1993-026FILE REFERENCE FORM
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93-026
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Amended by Resolution No. R2006-029 08/07/06 J R
b\flow\escrowa.o
ORDINANCE NO.
AN ORDINANCE AUTHORIZING THE MAYOR TO EXECUTE AN ESCROW AGREEMENT
WITH FLOW REGIONAL MEDICAL CENTER, INC.; AND PROVIDING AN EFFECTIVE
DATE.
WHEREAS, the Order Confirming Plan of Liquidation of Flow
Regional Medical Center, Inc. (the Center), dated May 16, 1990 in
Case Number 88-42099 in the United States Bankruptcy Court for the
Eastern District of Texas, styled In Re: Flow Regional Medical
Center, Inc. provides for the City to have a continuing lien in
certain assets of the Center until January 1, 2008, or such time as
certain conditions have been fulfilled; and
WHEREAS, the Center and the City submitted to binding arbitra-
tion the question of whether the funds subject to the lien should
be deposited in an escrow account, and on December 17, 1991, the
arbitrator issued his findings, a copy of which is attached hereto
as Exhibit A, wherein he determined, among other findings, that the
parties should execute an escrow agreement to the Bankruptcy Court
for approval; NOW, THEREFORE,
THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS:
SECTION I. That the Mayor is hereby authorized to execute an
escrow agreement with Flow Regional Medical Center, Inc., a copy of
said agreement being attached hereto as Exhibit B and is incorpo-
rated by reference herein.
SECTION II. That the expenditure of funds to fulfill the
city's obligations pursuant to the Agreement are hereby authorized.
SECTION III. That Resolution No. 92-002, passed and approved
January 7, 1992, is hereby repealed in its entirety.
SECTION IV. That this ordinance shall become effective immedi-
ately upon its passage and approval.
PASSED AND APPROVED this the //p~day of , 1993.
K7
ATTEST:
JENN FEF
BY:
APP O EL
DEB A,
BY : tO
WALTERS, CITY SECRETARY
TO LEGAL FORM:
XOVITCH, CITY ATTORNEY
CASTLEBERRY,
EXHIBIT "A"
IN TILE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF TEXAS
SHERMAN D"IUN
IN RE: §
4
F'WW REGIONAL MEDICAL g CASE NO. 88.42099
CENTER, INC. 4 CHAPTER 11
3
DEBTOR.
DECISION BY ARDrrItATOR
Dill A Brister ("Arbitrator'), pursuant to order for arbitration signed hF
the Bankruptcy Judge on October 29, 1991 and pursuant to an Arbitration uh•
mission Agreement executed by the parties, Flow Regional Medicai Crater. Inc
("Debtur") anS the City of Denton, Texas ("City"), presided at arbitration pro-
ceedings on December 10. 1991. commencing at 9:00 a.m. The Citv and the
Debtor each appeared by their respective attorneys of record and announced their
agreement to develop the relevant Adence by affidavits of fact witnesses and
by introduction of pleadings and docv-renta. The Arbitrator, having received the
tendered exhibit,% and the tendered affidavits and having heard the argument of
counsel, makes the following decision concerning the submitted matters in c:onrrn-
versv between the City and the Debtor.
Flow Memorial Hospital was chartered and operated from September 1950
through January 14. 1988 as a city/county liuspital pursuant to Article 4494(1)-1.
vernon's Annotated Texas Ci••il Statutes. Flow Regional Medical Center, Inc.. a
not-fur-profit corporation and the Debtor in this tale, was created and com-
menced hospital operations on January 15. 1988. When the patient census did
not materially increase: to a point where operations would become profitable. the
trustees of the Debtur not-for-profit corporation voted to take those actions
DECISION BY ARBITRATOR - Page i s CG DEC 1 7 =
which might be required to close the facility. This bankruptcy case was ttlecl
on September 22. 1986. and operations continued under debtor-in-possession
Sale of the facility to Nuttimi Hospitals of Texas, Inc. was effected in July 1989
for the stated amount of $4,300.000, payable $2,$00,000 in cash and a promr-5ort
note for the $2.000,000 balance. payable in twenty (20) annual installments of
$100.000 each. commencing with the first annual installment on July 14. 1990
and continuing annually on that same date through July 14. 2009. The note
specifically provided that no interest shall be payable on the unpaid prrr,ctNal.
That note.- and its proceeds. is the principal mesa of the controversy between the
City and the Debtor.
On January 15, 1988. when the hospital operations passed to Flow Regional
Medical Center, that new not-for-profit corporation had executed and delivered to
the City a deed of trust and security agreements in and to the ltuspital land
and facilities as security for payment by Debtor of certain ubligativns to the
City and for payment by the Debtor of other obligations for which the City is
or might be contingently liable. The Debtor's conflrmed Plan provided for pay-
ment of all allowed claims of all parties including, without limitation, the utiltt.•
claims of the Citv of Denton and the third party claims which were specifically
allowed b.• the Court and for which the City could have been held contingently
liable. All of those claims were paid by the Debtor and the Plan thus was
substantially cnnnummoted.
There was a third category of claims for which the Debtor was or could
be contingently liable to the City. Debtor had agreed to indemnify the City
against env claims whatsoever which might be filed or made upon the City by
virtue of its relationship with the Debtor, pre-petition and post-petition. The
parties appearcd to have in inittd possible malpractice claims which might he
DECISION BY AR8113!&MR - Page 2
made by minors or others under a legal disability. The Debtor attemptec` i.-
provide insurance covera;e to the City to protect against such contingent claims.
Debtor's confirmed Plan provided that the City's lien shall continue to the Vebt•
or's assets until January 1, 2008, or until the Debtor provides insurance -f a
tYpc specified in the Flan. It stated further:
The above factual matters do not appear to be substantially in dispute
between the parties. The thrust of the controversy is concerned with the u*e or
attempted use by Debtor of some of the proceeds of tier $2.000.000 note.
Under its Restated Articles of Incorporation, it had provided, among other things.
that it would use the best or its ability to provide up to $25.000 annually- for
health care related scholarships. It contends first that notwithstanding the fact
that it had provided the City with a security agreement against all of its QrOD-
er+ies and further that its Plan had specifically recognized the City's perfected
liens. the C:itp had not in fact filed a financing statement or taken any other
overt acts to perfect its claimed lien. That lapse on the part of the City.
claims the Debtor, results in it having no lien against the proceeds of the note
whatsoever.
Alternatively, Debtor posits that there was no consideration for the
Restated and Amended Security Agreement (executed on February 19. 1986.
effective as of January 15, 1888) which, for the first time. wakes the require-
ment for procurement of insurance. Finally, it contends that notwithstanding the
DECISION BY AR.BrMATOR - Page 3
Until such time as the insurance is provided by the Debtor
and the Debtor has satisfied its indemnity obligations to the City of
Denton. the liens of the City of Denton shall remain in full force
and effect in and to all of the present assets of the Debtor. inciud-
fact that the $2.000.000 note
provides for no interest,
the Internal
Re.-,?nue
Service will impute interest to
the note and the City's
lien, If anY
it hay, is
limited to the note proceeds
after imputed interest
at 8% per
annurr. t~,
amortized.
Ench of those challenges advanced by the Debtor is rejected. The !an-
Quege in the confirmed Plan which was negotiated by the parties is clear and
unambnguou.. Under the Plan the liens of the City are in full force and effec-
tive agatnat all assets of the Debtor including specifically, but not limited to. all
of the pa.+ments under the $2.000,000 nute. As far as the City's lien is con-
cerned. it was intended to extend to the full payment as made each •:ear,
regardless of whether the Debtor attempts to characterize a portion of it as
"imputed interest" or not. The above cited provision in the Plan 'appears to
have been negotiated by the parties. long after the execution by the Debtor of
the Amended and Rebated Security Agreement. If any basis ever existed for
cliulietiging the consideration for the security agreement. it has been waived.
The Citv contends that if any additional perfection of its lien is required.
it can perfect only by possession of the monies as they come in on an annual
basis or by constructive possession of those monies. It has submitted a proposed
provision for an escrow arrangement. According to my understanding of the
statements made by each of the parties during the course of the arbitration
proceedings, they have agreed that the muuies shall be held by First State Bank
of Denton. Texas with the fees of the escrow holder to be paid by the City and
with the earnings on those monies to be used by the Debtor for lawful purposes.
with the corpus to be held intact until the contingencies purported to be
addressed by the confiried Plan have been met. In that event an escrow
DECISION BY ARBITRATOR - Bags 4
agreement approved by each party should be bubmitted to the Court for apps.wal
if the plan so provides for continuing oversight by the bankruptcy judge.
This Decision by Arbitrator is filed with the Court for Orders or other
action. if any. deemed appropriate.
SIGNED this 16th day of Decer
DRIS.'NaUi:-nseoo
DECISION BY ARSPIRATOR - Pace 5
C.
L
ESCROW AGREEMENT BY AND AMONG THE CITY OF DENTON, FLOW HEALTHCARE
FOUNDATION INC. AND FIRST STATE BANK OF TEXAS
This agreement is entered into by and among the City of Denton
("City"), Flow Healthcare Foundation, formerly known as Flow
Regional Medical Center, Inc. ("Flow"), and The First State Bank of
Texas ("Escrow Agent"), as follows:
WHEREAS, the City of Denton has a continuing lien in the
assets listed below by virtue of: that one certain Deed of Trust
dated January 15, 1988, executed by Flow for the benefit of the
City, which Deed of Trust is recorded in Volume 2309, Page 481 of
the official Real Property Records of Denton County, Texas; that
one certain Amended and Restated Security Agreement executed on the
19th day of February, 1988 by Flow in favor of the City; and that
one certain Plan of Liquidation, as amended, and as confirmed by
Order Confirming Plan of Liquidation of Flow Regional Medical
Center, Inc. (the "Plan"), dated May 16, 1990, in Case Number
88-42099 in the United States Bankruptcy Court for the Eastern
District of Texas, styled In Re: Flow Regional Medical Center.
Inc.; and
WHEREAS, the City is desirous of perfecting its lien in the
assets described below by placing the assets with the Escrow Agent
under the terms of this Agreement.
Escrow Agreement, Page 1
NOW, THEREFORE, it is agreed as follows:
1. The following assets are subject to the lien described
hereinabove and tendered to the Escrow Agent pursuant to the terms
of this Agreement, and shall be referred to as the "Escrowed
Funds":
A. That one certain promissory note in the original
principal sum of $2;0001000.00 executed by Notami
Hospitals of Texas, Inc. payable to Flow. The lien on
the Escrowed Funds described hereinabove includes all
future payments on the note and any other proceeds
derived therefrom. Flow agrees to immediately notify
Notami Hospitals of Texas, Inc., to make all future
payments on said note directly to the Escrow Agent.
B. $370,000.00 in cash or its equivalent, including, but not
limited to U. S. Government obligations.
2. The Escrow Agent will not release any or all of the
principal amount of the Escrowed Funds until and unless:
A. It is authorized to do so by a written document executed
by the then serving city Manager of the City, after being
duly authorized by the City Council, and the President of
Flow (or the President of any successor entity to Flow);
or
B. January 1, 2008, at which time it may release all or part
of the Escrowed Funds to Flow, upon such terms as Flow
Escrow Agreement, Page 2