UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTIONS 13 AND 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT
(DATE OF EARLIEST EVENT REPORTED): MAY 12, 1997
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HORIZON/CMS HEALTHCARE CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 1-9369 91-1346899
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation or org- Identification No.)
anization)
6001 INDIAN SCHOOL ROAD, N.E.
SUITE 530
ALBUQUERQUE, NEW MEXICO
(Address of principal
executive offices)
87110
(Zip Code)
ITEM 5. OTHER EVENTS
Horizon/CMS Healthcare Corporation ("Horizon/CMS") announced on May 12,
1997, that it had agreed to terminate certain agreements (the "Management
Agreements") between its wholly-owned subsidiary, Horizon Facilities Management,
Inc. ("HFM"), and Texas Health Enterprises, Inc. and certain of its affiliates
(collectively, the "HEA Group") and to restructure and forgive certain
indebtedness of the HEA Group. The HEA Group operates 126 nursing facilities in
Texas, Oklahoma and Michigan. Under the Management Agreements that were
originally effective January 1, 1996, HFM has provided management and
administrative services for such facilities and has provided a line of credit
facility (the "Credit Facility") for the benefit of such facilities. In
addition, certain other subsidiaries of Horizon/CMS have provided ancillary
medical, institutional pharmacy and therapy services to the HEA Group facilities
(the "Ancillary Services").
For the nine months ended February 28, 1997, management fees charged to
the HEA Group by HFM, net of direct expenses, totaled approximately $5.9
million, before income taxes. During this same period, revenues related to the
Ancillary Services provided to the HEA Group by Horizon/CMS and its subsidiaries
totaled approximately $24.5 million.
In March 1997, Horizon/CMS and a third party negotiated, subject to the
consent of the HEA Group, a sale of the stock of HFM and all of the trade debt
owing by the HEA Group to Horizon/CMS and its subsidiaries. At that time,
amounts owed by the HEA Group to Horizon/CMS for management fees, Ancillary
Services, and interest on advances made pursuant to the Credit Facility were
significantly in arrears. The HEA Group, when consulted in April 1997, refused
to consent to such a sale and asserted monetary claims, allegedly of substantial
value, against Horizon/CMS for the manner in which the indebtedness under the
Credit Facility was administered and the manner in which HFM provided management
and administrative services to the HEA Group facilities. Horizon/CMS disputed,
and continues to dispute, the claims made by the HEA Group. By the end of April
1997, amounts owed by the HEA Group to Horizon/CMS, including principal under
the Credit Facility of approximately $26.3 million, aggregated approximately
$61.3 million. After considering (i) the amounts owed by the HEA Group to
Horizon/CMS and its subsidiaries, (ii) the monetary and operational resources
required to provide continuing management services to HEA Group facilities in
light of the increasing uncertainties surrounding the ongoing operations of the
HEA Group facilities, (iii) the ability of the HEA Group facilities to repay the
amounts owing to Horizon/CMS and its subsidiaries, (iv) the ability of
Horizon/CMS and its subsidiaries to pursue the legal remedies available to them
under the Management Agreements and the Credit Facility and to realize on the
same, (v) the merits of the claims asserted by the HEA Group, (vi) the effect of
the foregoing on the patients residing in the HEA Group facilities, (vii)
Horizon/CMS's strategic objectives, and (viii) the pending merger transaction
with
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HEALTHSOUTH Corporation, Horizon/CMS determined in May 1997 that it was in the
best business interest of Horizon/CMS to terminate the Management Agreements, to
restructure certain trade indebtedness of the HEA Group to Horizon/CMS and its
subsidiaries, and to release the HEA Group from liability for amounts owing
under the Management Agreements and the Credit Facility. Although no claims have
been formally asserted by the HEA Group, the agreement with the HEA Group
includes a release of any potential claims the HEA Group may have relating to
services provided by HFM pursuant to the Management Agreements.
Effective upon the termination of the Management Agreements, the
relevant HEA Group entities assumed direct responsibility for all management
functions at the HEA Group facilities. Existing contracts for the provision by
Horizon/CMS subsidiaries of therapy services and institutional pharmacy services
to the HEA Group facilities will remain in effect through July 1, 1997 and
December 31, 1997, respectively. Pursuant to the agreement between the parties,
approximately $17.0 million in aggregate indebtedness for Ancillary Services
owed to Horizon/CMS and its subsidiaries will be converted to a secured
promissory note (the "Trade Note"). Monthly payments on the Trade Note will be
based upon a 30-year amortization schedule with the outstanding principal
balance and all accrued and unpaid interest being due and payable in five years.
The Trade Note will bear interest at 8.0% per annum with repayment being secured
by leasehold mortgages on 17 of the HEA Group facilities and a mortgage on one
owned HEA Group facility. In addition, Horizon/CMS and its subsidiaries will
release the HEA Group from liability for approximately $44.3 million in
management fees, principal and interest under the Credit Facility and
miscellaneous trade payables. A copy of the Compromise, Settlement, Release and
Termination Agreement is attached hereto as Exhibit 99.1 and incorporated herein
by reference.
Horizon/CMS currently anticipates that it will recognize a non-routine
charge of $46.0 million, pre-tax, or $0.56 per share, net of taxes, in its
fiscal quarter ending May 31, 1997 related to the release of liability described
above and the costs of severance and other restructuring measures affecting the
operations previously dedicated to providing management services to the HEA
Group facilities. Also, an additional charge may be required during the fourth
quarter of fiscal 1997 if Horizon/CMS's current efforts to determine the fair
value of the Trade Note indicate that the fair value is less than the face
amount of the Trade Note. The fair value of the Trade Note will be determined
based upon an evaluation of the HEA Group's ability to make scheduled payments
and the value of the underlying collateral.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS.
(c) Exhibits
99.1 Compromise, Settlement, Release and Termination
Agreement dated May 12, 1997 by and among
Horizon/CMS and its subsidiaries named therein and
the HEA Group.
99.2 Sixth Amendment dated as of May 9, 1997 to the
Amended and Restated Credit Agreement dated as of
September 26, 1995 by and among the Company, CMS,
the Lenders named therein and NationsBank of Texas,
N.A., as Agent and Issuing Bank.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Current Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
HORIZON/CMS HEALTHCARE CORPORATION
By: /s/ Scot Sauder
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Scot Sauder
Vice President of Legal Affairs, Secretary and
General Counsel
Date: May 27, 1997.