The lesser of (i) $500,000 or (ii) aggregate amount of            $
             non-cash losses attributable to  impairment of goodwill            ---------
             and incurred and reported on Parent's 8/31/02 financial
             statement for such fiscal year which have resulted from
             Parent's compliance with statement number 142 of FASB

        (c)  Cumulative positive Net Income since 2/28/02 Fiscal               $
             Quarter end                                                        ---------

        (d)  50% of 9(c)                                                       $
                                                                                ---------

        (e)  Aggregate amount of net cash proceeds or other Capital            $
             Contribution to Parent since 2/28/02                               ---------

        (f)  the lesser of $7,500,000 or the aggregate amount paid by          $
             Parent for its repurchase of shares of its stock on the            ---------
             open market or through privately negotiated transactions
             pursuant to clause (iv) of Section 10.4

        (g)  Required Consolidated Net Worth:                                  $
             9(a) minus 9(b) plus 9(d) plus 9(e) minus 9(f)                     ----------

        (h)  Actual Consolidated Net Worth                                     $              Yes    No
                                                                                ---------

11.     SECTION 11.2 - INDEBTEDNESS TO CAPITALIZATION

        (a)  Debt for borrowed money                                           $
                                                                                ---------

        (b)  Debt evidenced by bonds, notes, etc.                              $
                                                                                ---------
        (c)  Capital Lease Obligations                                         $
                                                                                ---------
</Table>

Compliance Certificate - Page 3
<PAGE>

<Table>
<S>                                                                                           <C>    <C>   <C>
(f)      Reimbursement obligations for letters of credit                       $
                                                                                ---------

        (e)  North Central Development Company debt                            $
                                                                                ---------

        (f)  Sum of 10(a) through 10(e)                                        $
                                                                                ---------

        (g)  Actual Consolidated Net Worth                                     $
             (from Section 11.1)                                                ---------

        (h)  10(f) plus 10(g)                                                  $
                                                                                ---------

        (j)  10(f) : 10(h) =                                                        :1.00
                                                                                ----

        (k)  Maximum Indebtedness to Capitalization                             0.50:1.00     Yes    No

12.     SECTION 11.3 - FIXED CHARGE COVERAGE

        (a)  Parent and the Subsidiaries' Consolidated Net Income for
             last four Fiscal Quarters (from Schedule 1)                       $
                                                                                ---------

        (b)  Plus provisions for tax                                           $
                                                                                ---------

        (c)  less benefit from tax                                             $
                                                                                ---------

        (d)  Plus interest expense                                             $
                                                                                ---------
        (e)  Plus amortization and depreciation                                $
                                                                                ---------

        (f)  Parent and the Subsidiaries' EBITDA:                              $
             (11(a) plus 11(b) minus 11(c) plus 11(d) plus 11(e))               ---------

        (g)  provisions for taxes                                              $
                                                                                ---------

        (h)  plus benefit from taxes                                           $
                                                                                ---------

        (i)  minus cash dividends and other distributions made on              $
             account of the Parent's capital stock                              ---------

        (j)  aggregate amount of non-cash losses which have not already        $
             been excluded in determining Consolidated Net Income and           ---------
             which are attributable to impairment of Parent's goodwill
             incurred and reported by Parent on its financial
             statements which have resulted from Parent's compliance
             with statement number 142 of FASB
        (k)  Cash Flow                                                         $
        (11(f) plus 11(h) minus 11(g) minus 11(i) plus 11(j))                   ---------
</Table>

Compliance Certificate - Page 4
<PAGE>

<Table>
<S>                                                                                           <C>    <C>   <C>
        (l)  Fixed Charges

             (i)   Cash interest expense for last four Fiscal Quarters         $
                                                                                ---------

             (ii)  as of each date of determination (A) prior to the
                   Revolving Termination Date, one-fifth of the
                   outstanding balance of Loans and (B) on and after the
                   Revolving Termination Date, current maturities of
                   long term debt reflected on Parent's consolidated
                   balance sheet, excluding 2/3 of the final principal
                   installment due on the Termination Date                     $
                                                                                ---------

             (iii) Aggregate amount of Capital Expenditures for last
                   four Fiscal Quarters                                        $
                                                                                ---------

             (iv)  Payments made pursuant to Capital Lease Obligations
                   for last four Fiscal Quarters                               $
                                                                                ---------

             (v)   Sum of 11(l)(i) through (iv)
                                                                               $
                                                                                ---------

        (m)  Actual Fixed Charge Coverage (11(k) : 11(l)(v))=                       :1.00
                                                                                ----
        (n)  Minimum Fixed Charge Coverage                                      1.20:1.00     Yes    No

13.     SECTION 11.4 - INDEBTEDNESS TO ADJUSTED EBITDA

        (a)  Indebtedness (from 10(f))                                         $
                                                                                ---------

        (b)  Actual EBITDA (from 11(f))                                        $
                                                                                ---------

        (c)  Goodwill Impairment (from 11(i))                                  $
                                                                                ---------

        (d)  Prior Period/Prior Target EBITDA; provided that, (i) the          $
             EBITDA for a Prior Target will not be included unless it           ---------
             can be established in a manner satisfactory to Agent based
             on financial statements of the Prior Target prepared in
             accordance with GAAP without adjustment for expense or
             other charges that will be eliminated after the
             acquisition;  and (ii) if such Prior Target has become a
             Restricted Subsidiary, then in calculating its pro forma
             EBITDA, any income which could not be distributed to its
             parent as a result of restrictions arising under governing
             documents, agreement, applicable law or otherwise shall
             not be included

        (e)  Adjusted EBITDA (12(b) plus 12(c) plus 12(d))                     $
                                                                                ---------

        (f)  12(a) : 12(e)                                                          :1.00
                                                                                ----

        (g)  Maximum Indebtedness to Adjusted EBITDA allowed by Credit
             Agreement                                                           2.25:1.00    Yes    No

14.     SECTION 11.5 - CURRENT RATIO

        (a)  Consolidated current assets from balance sheet of Parent          $
                                                                                ---------
        (b)  Consolidated current liabilities from balance sheet of
             Parent                                                            $
                                                                                ---------
        (c)  Outstanding Principal balance of the Loans to the extent
             included in 13(b)                                                 $
                                                                                ---------
</Table>

Compliance Certificate - Page 5
<PAGE>

<Table>
<S>                                                                                           <C>    <C>   <C>
        (d)  Total Current Liabilities (13(b) minus 13(c))                     $
                                                                                ---------

        (e)  Actual Ratio of Current Assets to Current Liabilities
             (13(a) : 13(d))                                                        :1.00
                                                                                ----

        (f)  Minimum Ratio of Current Assets to Current Liabilities              1.00:1.00    Yes    No

15.     SECTION 11.6 - MANAGED CARE CONTRACTS

        (a)  Gross revenue during the immediately preceding 12 month           $
             period from contracts providing exclusively for                    ---------
             managed care

        (b)  Gross revenue during the immediately preceding 12 month           $
             period from the managed care portions of contracts                 ---------
             providing for EAS and managed care

        (c)  Total Managed Care Gross Revenue (14(a) plus (14(b))              $
                                                                                ---------

        (d)  Total Gross Revenue during such 12 month period                   $
                                                                                ---------

        (e)  35% of 14(d)                                                      $
                                                                                ---------

        (f)  Maximum Permitted Gross Revenue from Managed
             Care Contracts                                                    14(c) greater
                                                                               than 14(e)     Yes    No
</Table>

16.      ATTACHED SCHEDULES

         Attached hereto as schedules are the calculations supporting the
         computation set forth above in this Certificate. All information
         contained herein and on the attached schedules is true and correct.

17.      FINANCIAL STATEMENTS

         The unaudited financial statements attached hereto were prepared in
         accordance with GAAP (excluding footnotes) and fairly present (subject
         to year end audit adjustments) the financial conditions and the results
         of the operations of the Persons reflected thereon, at the date and for
         the periods indicated therein.

18.      CONFLICT

         In the event of any conflict between the definitions or covenants
         contained in the Credit Agreement and as they may be interpreted or
         abbreviated in the Compliance Certificate, the Credit Agreement shall
         control.

         IN WITNESS WHEREOF, the undersigned has executed this Certificate
effective this _______ day of ____________,_______.

                                         HORIZON HEALTH CORPORATION

                                         By:
                                            -----------------------------------
                                         Name:
                                              ---------------------------------
                                         Title:
                                               --------------------------------

Compliance Certificate - Page 6
<PAGE>

                                   Schedule 1
                                       to
                             Compliance Certificate

                         Parent Consolidated Net Income
                 for period ______________ to _________________

<Table>
<S>                                                                                    <C>
1.      GAAP for Parent (the "Subject Person") excluding the following
        consolidated net income                                                        $
                                                                                        ------------

        (a)  extraordinary gains or losses or nonrecurring revenue
             or expenses                                                                ------------

        (b)  gains on sale of securities
                                                                                        ------------
        (c)  losses on sale of securities
                                                                                        ------------

        (d)  any gains or losses in respect of the write-up of any asset at
             greater than original cost or write-down at less than original
             cost;                                                                      ------------

        (e)  any gains or losses realized upon the sale or other
             disposition of property, plant, equipment or intangible assets
             which is not sold or otherwise disposed of in the ordinary
             course of business;                                                        ------------

        (f)  any gains or losses from the disposal of a discontinued business;
                                                                                        ------------

        (g)  any net gains or losses arising from the extinguishment of any
             debt;                                                                      ------------

        (h)  any restoration to income of any contingency reserve for long
             term asset or long term liabilities, except to the extent that
             provision for such reserve was made out of income accrued
             during such period;                                                        ------------

        (i)  the cumulative effect of any change in an accounting principle
             on income of prior periods;                                                ------------

        (j)  any deferred credit representing the excess of equity in any
             acquired company or assets at the date of acquisition over the
             cost of the investment in such company or asset;                           ------------

        (k)  the income from any sale of assets in which the book value of
             such assets prior to their sale had been the book value
             inherited;                                                                 ------------

        (l)  the income (or loss) of any Person (other than a subsidiary) in
             which the Subject Person or a subsidiary has an ownership
             interest; provided, however, that (i) Consolidated Net Income
             shall include amounts in respect of the income of such Person
             when actually received in cash by the Subject Person or such
             subsidiary in the form of dividends or similar distributions
             and (ii) Consolidated Net Income shall be reduced by the
             aggregate amount of all investments, regardless of the form
             thereof, made by the Subject Person or any of its subsidiaries
             in such Person for the purpose of funding any deficit or loss
             of such Person;                                                            ------------
</Table>

Schedule 1 to Compliance Certificate - Page 1

<PAGE>

<Table>
<S>                                                                                    <C>
        (m)  the income (or loss) of any Restricted Subsidiary; provided,
             however, that (i) Consolidated Net Income shall include
             amounts in respect of the income of such Restricted Subsidiary
             when actually received in cash by the Parent in the form of
             dividends or similar distributions and (ii) Consolidated Net
             Income shall be reduced by the aggregate amount of all
             investments, regardless of the form thereof, made by the
             Parent or any of its Subsidiaries in such Restricted
             Subsidiaries for the purpose of funding any deficit or loss of
             such Restricted Subsidiary;                                                -----------

        (n)  the income of any subsidiaries to the extent the payment of
             such income in the form of a distribution or repayment of any
             Debt to the Subject Person or a Subsidiary is not permitted,
             whether on account of any restriction in by-laws, articles of
             incorporation or similar governing document, any agreement or
             any law, statute, judgment, decree or governmental order, rule
             or regulation applicable to such Subsidiary;                               -----------

        (o)  any reduction in or addition to income tax expense resulting
             from an increase or decrease in a deferred income tax asset
             due to the anticipation of future income tax benefits;                     -----------

        (p)  any reduction in or addition to income tax expense due to the
             change in a statutory tax rate resulting in an increase or
             decrease in a deferred income tax asset or in a deferred
             income tax liability;                                                      -----------

        (q)  any gains or losses attributable to returned surplus assets of
             any pension-benefit plan or any pension credit attributable to
             the excess of (i) the return on pension-plan assets over (ii)
             the pension obligation's service cost and interest cost;                   ----------

        (r)  the income or loss of any Person acquired by the Subject
             Person or a subsidiary for any period prior to the date of
             such acquisition; and                                                      ----------

        (s)  the income from any sale of assets in which the accounting
             basis of such assets had been the book value of any Person
             acquired by the Subject Person or a subsidiary prior to the
             date such Person became a subsidiary or was merged into or
             consolidated with the Subject Person or a subsidiary.

TOTAL:                                                                                 $
                                                                                        ==========
</Table>

Schedule 1 to Compliance Certificate - Page 2<PAGE>
                                                                    EXHIBIT 10.8

                           HORIZON HEALTH GROUP, INC.
                             1989 STOCK OPTION PLAN
                      [AS AMENDED THROUGH OCTOBER 31, 2002]

         This Horizon Health Group, Inc. 1989 Stock Option Plan (the "Plan")
provides for the granting of

         (a)      Incentive Options (hereinafter defined) to certain key
                  employees of Horizon Health Group, Inc., a Delaware
                  corporation (the "Corporation", or of its Affiliates
                  (hereinafter defined), and

         (b)      Nonstatutory Stock Options (hereinafter defined) to certain
                  key employees and non-employee directors of the Corporation or
                  of its Affiliates.

         The purpose of the Plan is to provide an incentive for key employees
and directors of the Corporation or its Affiliates to remain in the service of
the Corporation or its Affiliates, to extend to them the opportunity to acquire
a proprietary interest in the Corporation so that they will apply their best
efforts for the benefit of the Corporation, and to aid the Corporation in
attracting able persons to enter the service of the Corporation and its
Affiliates.

SECTION 1. Definitions.

         1.1. "Act" shall mean the Securities Exchange Act of 1934, as amended.

         1.2. "Affiliates" shall mean (a) any corporation, other than the
Corporation, in an unbroken chain of corporations ending with the Corporation if
each of the corporations, other than the Corporation, owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain and (b) any corporation,
other than the Corporation, in an unbroken chain of corporations beginning with
the Corporation if each of the corporations, other than the last corporation in
the unbroken chain, owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

         1.3. "Agreement" shall mean the written agreement between the
Corporation and a Holder evidencing the Option granted by the Company and the
understanding of the parties with respect thereto.

         1.4. "Board of Directors" shall mean the boardo of directors of the
Corporation.

         1.5. "Cause" shall mean (i) the willful and continued failure of the
Holder to perform substantially the Holder's duties with the Corporation 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 Holder by the Holder's immediate supervisor or the Chief
Executive Officer of the Corporation (or, in the case of the Chief Executive
Officer of the Corporation as the Holder, the Board of Directors) which
specifically identifies the manner in which the Holder's immediate supervisor or
the Chief Executive Officer of the Corporation (or, in the case of the Chief
Executive Officer of the Corporation as the Holder, the Board of Directors)
believes the Holder has not substantially performed the Holder's duties; or (ii)
the

                                       1
<PAGE>

willful engaging by the Holder in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the Corporation.

         The determination of Cause under sections (i) and (ii) above to be made
in good faith at the sole discretion of the Board of Directors of the Company.

         1.6. "Change of Control" shall mean:

         (a)      The acquisition by any individual, entity or group (within the
                  meaning of Section 13(d)(e) or 14(d)(2) of the Act (an
                  "Acquiring Person") of beneficial ownership (within the
                  meaning of Rule 13d-e promulgated under the Exchange Act) of
                  50% or more of either (i) the then outstanding shares of
                  common stock of the Corporation (the "Outstanding Corporation
                  Common Stock") or (ii) the combined voting power of the then
                  outstanding voting securities of the Corporation entitled to
                  vote generally in the election of directors (he "Outstanding
                  Corporation 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 Corporation, (ii) any acquisition by the
                  Corporation, (iii) any acquisition by any employee benefit
                  plan (or related trust) sponsored or maintained by the
                  Corporation or any corporation controlled by the Corporation.

         (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
                  Corporation'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 Corporation of a complete
                  liquidation or dissolution of the Corporation.

         1.7. "Code" shall mean the Internal Revenue Code of 1986, as amended.

         1.8. "Committee" shall mean the committee appointed pursuant to Section
3 hereof by the Board of Directors to administer this Plan.

         1.9. "Constructive Termination" shall mean the assignment to the Holder
of any duties inconsistent in any material respect with the Holder's position
(including status, offices, titles and reporting requirements), authority,
duties or responsibilities as exists at the time of a Change in Control, or any
other action by the Corporation which results in material diminution in such
position, authority, duties or responsibilities.

         1.10. "Eligible Individuals" shall mean (a) key employees, including
officers and directors who are also employees of the corporation or of any of
its Affiliates and (b) non-

                                       2
<PAGE>

employee directors of the Corporation or of any of its Affiliates.
Notwithstanding the foregoing provisions of this Paragraph 1.7, to ensure that
the requirements of the third sentence of Paragraph 3.1 are satisfied, the Board
of Directors may from time to time specify individuals who shall not be eligible
for the grant of Options or options or stock appreciation rights or allocations
of stock under any plan of the Corporation or its affiliates (as such terms are
used in subsection (d)(3) of Rule 16b-3 promulgated under the Act); provided,
however, that the Board of Directors may at any time determine that any
individual who has been so excluded from eligibility shall become eligible for
grants of Options and grants of such options or stock appreciation rights or
allocations of stock under any plans of the Corporation and its Affiliates.

         1.11. "Fair Market Value" shall mean, if the Stock is traded on one or
more established markets or exchanges, the mean of the opening and closing
prices of the Stock in the primary market or exchange on which the Stock is
traded, and if the Stock is not so traded or the Stock does not trade on the
relevant date, the value determined in good faith by the Board of Directors. For
purposes of valuing Incentive Options, the Fair Market Value of stock shall be
determined without regard to any restriction other than one which, by its terms,
will never lapse.

         1.12. "Holder" shall mean an Eligible Individual to whom an Option has
been granted.

         1.13. "Incentive Options" shall mean stock options that are intended to
satisfy the requirements of section 422A of the Code.

         1.14. "Nonstatutory Options" shall mean stock options that are not
intended to be or are not denominated as Incentive Options.

         1.15. "Options" shall mean either Incentive Options or Nonstatutory
Options, or both.

         1.16. "Stock" shall mean the Corporations authorized $.01 par value
common stock together with any other securities with respect to which Options
granted hereunder may become exercisable.

         SECTION 2. Stock and Maximum Number of Shares Subject to the Plan.

         Subject to the adjustments provided for in Paragraph 6.6 hereof, the
aggregate number of shares of Stock to be issued pursuant to the exercise of all
Options granted hereunder may equal but shall not exceed One Million Four
Hundred Eighty One Thousand Eight Hundred and Forty Three (1,481,483) shares.

         2.1. Description of Stock and Maximum Shares Allocated. The Stock which
Options granted hereunder give a Holder the right to purchase may be unissued or
reacquired shares of Stock, as the Board of Directors may, in its sole and
absolute discretion, from time to tune determine.

         2.2. Restoration of Unpurchased; Only Net Shares Issued Considered. If
an Option granted hereunder expires or terminates for any reason during the term
of this Plan prior to the exercise thereof in full, the shares of Stock subject
to but not issued under such Option shall again be available for Options granted
hereunder subsequent thereto. In addition, if an Option is exercised by payment,
in whole or in part of previously owned shares of Stock pursuant to

                                       3
<PAGE>

Section 6.3, then only the net shares issued shall count against the maximum
authorized number of shares of stock that may be issued hereunder.

SECTION 3. Administration of the Plan.

         3.1. Stock Option Committee. The Plan shall be administered by the
Committee. The Committee shall consist of not less than three (3) members of the
Board of Directors, and, except as is provided in the immediately following
sentence, may be constituted by all members of the Board of Directors. In the
event that the Stock is registered under Section 12 of the Act, all members of
the Committee shall be "disinterested persons," as defined in Rule l6b-3(d)(3)
promulgated under the Act; and in such event members of the Committee shall not
be eligible to receive Options or stock options, stock appreciation rights, or
an allocation of stock under any plan of the Corporation or its affiliates (as
such terms are used in subsection (d)(3) of Rule l6b-3 promulgated under the
Act) while they are serving as members of the Committee and must not have been
eligible to receive Options or such options, stock appreciation rights, or an
allocation of stock under any plan of the Corporation or its Affiliates within
one (1) year prior to their appointment to the Committee.

         3.2. Duration, Removal, Etc. The members of the Committee shall serve
at the pleasure of the Board of Directors, which shall have the power, at any
time and from time to time, to remove members from the Committee or to add
members thereto. Vacancies on the Committee, however caused, shall be filled by
action of the Board of Directors.

         3.3. Meetings and Actions of Committee. The Committee shall elect one
of its members as its Chairman and shall hold its meetings at such times and
places as it may determine. All decisions and determinations of the Committee
shall be made by the majority vote or decision of all of its members present at
a meeting; provided, however, that any decision or determination reduced to
writing and signed by all of the members of the Committee shall be as fully
effective as if it had been made at a meeting duly called and held. The
Committee may make any rules and regulations for the conduct of its business
that are not inconsistent with the provisions hereof and with the bylaws of the
Corporation as it may deem advisable.

         3.4. Committee's Powers. Subject to the express provisions hereof, the
Committee shall have the authority, in its sole and absolute discretion, (a) to
adopt, amend, and rescind administrative and interpretive rules and regulations
relating to the Plan; (b) to determine the terms and provisions of the
respective Agreements (which need not be identical), including provisions
defining or otherwise relating to (i) subject to Section 6 of the Plan, the term
and the period or periods and extent of exercisability of the Options, (ii) the
extent to which the transferability of shares of Stock issued upon exercise of
Options is restricted, (iii) the effect of termination of employment upon the
exercisability of the Options, and (iv) the effect of approved leaves of absence
(consistent with any applicable regulations of the Internal Revenue Service);
(c) to accelerate the time of exercisability of any Option that has been
granted; (d) to construe the respective Option Agreements and the Plan; and (e)
to make all other determinations and perform all other acts necessary or
advisable for administering the Plan, including the delegation of such
ministerial acts and responsibilities as the Committee deems appropriate. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Agreement in the manner and to the extent it
shall deem expedient to carry it into effect, and

                                       4
<PAGE>

it shall be the sole and final judge of such expediency. The determinations of
the Committee on the matters referred to in this Paragraph 3.4 shall be final
and conclusive.

SECTION 4. Eligibility and Participation.

         4.1. Eligible Individuals. Options may be granted hereunder only to
persons who are Eligible Individuals at the time of the grant thereof.
Notwithstanding any provision contained herein to the contrary, a person shall
not be eligible to receive an Incentive Option hereunder unless he is an
employee of the Corporation or an Affiliate, nor shall a person be eligible to
receive an Incentive Option hereunder if he, at the time such option is granted,
would own (within the meaning of sections 422A and 425 of the Code) stock
possessing more than ten percent (10%) of the total combined voting power or
value of all classes of stock of the Corporation or an Affiliate unless at the
time such Incentive Option is granted the exercise price per share of Stock is
at least one hundred and ten percent (110%) of the Fair Market Value of each
share of Stock to which the Incentive Option relates and the Incentive Option is
not exercisable after the expiration of five (5) years from the date it is
granted.

         4.2. No Right to Option. The adoption of the Plan shall not be deemed
to give any person a right to be granted an Option.

SECTION 5. Grant of Options and Certain Terms of the Agreements.

         Subject to the express provisions hereof, the Committee shall determine
which Eligible Individuals shall be granted Options hereunder from time to time.
In making grants, the Committee shall take into consideration the contribution
the potential Holder has made or may make to the success of the Company or its
Affiliates and such other considerations as the Board of Directors may from time
to time specify. The Committee shall also determine the number of shares subject
to each of such Options, and shall authorize and cause the Corporation to grant
Options in accordance with such determinations.

         The date on which the Committee completes all action constituting an
offer of an Option to an individual, including the specification of the number
of shares of Stock to be subject to the Option, shall be the date on which the
Option covered by an Agreement is granted, even though certain terms of the
Agreement may not be at such time determined and even though the Agreement may
not be executed until a later time. For purposes of the preceding sentence, an
offer shall be deemed made if the Committee has completed all such action and
has communicated the grant thereof to the potential Holder. In no event,
however, shall an Optionee gain any rights in addition to those specified by the
Committee in its grant, regardless of the time that may pass between the grant
of the Option and the actual execution of the Agreement by the Company and the
Optionee.

         Each option granted hereunder shall be evidenced by an Agreement,
executed by the Corporation and the Eligible Individual to whom the Option is
granted, incorporating such terms as the Committee shall deem necessary or
desirable. More than one Option may be granted hereunder to the same Eligible
Individual and be outstanding concurrently hereunder. In the event an Eligible
Individual is granted both one or more Incentive Options and one or more
Nonstatutory Options, such grants shall be evidenced by separate Agreements, one
for each of the Incentive Option grants and one for each of the Nonstatutory
Option grants.

                                       5
<PAGE>

         Each Agreement may contain or otherwise provide for conditions giving
rise to the forfeiture of the Stock acquired pursuant to an Option granted
hereunder or otherwise and such restrictions on the transferability of shares of
the Stock acquired pursuant to an Option granted hereunder or otherwise as the
Committee in its sole and absolute discretion shall deem proper or advisable.
Such conditions giving rise to forfeiture may include, but need not be limited
to, the requirement that the Holder render substantial services to the
Corporation or its Affiliates for a specified period of time. Such restrictions
on transferability may include, but need not be limited to, options and rights
of first refusal in favor of the Corporation and shareholders of the Corporation
other than the Holder of such share of Stock who is a party to the particular
Agreement or a subsequent holder of the shares of Stock who is bound by such
Agreement.

         In addition, the Board of Directors may authorize the Committee to
grant cash awards payable in connection with the exercise of an Option, upon
such terms and conditions as are specified by the Board of Directors; provided
that no such cash award shall be effective unless it can comply and does comply
with any applicable requirements for exemption from liability pursuant to Rule
16b-3 promulgated under the Act.

SECTION 6. Terms and Conditions of Options.

         All Options granted hereunder shall comply with, be deemed to include,
and shall be subject to the following terms and conditions:

         6.1. Number of Shares. Each Agreement shall state the number of shares
of Stock to which it relates.

         6.2. Exercise Price. Each Agreement shall state the exercise price per
share of Stock. The exercise price per share of Stock subject to an Incentive
Option shall not be less than the greater of (a) the par value per share of the
Stock or (b) 100% of the Fair Market Value per share of the Stock on the date of
the grant of the Option. The exercise price per share of Stock subject to a
Nonstatutory Option shall not be less than fifty percent (50%) of the Fair
Market Value per share of the Stock on the date of the grant of the Option.

         6.3. Medium and Time of Payment, Method of Exercise, and Withholding
Taxes. The exercise price of an Option shall be payable upon the exercise of the
Option (i) in cash, by certified or cashier's check, (ii) with shares of Stock
of the Corporation already owned by the Holder which were acquired at least six
months prior to the Option exercise date and valued at an aggregate Fair Market
Value as of the date of exercise equal to the aggregate Option exercise price
for the shares being purchases, (iii) by a combination of cash and such shares,
or (iv) to the extent permitted under Regulation T of the Federal Reserve Board,
by delivering a properly executed notice of exercise of the Option to the
Corporation and a broker, with irrevocable instructions to the Corporation to
deliver to such broker the stock certificates for the shares issued pursuant to
such exercise and irrevocable instructions to such broker to deliver to the
Corporation on or before the settlement date cash in an amount necessary to pay
the aggregate Option exercise price for the shares being purchased. Exercise of
an Option shall not be effective until the Corporation has received written
notice of exercise. Such notice must specify the number of whole shares to be
purchased and accompanied by payment in full of the aggregate Option price of
the number of shares purchased. The Corporation shall not in any case be
required to sell, issue, or deliver a fractional share with respect to any
Option.

                                       6
<PAGE>

         Payment for any shares subject to an Option may also be made by
instructing the Committee to withhold the number of shares subject to such
Option being issued on the exercise of such Option having a Fair Market Value on
the date of exercise equal to the aggregate exercise price of the exercised
stock option.

         No later than the date as of which an amount first becomes includable
in the gross income of the Holder for federal income tax purposes with respect
to any Option under the plan, the Holder shall pay to the Corporation, or make
arrangements satisfactory to the Corporation regarding the payment of, any
federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. Withholding obligations may be settled by
the Option with Stock, including by withholding Stock that is part of the Option
being exercised that gives rise to the withholding requirement. The obligations
of the Corporation under the Plan and the Option shall be conditional on such
payment or arrangements, and the Corporation or its Affiliates shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the Holder. The Committee may establish such procedures
as it deems appropriate, including making irrevocable elections, for the
settlement of withholding obligations of Stock.

         Where the exercise of an Option does not give rise to an obligation to
withhold Federal income or other taxes on the date of exercise, the Corporation
may, in its discretion, require a Holder to place shares of Stock purchased
under the Option in escrow for the benefit of the Corporation until such time as
Federal income or other tax withholding is no longer required with respect to
such shares or until such withholding is required on amounts included in the
gross income of the Holder as a result of the exercise of an Option or the
disposition of shares of Stock acquired pursuant thereto. At such later time,
the Corporation in its discretion, may require a Holder to pay to the
Corporation the amount that the Corporation deems necessary to satisfy its
obligation to withhold Federal, state or local income or other taxes incurred by
reason of the exercise of the Option or the disposition of shares of Stock, in
which case the shares of Stock shall be released from escrow to the Holder.
Alternatively, subject to acceptance by the Committee, in its sole discretion, a
Holder may make a written request to have shares of Stock held in escrow applied
toward the Corporation's obligation to withhold Federal, state or local income
or other taxes incurred by reason of the exercise of the Option or the
disposition of share of Stock, based on the Fair Market Value of the shares on
the date of the termination of the escrow arrangement. Upon application of such
shares toward the Corporation's withholding obligation, any shares of Stock held
in escrow and not, in the judgment of the Committee, necessary to satisfy such
obligation shall be released from escrow to the Holder.

         All of the above-described alternative methods of paying the exercise
price of an Option or paying any applicable withholding tax as authorized under
the Plan have the approval of the Board of Directors. The Holder, at his or her
discretion, shall have the right to elect which of the authorized methods of
paying the exercise price of an Option or paying any applicable withholding tax
shall be utilized for both Options previously granted and/or granted in the
future under the Plan.

         6.4. Term, Time of Exercise, and Transferability of Options. In
addition to such other terms and conditions as may be included in a particular
Agreement granting an Option, an Option shall be exercisable during a Holder's
lifetime only by him or by his guardian or legal representative. Options shall
be transferable by the Holder only pursuant to the following

                                       7
<PAGE>

methods: (i) by will or the laws of descent and distribution; or (ii) as a gift
to family members of the Holder or to trusts for the benefit of family members
of the Holder or to charities or other not-for-profit organizations; or (iii) to
an entity (other than a public company) controlled or owned by, or for the
benefit of, family members of the Holder. Each Option shall also be subject to
the following terms and conditions:

         (a)      Termination of Employment or Directorship. The provisions of
                  this Paragraph 6.4(a) shall apply to the extent a Holder's
                  Agreement does not expressly provide otherwise. If a Holder
                  ceases to be employed by at least one of the employers in the
                  group of employers consisting of the Corporation and its
                  Affiliates because the Holder voluntarily terminates
                  employment with such group of employers and the Holder does
                  not remain or thereupon become a director of the Corporation
                  or one or more of its Affiliates, or if a Holder ceases to be
                  a director of at least one of the corporations in the group of
                  corporations consisting of the Corporation and its Affiliates
                  and the Holder does not remain or thereupon become an employee
                  of the Corporation or one or more of it's Affiliates, the
                  portion, if any, of an Option that remains unexercised,
                  including that portion, if any, that pursuant to the Agreement
                  is not yet exercisable, on the date of the Holder's
                  termination of employment or ceasing to be a director,
                  whichever occurs later, shall terminate and cease to be
                  exercisable as of such date. If a Holder ceases to be employed
                  by at least one of the employers in the group of employers
                  consisting of the Corporation and its Affiliate because any of
                  such entities terminates the Holder's employment for Cause,
                  the portion, if any, of an Option that remains unexercised,
                  including that portion, if any, that pursuant to the Agreement
                  is not yet exercisable, at the time of the Holder's
                  termination of employment, shall terminate and cease to be
                  exercisable immediately upon his termination of employment. If
                  a Holder ceases to be employed by at least one of the
                  employers in the group of employers consisting of the
                  Corporation and its Affiliates because one or more of such
                  entities terminates the employment of the Holder but not for
                  Cause, and the Holder does not remain or thereupon become a
                  director of the Corporation or one or more of it's Affiliates,
                  the Holder shall have the right for thirty (30) days after
                  such termination of employment to exercise the Option with
                  respect to that portion thereof that has become exercisable
                  pursuant to Holder's Agreement as of the, date of the Holder's
                  termination of employment, and thereafter the Option shall
                  terminate and cease to be exercisable. Options granted under
                  the Plan with a vesting date no more than three years from the
                  termination date of employment of the Holder will accelerate
                  as to vesting upon the termination by the Corporation of such
                  employment (including Constructive Termination) except when
                  such termination is with Cause and only when such termination
                  follows a Change of Control.

                  Options granted under the Plan with a vesting date no more
                  than three years from the termination date of employment of
                  the Optionee will accelerate as to vesting upon the
                  termination by employers consisting of the Company and its
                  Affiliates of such employment (including Constructive
                  Termination as defined herein) except when such termination is
                  with Cause (as defined herein) and only when such termination
                  follows a Change of Control (as defined herein).

                                       8
<PAGE>

                  Options shall not terminate upon the termination of employment
                  and director status of Holder with the Corporation or any of
                  its Affiliates if such Holder continues to serve as a
                  consultant to the Corporation or such Affiliates, and that
                  instead, in such event, upon the subsequent termination of
                  such Holder's status as a consultant to the Corporation and
                  its Affiliates, such Options shall terminate and cease to be
                  exercisable on the same basis as would have been applicable
                  under such Options upon termination of employment and director
                  status as set forth in this Section 6.4.

         (b)      Disability. The provisions of this Paragraph 6.4(b) shall
                  apply to the extent a Holder's Agreement does not expressly
                  provide otherwise. If a Holder ceases to be employed by at
                  least one of the employers in the group of employers
                  consisting of the Corporation and its Affiliates by reason of
                  disability (as defined in section 22(e)(3) of the Code) and
                  does not remain or thereupon become a director of the
                  Corporation or one or more of it's Affiliates, or if the
                  Holder ceases by reason of such disability to be a director of
                  at least one of the corporations in the group of corporations
                  consisting of the Corporation and its Affiliates, the Holder
                  shall have the right for ninety (90) days after the date of
                  termination of employment with or cessation of directorship of
                  such group of employers by reason of disability, whichever
                  occurs later, to exercise an Option to the extent such Option
                  is exercisable on the date of his termination of employment,
                  and thereafter the Option shall terminate and cease to be
                  exercisable.

         (c)      Death. The provisions of this Paragraph 6.4(c) shall apply to
                  the extent a Holder's Agreement does not expressly provide
                  otherwise. If a Holder dies while in the employ of the
                  Corporation or an Affiliate or dies while a director of the
                  Corporation or an Affiliate. An Option shall be exercisable by
                  the Holder's legal representatives, legatees, or distributees
                  for one hundred and eighty (180) days following the date of
                  the Holder's death to the extent such Option is exercisable on
                  the Holder's date of death (and the portion thereof that has
                  not become exercisable pursuant to such Option Agreement as of
                  such date of death shall terminate as of such date and no
                  longer be outstanding), and thereafter the Option shall
                  terminate and cease to be exercisable.

         Notwithstanding any other provision of this Plan, including the
provisions of items (a), (b), and (c) of this Paragraph 6.4, no Incentive Option
shall be exercisable after the expiration of ten (10) years from the date it is
granted, or the period specified in Paragraph 4.1, if applicable. The Committee
shall have authority to prescribe in any Agreement that the Option evidenced
thereby may be exercised in full or in part as to any number of shares subject
thereto at any time or from time to time during the term of the Option, or in
such installments at such times during said term as the Committee may prescribe.
Except as provided above and unless otherwise provided in any Agreement, an
Option may be exercised at any time or from time to time during the term of the
Option. Such exercise may be as to any or all whole (but no fractional) shares
which have become purchasable under the Option.

         Within a reasonable time or such time as may be permitted by law after
the Corporation receives written notice that the Holder has elected to exercise
all or a portion of an Option, such notice to be accompanied by payment in full
of the aggregate Option price of the number of

                                       9
<PAGE>

shares purchased, the Corporation shall issue and deliver a certificate
representing the shares acquired in consequence of the exercise and any other
amounts payable in consequence of such exercise. In the event that a Holder
exercises both an Incentive Option, or portion thereof, and a Nonstatutory Stock
Option, or a portion thereof, separate Stock certificates shall be issued, one
for the Stock subject to the Incentive Option and one for the Stock subject to
the Nonstatutory Stock Option. The number of the shares of Stock transferable
due to an exercise of an Option under this Plan shall not be increased due to
the passage of time, except as may be provided in an Agreement.

         Nothing herein or in any Option granted hereunder shall require the
Corporation to issue any shares upon exercise of any Option if such issuance
would, in the opinion of counsel for the Corporation, constitute a violation of
the Securities Act of 1933, as amended, or any similar or superseding statute or
statutes, or any other applicable statute or regulation, as then in effect. At
the time of any exercise of an Option, the Corporation may, as a condition
precedent to the exercise of such Option, require from the Holder of the Option
(or in the event of his death, his legal representatives, legatees, or
distributees) such written representations, if any, concerning his intentions
with regard to the retention or disposition of the shares being acquired by
exercise of such Option and such written covenants and agreements, if any, as to
the manner of disposal of such shares as, in the opinion of counsel to the
Corporation, may be necessary to ensure that any disposition by such Holder (or
in the event of his death, his legal representatives, legatees, or
distributees), will not involve a violation of the Securities Act of 1933, as
amended, or any similar or superseding statute or statutes, or any other
applicable state or federal statute or regulation, as then-in effect.
Certificates for shares of Stock, when issued, may have the following legend, or
statements of other applicable restrictions, endorsed thereon, and may not be
immediately transferable:

         The shares of Stock evidenced by this certificate have been issued to
         the registered owner in reliance upon written representations that
         these shares have been purchased for investment. These shares may not
         be sold, transferred, or assigned unless, in the opinion of the
         Corporation and its legal counsel, such sale, transfer, or assignment
         will not be in violation of the Securities Act of 1933, as amended,
         applicable rules and regulations of the Securities and Exchange
         Commission, and any applicable state securities laws.

         6.5. Limitation on Aggregate Value of Shares That May Become First
Exercisable During Any Calendar Year Under an Incentive Option. With respect to
any Incentive Option granted under this Plan, to the extent that the aggregate
Fair Market Value of shares of Stock subject to such Incentive Option
(determined as of the date the Incentive Option is granted) and the aggregate
Fair Market Value of shares of Stock or stock of any Affiliate (or a predecessor
of the Corporation or an Affiliate) subject to any other incentive stock option
(within the meaning of section 422A of the Code) of the Corporation or its
Affiliates (or a predecessor corporation of any such corporation), that first
become purchasable in any calendar year under such Option (with respect to any
Holder), exceed $100,000, then such excess over $100,000 shall not be considered
as subject to an Incentive Option, but rather shall be considered as subject to
a Nonstatutory Option. This rule shall be applied to by taking shares of stock
subject to Incentive Options that are purchasable for the first time in the
calendar year into account in the order in which such Incentive Options were
granted. For purposes of this Paragraph 6.5, "predecessor corporation" means a
corporation that was a party to a transaction described in section 425(a) of

                                       10
<PAGE>

the Code (or which would be so described if a substitution or assumption under
such section had been effected) with the Corporation, or a corporation which, at
the time the new incentive stock option (within the meaning of section 422A of
the Code) is granted, is an Affiliate of the Corporation or a predecessor
corporation of any such corporations, or a predecessor corporation of any such
corporations.

         6.6. Adjustments Upon Chances in Capitalization, Merger, Etc.
Notwithstanding any other provision hereof, in the event of any change in the
number of outstanding shares of Stock effected without receipt of consideration
therefor by the Corporation, by reason of a stock dividend, or split,
combination, exchange of shares or other recapitalization, merger, or otherwise,
in which the Corporation is the surviving corporation, the aggregate number and
class of the reserved shares, the number and class of shares subject to each
outstanding Option and the exercise price of each outstanding Option shall be
automatically adjusted to accurately and equitably reflect the effect thereon of
such change, provided that any fractional share resulting from such adjustment
may be eliminated. In the event of a dispute concerning such adjustment, the
decision of the Committee shall be conclusive. The number of reserved shares or
the number of shares subject o to any outstanding Option shall be automatically
reduced by any fraction included therein which results from any adjustment made
pursuant to this Paragraph 6.6.

         The following provisions of this Paragraph 6.6 shall apply unless a
Holder's Agreement provides otherwise. A dissolution or liquidation of the
Corporation; a sale of all or substantially all of the assets of the Corporation
where it is contemplated that within a reasonable period of time thereafter the
Corporation will either be liquidated or converted into a nonoperating company
or an extraordinary dividend will be declared resulting in a partial liquidation
of the Corporation (but in all cases only with respect to those employees whom
it is anticipated will lose their employment with the Corporation and its
affiliates as a result of such sale of assets); a merger or consolidation (other
than a merger effecting a reincorporation of the Corporation in another state or
any other merger or a consolidation in which the shareholders of the surviving
corporation and their proportionate interests therein immediately after the
merger or consolidation are substantially identical to the shareholders of the
Corporation and their proportionate interests therein immediately prior to the
merger or consolidation) in which the Corporation is not the surviving
corporation (or survives only as a subsidiary of another corporation in a
transaction in which the shareholders of the parent of the Corporation and their
proportionate interests therein immediately after the transaction are not
substantially identical to the shareholders of the Corporation and their
proportionate interests therein immediately prior to the transaction; provided
that the Board of Directors may at any time prior to such a merger or
consolidation provide by resolution that the foregoing provisions of this
parenthetical shall not apply if a majority of the board of directors of such
parent immediately after the transaction consists of individuals who constituted
a majority of the Board of Directors immediately prior to the transaction); or a
transaction in which another corporation becomes the owner of 50% or more of the
total combined voting power of all classes of stock of the Corporation (provided
that the Boar-d of Directors may at any time prior to such transaction provide
by resolution that the provision immediately preceding this parenthetical and
following the immediately preceding semi-colon shall not apply if a majority of
the board of directors of the acquiring corporation immediately after the
transaction consists of individuals who constituted a majority of the Board of
Directors immediately prior to the acquisition of such 50% or more total
combined voting power) shall cause every Option then outstanding to terminate,
but the Holders of each such then outstanding Options shall, in any event, have
the right, immediately prior to such dissolution,

                                       11
<PAGE>

liquidation, sale - of assets, merger, consolidation, or transaction, to
exercise such Options, to the extent not theretofore exercised, without regard
to the determination as to the periods and installments of exercisability made
pursuant to a Holder's Agreement if (and only if) such Options have not at that
time expired or been terminated. Such acceleration of exercisability shall not
apply to a given Option if any surviving or acquiring corporation agrees to
assume such Option in connection with the merger, consolidation, or transaction.

         6.7. Rights as a Shareholder. A Holder shall have no right as a
shareholder with respect to any shares covered by his Option until a certificate
representing such shares is issued to him. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash or other property) or
distributions or other rights for which the record date is prior to the date
such certificate is issued, except as provided in Paragraph 6.6 hereof.

         6.8. Modification, Extension and Renewal of Options. Subject to the
terms and conditions of and within the limitations of the Plan, the Committee
may modify, extend or renew outstanding Options granted under the Plan, or
accept the surrender of Options outstanding hereunder (to the extent not
theretofore exercised) and authorize the granting of new Options hereunder in
substitution therefor (to the extent not theretofore exercised). In addition, no
modification of an Option granted hereunder shall, without the consent of the
Holder, alter or impair any rights or obligations under any Option theretofore
granted hereunder to such Holder under the Plan, except as may be necessary,
with respect to Incentive Options, to satisfy the requirements of section 422A
of the Code.

         6.9. Furnish Information. Each Holder shall furnish to the Corporation
all information requested by the Corporation to enable it to comply with any
reporting or other requirement imposed upon the Corporation .by or under any
applicable statute or regulation.

         6.10. Obligation to Exercise; Termination of Employment. The granting
of an Option hereunder shall impose no obligation upon the Holder to exercise
the same or any part thereof. In the event of a Holder's termination of
employment with the Corporation or an Affiliate, the unexercised portion of an
Option granted hereunder shall terminate in accordance with paragraph 6.4
hereof.

         6.11. Agreement Provisions. The Agreements authorized under the Plan
shall contain such provisions in addition to those required by the Plan
(including, without limitation, restrictions or the removal of restrictions upon
the exercise of the Option and the retention or transfer of shares thereby
acquired) as the Committee shall deem advisable. Each Agreement shall identify
the Option evidenced thereby as an Incentive Option or Nonstatutory Option, as
the case may be, and no Agreement shall cover both an Incentive Option and
Nonstatutory Option. Except as provided by the second paragraph of Section 6.6,
each Agreement relating to an Incentive Option granted hereunder shall contain
such limitations and restrictions upon the exercise of the Incentive Option to
which it relates as shall be necessary for the Incentive Option to which such
Agreement relates to constitute an incentive stock option, as defined in section
422A of the Code.

         6.12. Redemption. The provisions of this Paragraph 6.12 shall apply to
the extent a Holder's Agreement does not expressly provide otherwise. At such
time that the Stock is not registered under section 12 of the Securities
Exchange Act, if a Holder or any other holder of the

                                       12
<PAGE>

Stock received upon exercise of an Option proposes to sell, give, pledge,
exchange or otherwise transfer or dispose of any of the Stock received upon
exercise of an Option, or of any interests therein owned by him, whether for
cash or other consideration, the Holder or such other holder shall promptly give
notice (the "Redemption Notice") to the Committee setting forth in detail the
circumstances of such event. The Redemption Notice shall state the name and
address of the proposed transferee and the proposed consideration for and terms
of the transfer. The Corporation shall have an option to purchase such Stock
within ten (10) days after receipt by the Committee of the Redemption Notice, on
the terms hereinafter set forth and as may be set forth in the Agreement. The
Corporation shall exercise such option by giving the Holder or such other holder
notice thereof. Such option may be exercised by the Corporation as to all, but
not less than all, of such Stock, and such option shall expire to the extent not
exercised by the Corporation within ten (10) days after receipt by the Committee
of the Redemption Notice. The price per share for the Stock purchased by the
Corporation pursuant to this Paragraph 6.12 shall be:

         (a)      the Fair Market Value per share of such Stock on the date the
                  Committee receives the Redemption Notice, if the proposed
                  transfer is a gift, or

         (b)      the price per share for which the Holder has received a bona
                  fide offer, as described in the Redemption Notice, if the
                  proposed transfer is other than a gift.

The value of any noncash consideration included in such bona fide offer shall be
determined in good faith by the Board of Directors, with the assistance of a
third party to the extent the Board of Directors deems appropriate.

         Upon exercise of its option pursuant to this Paragraph 6.12, the
Corporation shall pay the Holder or such other holder the purchase price (i)
within 60 days after receipt of the Redemption Notice by the Committee in the
manner provided in the Agreement between Corporation and the Holder or (ii) at
the election of the Corporation, in accordance with the terms embodied in any
bona fide offer received by the Holder or such other holder and described in the
Redemption Notice. Any Stock that the Corporation does not purchase as herein
provided may be transferred by the Holder or such other holder to the persons
and upon terms and conditions no more favorable to the purchasers than those set
forth in the Redemption Notice, such transfer to be consummated within ninety
(90) days after receipt of the Redemption Notice by the Committee, and not
otherwise.

SECTION 7.        Remedies and Legend

         7.1. Remedies. The corporation shall be entitled to recover from a
Holder reasonable attorneys' fees incurred in connection with the enforcement of
the terms and provisions of the Plan and any Agreement whether by an action to
enforce specific performance or for damages for its breach or otherwise.

         7.2. Legend. Each certificate representing shares issued to a Holder
upon exercise of an Option granted under the Plan may, if such share is subject
to any transfer restriction, including a right of first refusal, provided for
under this Plan or an Agreement, bear a legend that complies with applicable law
with respect to the restrictions on transferability referenced in this Paragraph
7.2, such as:

                                       13
<PAGE>

         The shares represented by this certificate are subject to restrictions
         on transferability imposed by that certain instrument entitled "Horizon
         Health Group, Inc. 1989 Stock Option Plan" dated April 11, 1990 and an
         agreement thereunder between ______________________ and Holder dated
         _________________ 19__, which grants to the Corporation an option to
         purchase such shares in certain instances. A copy of such plan and
         agreement is on file at the principal office of the Corporation, and is
         subject to the same right of examination by a shareholder of the
         Corporation (in person or by agent, attorney, or accountant) as are the
         books and records of the Corporation.

SECTION 8. Duration of Plan.

         No Options may be granted hereunder after the date that is ten (10)
years from the earlier of (i) the date the Plan is adopted by the Board of
Directors or (ii) the date the Plan is approved by the shareholders of the
Corporation.

SECTION 9. Amendment of Plan.

         The Board of Directors may, insofar as permitted by law, with respect
to any shares at the time are not subject to Options, suspend or discontinue the
Plan or revise or amend it in any respect whatsoever; provided, however, that,
without the approval of the holders of a majority of the outstanding shares of
voting stock of all classes of the Corporation, no such revision or amendment
shall (a) change the number of shares of the Stock subject to the Plan, (b)
change the designation of the class of employees eligible to receive Options,
(c) decrease the price at which Incentive Options may be granted, (d) remove the
administration of the Plan from the Committee, (e) render the members of the
Committee eligible to receive Options under the Plan while serving as such, or
(f) without the consent of the affected Holder, cause the Incentive Options
granted hereunder and outstanding at such time that satisfied the requirements
of section 422A of the Code to no longer satisfy such requirements.

SECTION 10. General.

         10.1. Application of Funds. The proceeds received by the Corporation
from the sale of shares pursuant to Options shall be used for general corporate
purposes.

         10.2. Right of the Corporation and Affiliates to Terminate Employment.
Nothing contained in the Plan, or in any Agreement, shall confer upon any Holder
the right to continue in the employ of the Corporation or any Affiliate, or
interfere in any way with the rights of the Corporation or any Affiliate to
terminate his employment at any time.

         10.3. No Liability for Good Faith Determinations. Neither the members
of the Board of Directors nor any member of the Committee shall be liable for
any act, omission, or determination taken or made in good faith with respect to
the Plan or any Option granted under it, and members of the Board of Directors
and the Committee shall be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved, by independent legal counsel selected by the Corporation, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising therefrom to the full extent

                                       14
<PAGE>

permitted by law and under any directors and officers liability or similar
insurance coverage that may from time to time be in effect.

         10.4. Information Confidential. As partial consideration for the
granting of each Option hereunder, the Holder shall agree with the Corporation
that he will keep confidential all information and knowledge that he has
relating to the manner and amount of his participation in the Plan; provided,
however, that such information may be disclosed as required by law and may be
given in confidence to the Holder's spouse, tax and financial advisors, or to a
financial institution to the extent that such information is necessary to secure
a loan. In the event any breach of this promise comes to the attention of the
Committee, it shall take into- consideration such breach, in determining whether
to recommend the grant of any future Option to such Holder, as a factor
militating against the advisability of granting any such future Option to such
individual.

         10.5. Other Benefits. Participation in the Plan shall not preclude the
Holder from eligibility in any other stock option plan of the Corporation or any
Affiliate or any old age benefit, insurance, pension, profit sharing retirement,
bonus, or other extra compensation plans which the Corporation or any Affiliate
has adopted, or may, at any time, adopt for the benefit of its employees.

         10.6. Execution of Receipts and Releases. Any payment of cash or any
issuance or transfer of shares of Stock to the Holder, or to his legal
representative, heir, legatee, or distributee, in accordance with the provisions
hereof, shall, to the extent thereof, be in full satisfaction of all claims of
such persons hereunder. The Committee may require any Holder, legal
representative, heir, legatee, or distributee, as a condition precedent to such
payment, issuance or transfer, to execute a release and receipt therefor in such
form as it shall determine.

         10.7. No Guarantee of Interests. Neither the Committee nor the
Corporation guarantees the Stock of the Corporation from loss or depreciation.

         10.8. Payment of Expenses. All expenses incident to the administration,
termination, or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by the Corporation or its Affiliates; provided,
however, the Corporation or an Affiliate may recover any and all damages, fees,
expenses. and/or costs arising out of any actions taken by the Corporation to
enforce its right to purchase Stock under Paragraph 6.12 hereof.

         10.9. Corporation Records. Records of the Corporation or its Affiliates
regarding the Holder's period of employment, termination of employment and the
reason therefor, leaves of absence, re-employment, and other matters shall be
conclusive for all purposes hereunder, unless determined by the Committee to be
incorrect.

         10.10. Information. The Corporation and its Affiliates shall, upon
request or as may be specifically required hereunder, furnish or cause to be
furnished, all of the information or documentation which is necessary or
required by the Committee to perform its duties and functions under the Plan.

         10.11. No Liability of Corporation. The Corporation assumes no
obligation or responsibility to the Holder or his personal representatives,
heirs, legatees, or distributees for any act of, or failure to act on the part
of, the Committee.

                                       15
<PAGE>

         10.12. Corporation Action. Any action required of the Corporation shall
be by resolution of its Board of Directors or by a person authorized to act by
resolution of the Board of Directors.

         10.13. Severability. If any provision of this Plan is held to be
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining provisions hereof, but such provision shall be fully severable and
the Plan shall be construed and enforced as if the illegal or invalid provision
had never been included herein.

         10.14. Notices. Whenever any notice is required or permitted hereunder,
such notice must be in writing and personally delivered or sent by mail. Any
notice required or permitted to be delivered hereunder shall be deemed to be
delivered on the date on which it is personally delivered, or, whether actually
received or not, on the third business day after it is deposited in the United
States mail, certified or registered, postage prepaid, addressed to the person
who is to receive it at the address which such person has theretofore specified
by written notice delivered in accordance herewith. The Corporation or a Holder
may change, at any time and from time to time, by written notice to the other,
the address which it or he had theretofore specified for receiving notices.
Until changed in accordance herewith, the Corporation and each Holder shall
specify as its and his address for receiving notices the address set forth in
the Agreement pertaining to the shares to which such notice relates.

         10.15. Waiver of Notice. Any person entitled to notice hereunder may
waive such notice.

         10.16. Successors. The Plan shall be binding upon the Holder, his
heirs, legatees, and legal representatives, upon the Corporation, its
successors, and assigns, and upon the Committee, and its successors.

         10.17. Headings. The titles and headings of Sections and Paragraphs are
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.

         10.18. Governing Law. All question arising with respect to the
provisions of the Plan shall be determined by application of the laws of the
State of Delaware except to the extent Delaware law is preempted by federal law.
Questions arising with respect to the provisions of an Agreement that are
matters of contract law shall be governed by the laws of the state specified in
the Agreement, except to the extent Delaware corporate law conflicts with the
contract law of such state, in which event Delaware corporate law shall govern.
The obligation of the Corporation to sell and deliver Stock hereunder is subject
to applicable laws and to the approval -of any governmental authority required
in connection with the authorization, issuance, sale, or delivery of such Stock.

         10.19. Word Usage. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of this Plan dictates, the
plural shall be read as the singular and the singular as the plural.

SECTION 11. Approval of Shareholders.

         The Plan shall take effect on the date it is adopted by the Board of
Directors. However, if this Plan is not approved by the holders of a majority of
the outstanding shares of common stock, par value $.0l per share, of the
Corporation, within the period ending twelve (12) months after

                                       16
<PAGE>

the date the Plan is adopted by the Board of Directors, none of the Options
granted hereunder shall constitute Incentive Options; and in the event that the
Plan is not so approved on or before the first annual meeting of stockholders of
the Corporation following the date the Board of Directors adopts the Plan, if
any Options are granted under the Plan before the date such stockholders do
approve the Plan to individuals subject to suit under Section 16b of the Act at
the time of grant, such Options shall be null, void, and of no force and effect
as of their grant date.

         IN WITNESS WHEREOF, Horizon Health Group, Inc., acting by and through
its officers hereunto duly authorized has executed this instrument, this 11th
day of April, 1990.

                                           HORIZON HEALTH GROUP, INC.

                                           By:
                                               -------------------------------
                                               James K. Newman, President

                                       17

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