COMPROMISE, SETTLEMENT,
RELEASE AND TERMINATION AGREEMENT
This COMPROMISE, SETTLEMENT, RELEASE AND TERMINATION AGREEMENT (this
"Agreement") is entered into effective May 12, 1997, by and among Horizon/CMS
Healthcare Corporation, a Delaware corporation ("HHC"), d/b/a Horizon Healthcare
Corporation ("HHC") and Horizon Specialty Hospital ("HSH"), Horizon Facilities
Management, Inc., a Delaware corporation ("HFM"), Horizon Medical Specialty
Services, Inc., a Delaware corporation doing business as Respiratory Supply
Services ("RSS"), Rehabilitative Associates, Inc., a Florida corporation doing
business as RehabWorks ("RAI"), CMS Therapies, Inc., a North Carolina
corporation doing business as RehabWorks of Texas and as RehabWorks of Michigan
("CMS Therapies"), National Institutional Pharmacy Services, Inc., a Delaware
corporation ("NIPSI"), NIPSI Healthcare of Houston Ltd. Partnership, a Texas
limited partnership ("NIPSI-Houston"), NIPSI of Houston, Inc., a Texas
corporation ("NIPSI-H"), Advanced Clinical Technology, Inc., a Delaware
corporation ("ACT"), and LTC Medical Laboratories, Inc. ("LTC") (each, a
"Horizon Entity" and, collectively, the "Horizon Entities") on the one hand, and
HEA Management Group, Inc., a Texas corporation ("HEA"), Texas Health
Enterprises, Inc., a Texas corporation ("THE"), Health Enterprises of Oklahoma,
Inc., an Oklahoma corporation, Health Enterprises of Michigan, Inc., a Michigan
corporation, and PCK-TEX, LTD., a Texas limited partnership (collectively, the
"HEA Group"), on the other.
W I T N E S S E T H:
WHEREAS, HFM is a party to that certain Master Management Agreement
(the "Master Management Agreement") dated as of January 1, 1996 by and among
HFM, as manager, and the HEA Group pursuant to which HFM provides management and
administrative services for and on behalf of the HEA Group in respect of those
nursing facilities located in Texas, Michigan and Oklahoma identified on Exhibit
A attached to the Master Management Agreement (the "HEA Facilities");
WHEREAS, HFM contends that the HEA Group currently owes HFM
approximately $14,321,198.00 for the provision of these management and
administrative services under the terms of the Master Management Agreement;
WHEREAS, HFM is a party to that certain Loan Agreement (the "Loan
Agreement") dated as of January 1, 1996, by and among HFM, as lender, and the
HEA Group pursuant to which HFM made a $35 million line of credit available to
the HEA Group, as borrowers, and pursuant to which each of the HEA Group
executed that certain Promissory Note dated of even date therewith (the "HEA
Group Promissory Note"). In addition, pursuant to the Loan Agreement, each of
the constituent members of the HEA Group executed a Security Agreement, a
Leasehold Deed of Trust
on each of the leased HEA Group facilities (other than the nine (9) PCK-Tex
facilities), an Assignment of Rents and Leases in respect of each of the leased
HEA Group facilities (other than the nine (9) PCK-Tex facilities), and a Pledge
Agreement of all of the HEA Group's bank and other depository accounts (the Loan
Agreement, the Security Agreement, the Leasehold Deed of Trust, the Assignment
of Rents and Leases, and the Pledge Agreement shall be referred to individually
herein as an "Original Loan Document" and collectively, the "Original Loan
Documents");
WHEREAS, HHC and HFM are parties to that certain Letter of Intent dated
as of December 15, 1995, by and among HHC, HFM, and the HEA Group with respect
to a proposed loan agreement, and a management agreement concerning certain
facilities located in Texas, Michigan and Oklahoma;
WHEREAS, HFM contends that the HEA Group currently owes HFM
approximately $26,250,000 in principal and $2,080,075 in accrued but unpaid
interest on the HEA Group Promissory Note and the Original Loan Documents;
WHEREAS, NIPSI is currently a party to a variety of agreements with the
HEA Group under which NIPSI provides a variety of pharmacy services,
pharmaceuticals, enteral and parenteral supplies and pharmacy consultation
services to a substantial number of the facilities covered by the Master
Management Agreement (the "HEA Group Pharmacy Contracts");
WHEREAS, NIPSI contends that the HEA Group is currently indebted to it
in the amount of $3,347,576.00 (the "NIPSI Indebtedness");
WHEREAS, NIPSI-Houston is currently a party to a variety of agreements
with the HEA Group under which NIPSI-Houston provides a variety of pharmacy
services, pharmaceuticals, enteral and parenteral supplies and pharmacy
consultation services to certain of the facilities covered by the Master
Management Agreement that are located within the vicinity of Houston, Texas (the
"HEA Group Houston Pharmacy Contracts");
WHEREAS, NIPSI-Houston contends that the HEA Group is currently
indebted to it in the amount of $1,529,422.00 (the "NIPSI-Houston
Indebtedness");
WHEREAS, CMS Therapies and RAI (or one or more of its subsidiaries)
(collectively, "RehabWorks") are currently a party to a variety of agreements
with the HEA Group under which RehabWorks provides physical therapy,
occupational therapy and speech therapy services to a substantial number of the
facilities covered by the Master Management Agreement located in Texas and in
Michigan (the "HEA Group Therapy Contracts");
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WHEREAS, RehabWorks contends that the HEA Group is currently indebted
to it in the aggregate amount of $11,861,376.22 (the "RehabWorks Indebtedness");
WHEREAS, HSH is currently a party to a variety of agreements with the
HEA Group under which HSH provides certain specialty hospital services to a
substantial number of the facilities covered by the Master Management Agreement
(the HEA Group Specialty Contracts");
WHEREAS, HSH contends that the HEA Group is currently indebted to it in
the aggregate amount of $1,090,681.11 (the "HSH Indebtedness");
WHEREAS, LTC is currently a party to a variety of agreements with the
HEA Group under which LTC provides clinical laboratory services to a substantial
number of the facilities covered by the Master Management Agreement (the "HEA
Group Lab Contracts");
WHEREAS, LTC contends that the HEA Group is currently indebted to it in
the aggregate amount of $4,916.99 (the "LTC Indebtedness");
WHEREAS, RSS is a party to a variety of agreements with the HEA Group
under which RSS provides durable medical equipment to a substantial number of
the facilities covered by the Master Management Agreement (the "HEA Group DME
Contracts");
WHEREAS, RSS contends that the HEA Group is currently indebted to it in
the amount of $43,347.77 (the "RSS Indebtedness");
WHEREAS, ACT is a party to a variety of agreements with the HEA Group
under which ACT provides mobile x-ray services to a substantial number of the
facilities covered by the Master Management Agreement (the "HEA Group X-Ray
Contracts");
WHEREAS, ACT contends that the HEA Group is currently indebted to it in
the amount of $69,143.00 (the "ACT Indebtedness");
WHEREAS, the Horizon Entities, as a whole, contend that the HEA Group
is currently indebted to HFM and its affiliates as of April 30, 1997 (the
"Aggregate Horizon Indebtedness") as follows:
HEA Group Promissory Note (Principal) $26,250,000.00
HFM Management Fee (est.) 14,321,198.00
HEA Group Promissory Note (Interest) 2,080,075.00
NIPSI Indebtedness 3,347,576.00
NIPSI-Houston Indebtedness 1,529,422.00
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ACT Indebtedness 69,143.00
RehabWorks Indebtedness 11,861,376.22
LTC Indebtedness 4,916.99
RSS Indebtedness 43,347.77
HSH Indebtedness 1,090,681.11
Conservative Care, Inc. (non-affiliate) 667,775.94
---------------
$61,265,512.03
WHEREAS, the HEA Group contends that it has certain monetary claims
against the Horizon Entities for the manner in which the indebtedness
represented by the HEA Group Promissory Note was administered, the manner in
which HFM provided management and administrative services under the Master
Management Agreement, and for costs which it has or will incur in legal,
accounting fees, and other expenses associated with resolving these claims, and
which claims are of a sufficient value to offset the amounts claimed by the
Horizon Entities;
WHEREAS, the Horizon Entities and the HEA Group dispute the respective
contentions and allegations described above, but desire to avoid costly and
protracted litigation to resolve such disputes;
WHEREAS, the Horizon Entities and the HEA Group desire to fully and
finally compromise and settle their respective contentions and allegations as
set forth more fully hereinbelow, including, without limitation, the payment by
Horizon of the amounts claimed by Conservative Care, Inc.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Horizon Entities and the HEA Group agree as follows:
1. INCORPORATION BY REFERENCE. The foregoing recitals are
hereby incorporated by reference.
2. COMPROMISE AND SETTLEMENT OF AGGREGATE HORIZON
INDEBTEDNESS. For and in consideration of the provisions of this Agreement, the
execution and delivery of that certain accounts payable Loan Agreement (the
"Loan Agreement"), a copy of which is attached hereto as Exhibit A and
incorporated herein by reference, the execution and delivery of that certain
Promissory Note executed by the HEA Group in the amount of $17,046,463.09, with
respect to accounts payable and amounts payable to Conservative Care, Inc., a
copy of which is attached hereto as Exhibit B and incorporated herein by
reference, the termination of the Master Management Agreement, and the execution
by the HEA Group of all documents and/or
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instruments necessary to effect the transactions contemplated by this Agreement,
the Horizon Entities hereby acknowledge payment in full of the Aggregate Horizon
Indebtedness.
The Note will be collateralized by the seventeen (17) leasehold
mortgages (Nine (9) in Oklahoma and eight (8) in Michigan) and one (1) deed of
trust lien on Canterbury Villa of Houston, Texas. Horizon shall release and/or
terminate all other documents securing the Original Loan Documents, and the HEA
Group Promissory Note, and documents executed in connection with the Master
Management Agreement, including but not limited to, deeds of trust, fixture
filings, security agreements, leasehold deeds of trust, on each of the leased
HEA Group Facilities, assignment of rents and leases in respect to each of the
leased HEA Group Facilities, memorandum of right of first refusal and option,
facility management agreements for each respective HEA Group Facility, Letter
Agreement dated January 1, 1996, pledge agreements of all HEA Group receivables,
bank and other depository accounts, UCC-1 financing statements, and other
documents which purport to provide the Horizon Entities security or collateral
in connection with the Original Loan Documents, the HEA Group Promissory Note
and/or the Master Management Agreement.
3. TERMINATION OF CERTAIN SUBSIDIARY SERVICE CONTRACTS.
a. The HEA Group shall have the right to terminate
any one or more of the HEA Group Pharmacy Contracts and the HEA Group Houston
Pharmacy Contracts, commencing December 31, 1997, notwithstanding any provision
contained in the HEA Group Pharmacy Contracts and/or the HEA Group Houston
Pharmacy Contracts to the contrary.
b. The HEA Group shall have the right to terminate
any one or more of the HEA Group Therapy Contracts with RehabWorks, commencing
July 1, 1997, notwithstanding any provision contained in the HEA Group Therapy
Contracts to the contrary.
c. The HEA Group shall pay in accordance with the
applicable individual facility HEA Group Pharmacy Contracts, the HEA Group
Houston Pharmacy Contracts, the HEA Group Therapy Contracts, HEA Group Specialty
Contracts, HEA Group Lab Contracts, HEA Group DME Contract, and HEA Group X-Ray
Contracts, all amounts which are incurred on or after May 1, 1997 due to NIPSI,
NIPSI-Houston, RehabWorks, HSH, LTC, RSS, ACT, respectively, within ninety (90)
days of the date of invoicing.
4. TERMINATION OF MASTER MANAGEMENT AGREEMENT. HFM and the HEA
Group hereby terminate the Master Management Agreement which termination shall
be effective as of 12:01 a.m., May 12, 1997 (the "Effective Time").
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5. NO CONTINUING OBLIGATIONS OR LIABILITIES. From and after
the Effective Time, neither HFM nor the respective entities of the HEA Group
(collectively or individually) shall have any rights or obligations under the
Master Management Agreement. Following the Effective Time, all of the
provisions, terms, covenants, representations and warranties contained in the
Master Management Agreement shall have no continuing legal effect.
6. RELEASE. For and in consideration of the provisions of this
Agreement, the execution and delivery of the Loan Agreement, including the
recitals set forth above, the Note, the termination of the Master Management
Agreement, and the execution by the HEA Group of all documents and/or
instruments necessary to effect the transactions contemplated by this Agreement
and save and except for the obligations created by this Agreement, the Loan
Agreement and all Loan Documents and the Note, the Horizon Entities, on the one
hand, and HEA Group, on the other, do hereby voluntarily and knowingly release,
acquit and forever discharge the other and all of the other's agents, employees,
successors, affiliates, directors, officers, shareholders, subsidiaries, parent
corporations, and assigns from any and all claims, demands, debts, causes of
action, liabilities, agreements, obligations, accounts, defenses and damages,
known or unknown, that they or any of them or any of their agents, employees,
successors, predecessors, affiliates, administrators, officers, directors,
subsidiaries, and assigns, or anyone claiming by, under, or through each of any
of them ever had or now has, or may in the future acquire against each other for
or by reason of (i) any matter, cause, or thing done, admitted to, or suffered
to be done by either the Horizon Entities or the HEA Group, as the case may be,
at any time prior to and including the date hereof, in any way connected with,
arising out of, related to or in furtherance of [A] the obligations created
under the Master Management Agreement, [B] any or all agreements, covenants and
obligations of either the Horizon Entities or the HEA Group, as the case may be,
relating to the obligations created under the Master Management Agreement, [C]
any or all prior understandings or agreements, oral or written, and negotiations
related thereto with respect to this Agreement, [D] the exercise, enforcement or
realization by HFM of any deferred management fees under the Master Management
Agreement, or [E] any actions taken or not taken by either HFM or the HEA Group,
as the case may be, with respect to any of the obligations created under the
Master Management Agreement; and (ii) all claims and causes of action which
could have been or could be asserted either offensively or defensively against
either the Horizon Entities or the HEA Group, as the case may be, in any court
in respect of the duties and obligations evidenced by the Master Management
Agreement, the Original Loan Documents, the Aggregate Horizon Indebtedness or
any and all claims and causes of action which could have been or could be
asserted against the Horizon Entities for related party disallowances, prudent
buyer disallowances, excessive charges, and/or coverage denials, etc., at the
Facilities owned and/or operated by the HEA Group prior to the date hereof. This
RELEASE shall include, without limitation, such claims or defenses as fraud,
mistake, duress, overreaching, usury, failure to disclose, and interference with
business management or relating to any of the matters, documents, transactions,
acts or omissions
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described above. Other than as specifically set forth in this Agreement, the
parties make no representations or warranties with respect to the transactions
set forth herein.
7. RETAINED EMPLOYEES. The HEA Group shall have no obligation
whatsoever to hire any HFM employees. Upon execution of this Agreement, the HEA
Group shall provide HFM with a list of HFM employees to whom it has offered or
intends to offer employment with HEA Group following the Effective Time, and a
list of employees who have refused employment. Additionally, for sixty days
following closing, the HEA Group shall provide HFM with prompt written notice of
any additional employees offered employment and any former HFM employees who
have refused to accept employment with HEA Group.
8. FURTHER ASSURANCES. Following the Effective Date, HFM and
the HEA Group agree to assist the other, respectively, as reasonably requested
with ordinary and routine matters arising in the transfer of management from HFM
to the HEA Group, and the parties agree to cooperate and sign releases of
collateral as contemplated herein to effect the terms of this Agreement. Upon
execution of this Agreement, the HEA Group shall have the right to immediate
occupancy of the corporate headquarters at 000 Xxxxx Xxx, Xxxxxx, Xxxxx, and any
lease agreement between the parties shall terminate. HFM waives any rights and
interests whether contract, statutory, or otherwise in the corporate
headquarters. The HEA Group agrees to provide the Horizon Entities with
reasonable access to the records transferred hereunder to the HEA Group upon
reasonable notice and during normal business hours to examine and photocopy
patient records and records relating to the operation of the business.
9. NO ADMISSION. The provisions of this Agreement and
accompanying documents do not constitute evidence, or an admission by either of
the parties, or any affiliated or related party, of any liability or wrongful
conduct, and cannot be used by either of the parties, or any affiliated or
related party, in any judicial and/or administrative proceeding against the
other party or parties as an admission of liability or wrongdoing.
10. POLICIES AND PROCEDURES. Any systems, methods, procedures,
written materials, or brochures developed by HFM in connection with or related
to its provision of management and administrative services under the Master
Management Agreement in respect of the Facilities covered by the same, shall be
and become the property of the HEA Group at the Effective Time.
11. ENTIRE AGREEMENT. This Agreement and the Loan Agreement
contain the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements, negotiations, discussions,
arrangements or understandings with respect thereto, including but not limited
to that Letter of Intent dated April 25, 1997, between HEA Group, HFM and
Horizon/CMS Healthcare Corporation, and shall not be amended, supplemented,
modified unless executed in writing by the party to be bound thereby.
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12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the successors, assigns, and legal
representatives of each of the parties hereto.
13. COUNTERPARTS. This Agreement may be executed in several
counterparts and all so executed shall constitute one agreement binding on all
parties hereto, notwithstanding that all parties are not signatory to the
original or the same counterparts.
14. DUE AUTHORIZATION. The persons signing this Agreement
represent that they are duly authorized to execute this Agreement on behalf of
the respective Horizon Entity or member of the HEA Group.
15. CHOICE OF LAW. This Agreement shall be interpreted under
the laws of the State of Texas without reference to conflict of laws provisions.
16. PRESS RELEASE. For a period of sixty (60) days following
the date of this Agreement, neither party shall release for publication a press
release with respect to this Agreement or the Loan Document without first
submitting a copy of such release to the other party for review and comment.
IN WITNESS WHEREOF, the undersigned have affixed or caused their duly
authorized representatives to affix their signatures effective as of the date
first set forth above.
HORIZON/CMS HEALTHCARE CORPORATION,
a Delaware corporation,
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------------------
Xxxxxxx X. Xxxxxxxx, Senior Vice President
HORIZON FACILITIES MANAGEMENT, INC.,
a Delaware corporation,
By: /s/ Xxxx Xxxxxx
-----------------------------------------------
Xxxx Xxxxxx, Vice President and Secretary
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HORIZON MEDICAL SPECIALTY SERVICES,
INC., a Delaware corporation
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------------------
Xxxxxxx X. Xxxxxxxx, Senior Vice President
NATIONAL INSTITUTIONAL PHARMACY
SERVICES, INC., a Delaware corporation
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------------------
Xxxxxxx X. Xxxxxxxx, Senior Vice President
NIPSI OF HOUSTON, INC., a Texas corporation
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------------------
Xxxxxxx X. Xxxxxxxx, Senior Vice President
NIPSI HEALTHCARE OF HOUSTON LTD.
PARTNERSHIP, a Texas limited partnership
By: NIPSI of Houston, Inc., a Texas corporation,
its General Partner
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------------------
Xxxxxxx X. Xxxxxxxx, Senior Vice President
REHABILITATIVE ASSOCIATES, INC.,
a Florida corporation
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------------------
Xxxxxxx X. Xxxxxxxx, CEO
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LTC MEDICAL LABORATORIES, INC.,
a Delaware corporation
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------------------
Xxxxxxx X. Xxxxxxxx, Senior Vice President
CMS THERAPIES, INC.,
a North Carolina corporation
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------------------
Name:
Title: Chief Executive Officer
ADVANCED CLINICAL TECHNOLOGY, INC., an
Arizona corporation
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------------------
Xxxxxxx X. Xxxxxxxx, Senior Vice President
TEXAS HEALTH ENTERPRISES, INC.,
a Texas corporation
By: /s/ Xxxxx X. Xxxx
-----------------------------------------------
Xxxxx X. Xxxx, President
HEALTH ENTERPRISES OF OKLAHOMA, INC.,
an Oklahoma corporation
By: /s/ Xxxxx X. Xxxx
-----------------------------------------------
Xxxxx X. Xxxx, President
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HEALTH ENTERPRISES OF MICHIGAN, INC.,
a Michigan corporation
By: /s/ Xxxxx X. Xxxx
-----------------------------------------------
Xxxxx X. Xxxx, President
PCK-TEX, LTD., a Texas limited partnership
By: Texas Health Enterprises, Inc.,
a Texas corporation, General Partner
By: /s/ Xxxxx X. Xxxx
--------------------------------------
Xxxxx X. Xxxx, President
HEA MANAGEMENT GROUP, INC.,
a Texas corporation
By: /s/ Xxxxx X. Xxxx
-----------------------------------------------
Xxxxx X. Xxxx, President
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