in the united states bankruptcy court for the...

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF TEXAS

SHERMAN DIVISION

IN RE: GAINESVILLE HOSPITAL DISTRICT D/B/A NORTH TEXAS MEDICAL CENTER, DEBTOR.

§ § § § § § §

Case No. 17-40101 Chapter 9

DISCLOSURE STATEMENT FOR THE DEBTOR’S PLAN OF ADJUSTMENT UNDER CHAPTER 9 OF THE BANKRUPTCY CODE

Dated October 5, 2018 NORTON ROSE FULBRIGHT US LLP

William R. Greendyke Julie Goodrich Harrison 1301 McKinney, Suite 5100 Houston, Texas 77010-3095 Telephone: (713) 651-5151 Facsimile: (713) 651-5246 -and- Ryan E. Manns 2200 Ross Avenue, Suite 3600 Dallas, Texas 75201-7932 Telephone: (214) 855-8304 Facsimile: (214) 855-8200 Counsel for the Debtor

Case 17-40101 Doc 190 Filed 10/05/18 Entered 10/05/18 14:14:59 Desc Main Document of 41

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TABLE OF CONTENTS

I. THE CHAPTER 9 PROCEEDINGS ................................................................................. 1 A. Introduction ............................................................................................................ 1 B. Why You Have Received This Disclosure Statement ........................................... 1 C. Frequently Asked Questions .................................................................................. 1

II. PLAN OVERVIEW AND SUMMARY OF PROJECTED DISTRIBUTIONS ............... 2 III. HISTORICAL AND BACKGROUND INFORMATION FOR THE PLAN ................... 3

A. Business Overview................................................................................................. 3 B. Events Leading to the Debtor’s Restructuring ....................................................... 3

IV. SIGNIFICANT EVENTS DURING THE CHAPTER 9 CASE ....................................... 4 A. First Day Motions .................................................................................................. 4 B. The DIP Loan ......................................................................................................... 5 C. The Debtor’s Pension Liability .............................................................................. 5 D. The Debtor’s Medicare Obligation ........................................................................ 5 E. The Debtor’s OIG Obligation ................................................................................ 6 F. Management Services Agreement and Lease of the Hospital ............................... 7 G. Prepetition and Unpaid Postpetition Obligations ................................................... 7 H. The Bonds .............................................................................................................. 7 I. Bar Date ................................................................................................................. 8 J. Claim Objections ................................................................................................... 8 K. Patient Care Ombudsman ...................................................................................... 8 L. Other Accomplishments of the Hospital During the Case ..................................... 9 M. The Post-Petition Bond Issuances .......................................................................... 9 N. Property Taxation................................................................................................. 10 O. Development of the Debtor’s Business Plan ....................................................... 10

V. SUMMARY OF THE CLAIMS, CLASSIFICATION, AND TREATMENT UNDER THE PLAN........................................................................................................ 11 A. Introduction .......................................................................................................... 11 B. Classification, Treatment, and Voting Rights of Classified Claims .................... 11 C. Allowance and Treatment of Administrative Claims .......................................... 12

VI. VOTING PROCEDURES AND REQUIREMENTS ...................................................... 14 A. Ballots and Voting Deadline ................................................................................ 14


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B. Definition of Impairment/Unimpairment ............................................................. 14 C. Classes Unimpaired Under the Plan .................................................................... 15

VII. CONFIRMATION OF THE PLAN................................................................................. 15 A. Confirmation Hearing and Objection Deadline ................................................... 15 B. Requirements for Confirmation ........................................................................... 16

VIII. MEANS FOR IMPLEMENTATION OF THE PLAN .................................................... 18 A. Consent ................................................................................................................ 18 B. Conditions Precedent to the Effective Date ......................................................... 18 C. Means for Payment of Claims.............................................................................. 19 D. Continuation of Operations .................................................................................. 19 E. Bond Issuances to Effectuate Plan ....................................................................... 19 F. Retention of Property ........................................................................................... 20 G. Plan Administration ............................................................................................. 20

IX. LEGAL PROCEEDINGS AFFECTING THE DEBTOR ............................................... 21 A. Preservation of Rights of Action.......................................................................... 21 B. Litigation Pending as of the Petition Date ........................................................... 21

X. OTHER SIGNIFICANT PLAN PROVISIONS .............................................................. 21 A. Executory Contracts and Unexpired Leases ........................................................ 21 B. Distributions Under the Plan ................................................................................ 23 C. Claims Administration by the Debtor .................................................................. 24 D. Miscellaneous Provisions..................................................................................... 25 E. Effects of Confirmation of the Plan; Discharge; Injunction ................................ 27 F. Request for Waiver of Automatic Stay of Confirmation Order ........................... 30 G. No Diminution of State Power ............................................................................. 30 H. Retention of Jurisdiction ...................................................................................... 30

XI. COMPARISON OF PLAN TO ALTERNATIVES ........................................................ 32 A. Alternative Plan of Adjustment ........................................................................... 32 B. Dismissal .............................................................................................................. 32

XII. MATERIAL UNCERTAINTIES AND RISKS .............................................................. 32 XIII. CERTAIN TAX CONSEQUENCES OF THE PLAN .................................................... 33

A. Federal Income Tax Aspects of the Plan ............................................................. 33 B. Tax Withholding .................................................................................................. 33


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C. Disclaimers Regarding Matters of Taxation ........................................................ 33 XIV. CONCLUSION ................................................................................................................ 34


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DISCLOSURES AND DISCLAIMERS

THIS DISCLOSURE STATEMENT CONTAINS A SUMMARY OF MATERIAL PROVISIONS OF THE PLAN, INCLUDING TREATMENT OF CLAIMS, MEANS OF IMPLEMENTATION, CERTAIN FINANCIAL INFORMATION CONCERNING THE DEBTOR, AND CLAIMS ASSERTED AGAINST THE DEBTOR.

EXCEPT FOR THE INFORMATION IN THIS DISCLOSURE STATEMENT, NO REPRESENTATIONS HAVE BEEN AUTHORIZED ABOUT THE DEBTOR, ITS ASSETS, ITS LIABILITIES, PAST OR FUTURE OPERATIONS, TERMS OF THE PLAN, OR ALTERNATIVES TO THE PLAN. ANY UNAUTHORIZED SOLICITATION SHOULD BE REPORTED TO THE DEBTOR’S COUNSEL.

THE HISTORICAL AND CURRENT INFORMATION REGARDING THE DEBTOR’S ASSETS AND LIABILITIES AND INFORMATION REGARDING CLAIMS ASSERTED IN THE CASE HAVE BEEN DERIVED FROM NUMEROUS SOURCES INCLUDING, BUT NOT LIMITED TO, THE DEBTOR’S BOOKS AND RECORDS AND COURT RECORDS. ALTHOUGH THE DEBTOR REASONABLY BELIEVES THAT SUCH INFORMATION IS ACCURATE, COMPLETE, AND RELIABLE, THE DEBTOR AND ITS PROFESSIONALS HAVE NOT TAKEN ANY INDEPENDENT ACTION TO VERIFY THE ACCURACY, COMPLETENESS, OR RELIABILITY OF THE INFORMATION, AND THERE HAS BEEN NO INDEPENDENT VERIFICATION OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT. UNLESS OTHERWISE INDICATED, THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE OF FILING THIS DISCLOSURE STATEMENT.

THIS DISCLOSURE STATEMENT MAY NOT BE RELIED UPON FOR ANY PURPOSE EXCEPT TO DETERMINE HOW TO VOTE ON THE PLAN. THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE AN ADMISSION OF ANY FACT OR LIABILITY, STIPULATION OR WAIVER, BUT RATHER AS A STATEMENT MADE IN SETTLEMENT NEGOTIATIONS.

THE APPROVAL OF THIS DISCLOSURE STATEMENT BY THE BANKRUPTCY COURT DOES NOT CONSTITUTE AN ENDORSEMENT BY THE BANKRUPTCY COURT OF THE PLAN OR A GUARANTEE OF THE ACCURACY AND COMPLETENESS OF THE INFORMATION CONTAINED HEREIN.

THIS DISCLOSURE STATEMENT IS INFORMATIONAL ONLY. CREDITORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL, BUSINESS, FINANCIAL, OR TAX ADVICE. EACH CREDITOR SHOULD CONSULT WITH ITS OWN LEGAL, BUSINESS, FINANCIAL, AND TAX ADVISORS AS TO ANY QUESTION OR MATTER CONCERNING THE PLAN.


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I. THE CHAPTER 9 PROCEEDING

A. Introduction

On January 17, 2017 (the “Petition Date”)1, Gainesville Hospital District d/b/a North Texas Medical Center (the “Debtor” or “Hospital”) filed a voluntary petition for relief under Chapter 9 of Title 11 the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Texas, Sherman Division (the “Bankruptcy Court”), to initiate the bankruptcy case (the “Case”).

No other party has been authorized to provide or to utilize any information concerning the Debtor, its operations, or its assets and liabilities, other than the information contained in this Disclosure Statement.

B. Why You Have Received This Disclosure Statement

You have received this Disclosure Statement because you are a Creditor or party-in-interest of the Debtor.

The Bankruptcy Court has set the following important dates:

• The deadline for filing an objection to Confirmation of the Plan (the “Objection Deadline” is [November 1, 2018].

• The hearing to consider Confirmation of the Plan is scheduled for [November 15, 2018] before the Honorable Brenda T. Rhoades, Bankruptcy Judge, at the U.S. Bankruptcy Court, Eastern District of Texas in the U.S. Courthouse, 660 North Central Expressway, Suite 300B, Plano, Texas 75074.

C. Frequently Asked Questions

• What is Chapter 9?

Chapter 9 is the chapter of the Bankruptcy Code that enables a municipality such as the Debtor to file and confirm a plan of adjustment that will discharge (or relieve) its debt obligations. Because of the limits imposed by the Tenth Amendment to the United States Constitution and its reservation to the state of sovereignty over their own internal affairs, a bankruptcy court is limited in its ability to control the outcome of a municipal bankruptcy.

• Am I entitled to vote on the Plan?

For purposes of voting on the Plan, Creditors’ Claims are separated into three “Classes” of Claims based on the Claims’ similar legal characteristics. In most Chapter 9 cases, creditors vote

1 Capitalized terms used herein, if not separately defined, have the meanings assigned to them in the Plan, or if not defined in the Plan, in the Bankruptcy Code or the Bankruptcy Rules.


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by class. In this case, as explained more fully below, “unimpaired” creditor classes are “deemed to accept” the Plan and are therefore not entitled to vote. Therefore, if you hold an Allowed Claim in one or more of the Classes of the Plan, you may not vote on the Plan, but you may choose to object to the Plan.

• What would I recover as a creditor under the Plan?

Please refer to pages 11-14 of this Disclosure Statement for a summary of the treatment of Creditors under the Plan.

• Who do I contact to obtain copies of other documents related to the Plan?

Please contact counsel for the Debtor with any other questions. Documents that have been filed in the Case are available online at http://www.jndla.com/cases/GainesvilleHD and may also be obtained from the Bankruptcy Clerk’s Office.

• What do I do if I wish to object to confirmation of the Plan?

You must make any objection you have to confirmation of the Plan in writing and specify in detail your name and address, all the reasons for your objection, and the amount and nature of the Claim that you hold. You must then file your objection with the Bankruptcy Court and send copies to the Debtor and its counsel so that your objection is actually received by the Debtor on or before the Objection Deadline set forth on page 1 above.

II.

PLAN OVERVIEW AND SUMMARY OF PROJECTED DISTRIBUTIONS

The Plan is designed to accomplish two primary objectives: (1) the continued existence and operation of the Hospital in order to provide medical care and services to the residents of Cooke County, Texas, including its needy inhabitants, as is required by Article IX, Section 9 of the TEXAS CONSTITUTION, § 286.073 of the TEXAS HEALTH AND SAFETY CODE, and § 1077.101 of the SPECIAL DISTRICT LOCAL LAWS CODE; and (2) the satisfaction and discharge of Creditor Claims in accordance with the Plan and pursuant to Chapter 9 from available funds in excess of those funds needed for Hospital operations, necessary improvements, and maintenance of Hospital facilities, as well as from the generation of future revenues from its medical-services, and the proceeds of refunding bonds, as more fully described below. The Plan specifies the means for accomplishing these two objectives.

Focusing on Distributions to be made to Creditors under the Plan, the Plan divides Claims against the Debtor into three (3) separate Classes of Claims and then sets forth the treatment to be provided to each such Class under the Plan, as discussed in greater detail in later sections of this Disclosure Statement and in the Plan Summary. As required under the Bankruptcy Code, each Class contains Claims that are substantially similar to one another. The Debtor’s estimate of Distributions to the Holders of Allowed Claims in each Class of Claims follows:


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Claim Type or Class Recovery Class 1 –Administrative Claims Paid in Full

Class 2 –Secured Claims Paid in Full

Class 3 –General Unsecured Claims Paid in Full

III. HISTORICAL AND BACKGROUND INFORMATION FOR THE PLAN

A. Business Overview

The Debtor is a rural hospital district doing business as North Texas Medical Center. Its Hospital is located in Gainesville, Texas. The Debtor provides acute medical care, outpatient services, rehabilitation services, a swing-bed program and clinic services for the citizens of Gainesville, Cooke County and nearby areas. The Hospital is licensed for 60 beds, and the Debtor has approximately 286 employees (including employees serving on an as-needed basis), making it the sixth largest employer in Cooke County.

The Hospital provides and has always provided an excellent level of care for its patients.

The Hospital is licensed and subject to strict oversight by the State of Texas, through the Texas Department of State Health Services. As part of the licensing procedure, the Hospital is subject to stringent guidelines, strict oversight, and frequent inspections.

B. Events Leading to the Debtor’s Restructuring

Although the Debtor has always been committed to providing the highest level of patient care for the citizens of Cooke County and the surrounding areas, prior to the filing of the Case, the Debtor encountered serious financial difficulties to the point where it was unable to meet payroll and continue its operation of the Hospital. For several months prior to the filing of the Case, the Debtor investigated its options to restructure its obligations in an attempt to avoid closing the Hospital. The Debtor determined that it should lease the hospital facilities to a private operator in order to begin a process to resolve its financial difficulties and remain in operation since it is the only acute care hospital in Gainesville, Texas. The Debtor had past due expenses that had to be paid in order to remain in operation. The Debtor also had obligations that had to be funded in order to consummate the lease of the Hospital to the private operator.

Over the days and weeks prior to the filing of the Chapter 9 petition, the Debtor was not generally paying its debts as they became due because it did not have the financial ability to do so. Because of the Debtor’s critical liquidity issues and due to the number and disparate interests of the general unsecured creditors, the Debtor determined that it was impracticable to attempt to negotiate debt adjustments or reductions with the body of general unsecured creditors. Consequently, the filing of the Case was necessary to maintain the Debtor’s operations. The commencement of this Case provided the Debtor with much-needed breathing space and economic stability to negotiate and confirm a plan of adjustment for its past debts and alleged liabilities. Through Chapter 9, the Debtor has been able to focus its efforts and resources in an effort to ensure


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that the Hospital is financially sound – allowing it to continue to provide the highest quality patient and medical care for the town and surrounding area.

In furtherance of the Debtor’s efforts to both stabilize and improve its performance, the Debtor and Universal Health Services, Inc. (“UHS”), one of the largest hospital management companies in the country, engaged in good-faith negotiations centered around the Debtor potentially leasing the Hospital to UHS. The proposed arrangement contemplated UHS assuming responsibility for the continued operations of the Hospital and all operation and maintenance costs to provide medical care to the Hospital’s residents, including the needy.

The Debtor and UHS also engaged in extensive negotiations regarding the terms of a commitment letter to secure postpetition financing for the Debtor. Those negotiations, which were conducted at arm’s length, resulted in a commitment from UHS for a postpetition financing facility on an interim and final basis (inclusive of amounts advanced on an interim basis) (the “DIP Loan”).

IV. SIGNIFICANT EVENTS DURING THE CHAPTER 9 CASE

During the course of the Case, the Debtor has filed a variety of pleadings with the Bankruptcy Court, and a number of hearings have been conducted. Additionally, because in Chapter 9 municipalities continue to operate in many ways without court oversight, the Debtor has also achieved some significant goals outside the court proceedings. The following is a description of the most significant events that have occurred during the pendency of the Case.

A. First Day Motions

The Debtor filed, and the Bankruptcy Court approved, the following first day motions:

Date of Motion Motion/Relief Requested Dkt. No. of Order Granting Motion

1/17/17 Debtor’s Emergency Motion for an Order

Approving Notice Procedures and Limiting Publication [Dkt. No. 2]

21

1/17/17 Emergency Motion for Order Expressly Authorizing Disclosure of Certain Limited Information Related to Patient Creditors [Dkt. No. 3]

20

1/17/17 Debtor’s Emergency Motion for Approval of Agreement for Post-Petition Secured Credit (“DIP Loan”) [Dkt. No. 4]

32; 56

1/17/17 Emergency Motion for Order Authorizing Debtor to (A) Pay Prepetition Wages and Salaries to Employees and Independent Contractors, (B) Pay Prepetition Benefits and Continue Benefit

19


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Programs, and (C) Pay Prepetition Insurance Premiums [Dkt No. 5]

1/17/17 Emergency Motion for Interim and Final Orders Providing Adequate Assurance of Utility Payments [Dkt. No. 6]

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B. The DIP Loan

As mentioned above, on January 24, 2017, the Court entered an Interim Order Granting Approval of Agreement for Postpetition Secured Credit and Scheduling Final Hearing (the “Interim DIP Order”) [Dkt. No. 32] and on February 15, 2017, the Court entered a Final Order Granting Approval of Agreement for Postpetition Secured Credit and Scheduling Final Hearing (the “Final DIP Order”) [Dkt. No. 56]. In the Final DIP Order, the Court authorized and directed the District to incur the DIP Loan from UHS in the maximum amount of $3,200,000. The District was authorized to use the DIP Loan to (i) fund its operations until UHS leased the Hospital and began operations of the Hospital in a manner consistent with the initial estimated budget attached as an exhibit to the Final DIP Order and subsequent budgets as agreed between the parties; and (ii) pay fees and expenses related to the DIP Loan and the District’s bankruptcy case (collectively, the “Budgeted Expenses”). The Budgeted Expenses included salaries, employee benefits, supplies, contracted services, payments to physicians, legal and professional services, maintenance and repair costs, telephone and utilities expenses, insurance, education and training, travel expenses, and other operating expenses.

C. The Debtor’s Pension Liability

In addition to the DIP Loan liability described above, the Debtor operated a defined benefit pension plan for current and retired employees administered by the Texas Hospital Association. As of the date of filing of the Case, the Debtor’s pension plan was currently not fully funded. As a requirement by UHS to agree to lease the Hospital from the Debtor and to purchase certain of the Debtor’s assets, the Debtor was obligated prior to commencement of any Lease to fund its legally determined pension liability (the “Pension Liability”). The Debtor determined, in its business judgment, to terminate the pension plan and to fund such termination obligations through the issuance of refunding bonds.

D. The Debtor’s Medicare Obligation

Additionally, the Debtor filed notice with the Office of Inspector General for the United States Department of Health and Human Services (the “OIG”) that it made a reporting error with respect to certain services for which it received approximately $1,117,000 in Medicare funds. Qualified medical services were provided, but due to the reporting error, the Debtor arguably was required to reimburse OIG the Medicare funds and in addition, because of the error, may have been required to pay a penalty of up to three times the amount of the reimbursement, or approximately $3,351,000 (the “Medicare Obligation”). While the Debtor believed and asserted that no reimbursement was due, Medicare rules provide that any liability for a reporting error of this nature would be a liability of the Hospital; therefore, the Debtor would be required to assume


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and satisfy the Medicare Obligation in the event the OIG required that the Debtor reimburse the Medicare funds and/or assess a penalty as a result of the reporting error. In late June of 2018, the Debtor was made aware of the ultimate amount of the Medicare Obligation and the amount was much less than had been anticipated. Consequently, in the Debtor’s business judgment, it was not necessary for Bonds to be issued to repay the Medicare Obligation.

E. The Debtor’s OIG Obligation

The Debtor also received a Request for Information or Assistance, dated September 22, 2016, from the OIG, requesting documents related to payments made to a particular physician for services performed within the District’s facilities. On March 1, 2017, the Debtor received a supplemental Request for Information or Assistance from the OIG, clarifying the request to include documents and communications in possession of the Debtor related to physician payments made by third parties. The Debtor undertook a detailed review of physician payment arrangements that could have been the subject of inquiry. Under law, the OIG could have imposed penalties (similar to the Medicare Obligation) of a multiple of federal payer funds received by the Debtor and/or per-claim penalties. Discussions between the Debtor and the OIG continued for many months, with the Debtor cooperating fully with OIG’s requests to provide documents in response to these requests. In mid-2017, the Debtor estimated that the liability associated with this investigation could potentially be in an amount not to exceed $5,000,000 (the “OIG Obligation”).

In connection with the OIG Obligation, the Debtor and the United States of America, acting through the United State Department of Justice and on behalf of the OIG, entered into a settlement agreement, pursuant to which the Debtor agreed to pay to the OIG $1,320,000 in exchange for the OIG’s release of any civil or administrative monetary claims against the Debtor under the federal False Claims Act, 42 U.S.C. §§ 3729-3733; the Civil Monetary Penalties Law, 42 U.S.C. § 1320a-7a; the Program Fraud Civil Remedies Act, 31 U.S.C. §§ 3801-3812; or the common law theories of payment by mistake, unjust enrichment, and fraud.

As described in subsections H and M herein, the Court authorized the Debtor’s payment of the OIG Obligation by means of the issuance of refunding bonds pursuant to the Third Series Stipulation.

F. Management Services Agreement and Lease of the Hospital

Effective January 20, 2017, the Debtor entered into a Management Agreement with McAllen Medical Center Physicians, Inc., a Texas nonprofit corporation (and an affiliate of UHS, and collectively with Texoma Medical Center, another UHS affiliate, “UHS”) to manage, operate and supervise the Hospital and assist the Debtor in providing medical and hospital care for the Debtor’s needy inhabitants in a manner consistent with the Debtor’s constitutional and statutory responsibilities. The Management Agreement was structured as a temporary measure to allow uninterrupted operation of the Hospital until the Debtor’s proposed lease with UHS could commence.

The lease of the Hospital to UHS was proposed to be in consideration for UHS’s paying all taxes, costs and expenses of the ownership, operation, maintenance, repair, use and occupation


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of the Hospital as well as an annual rent of approximately $500,000, payable to the Debtor in monthly installments.

The Debtor also proposed to enter into an Asset Purchase Agreement with UHS, concurrent with the long-term lease, for the transfer of certain of the Debtor’s “soft” assets to UHS, including the Debtor’s goodwill, telephone numbers, intellectual property, books, financial records, medical and other patient records (to the extent permitted by law), provider numbers, permits and licenses, but excluding cash, cash equivalents, short-term investments, accounts receivable, deferred compensation assets, all trust and other restricted funds and working capital assets, including supplies and inventory as necessary for UHS’s continued operation of the Hospital.

G. Prepetition and Unpaid Postpetition Obligations

Both prior to and following the date of the commencement of the Case, the Debtor incurred various obligations and unsecured trade debts in order to operate and maintain the Hospital. The Debtor, in its business judgment, determined to pay, in full and as may be allowed by agreement and or by Court order, such unpaid prepetition and postpetition obligations including (1) trade debt, (2) costs of the Debtor related to (i) the bankruptcy proceeding, and (ii) the validation suit proceedings described below, (3) any unpaid issuance costs of bonds refunding other obligations not paid by other means, and (4) any Uncompensated Care reimbursement liability of the Debtor to the State of Texas, acting through the Health and Human Services Commission (“HHSC”) (collectively, “Prepetition and Unpaid Postpetition Obligations”).

As described in subsections G and L herein, the Court authorized Debtor’s payment of the Prepetition and Unpaid Postpetition Obligations by means of the issuance of refunding bonds pursuant to the Third Series Stipulation.

H. The Bonds

Finally, the Debtor proposed to issue limited tax general obligation refunding bonds (the “Bonds”) to refinance the Debtor’s outstanding liabilities described above. The Debtor intended that the Bonds be secured by the levy and collection of ad valorem taxes, within the limits prescribed by law, as authorized by the Texas Constitution, Chapter 1207 and the Enabling Legislation. The Debtor authorized the issuance of the Bonds by adopting bond orders, including supplements thereto, and executing a pricing certificate in connection therewith, for each of three series of Bonds (collectively, the “Bond Orders”), which created the Bonds, set the terms of the Bonds, created the pledge of ad valorem taxes securing the payment of debt service, within the limits prescribed by law, and authorized all other matters and agreements necessary for the creation and issuance of the Bonds.

I. Bar Date

The Bankruptcy Court set the following deadline by which Claims must have been filed in the Case:


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Type of Claim Bar Date Applicable Pleadings All Claims May 17, 2017 (the

“Claims Bar Date”) Order Upon Commencement of Chapter 9 Case Establishing Certain Deadlines and Notice of Commencement of Case, of the Automatic Stay and of the Order for Relief [Dkt. No. 18]

J. Claim Objections

Throughout the course of the Case, the Debtor has resolved a number of claims informally and/or formally through a claim objection process.

The Plan defines “Claim Objection Deadline” to mean the later of (a) the first Business Day that is at least six (6) months after the Effective Date, and (b) any subsequent date agreed to by the Debtor and the Holder of a Claim or established by the Bankruptcy Court after notice and a hearing. If the Debtor determines additional objections to any Claims, it must file them by such deadline.

K. Patient Care Ombudsman

On February 16, 2017, the Bankruptcy Court entered its Order Authorizing Appointment of Patient Care Ombudsman Pursuant to 11 U.S.C. § 333(a)(1) Dkt. No. 60 (the “Ombudsman Order”). In accordance with the Ombudsman Order, on February 23, 2017, the United States Trustee appointed Susan Goodman of Tucson, Arizona as the Patient Care Ombudsman in this Case. Dkt. No. 65. The Ombudsman Order provided that the Patient Care Ombudsman would file and provide periodic sworn reports in an established form to the Office of the United States Trustee, the Office of the Texas Attorney General, and the Texas Department of State Health Services.

In accordance with the Ombudsman Order, the Patient Care Ombudsman has filed and provided nine such reports as the date of the filing of this Disclosure Statement. See Dkt. Nos. 88, 120, 126, 134, 142, 159, 165, 175, 182 and 189. All such reports during the Case have been positive and have demonstrated that the Debtor has been providing excellent healthcare services and continually striving to make improvements to the Hospital’s operations and facilities.

L. Other Accomplishments of the Hospital During the Case

The Debtor filed its bond validation suit (the “Validation Petition”) in the form of an adversary proceeding entitled the Original Complaint/Petition for Expedited Declaratory Judgment, Adv. Case No. 17-04072, Dkt. No. 1, on July 28, 2017 (the “Validation Petition Date”) in the Bankruptcy Court.

The Validation Petition sought to establish and validate the Debtor’s authority to issue limited tax general obligation refunding bonds, from time to time in one or more series as may be necessary, pursuant to Chapter 1207 of the Texas Government Code, to restructure and refinance


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the Debtor’s general or special obligations identified in the Validation Petition (the “Validated Obligations”).

After a hearing on the Validation Petition on August 21, 2017, the Court entered the Declaratory Judgment (the “Judgment”), in Adv. Case No. 17-04072, Dkt. No. 22, on August 22, 2017, authorizing the Debtor to immediately issue Bonds to restructure and refinance the Debtor’s Validated Obligations in the not to exceed amounts set forth in the Judgment. Additionally, the Judgment provided, in pertinent part:

(hhh) Upon a satisfactory showing to this Court that the amounts the District is obligated to pay in satisfaction of one or more of the Obligations which, in whole or in part, do not qualify for immediate refunding at the time this Court signs its final judgment prayed for herein, are at that time (1) due and owing in the amounts submitted, (2) sufficiently definite to qualify for refunding under the Refunding Law, and (3) that such amounts do not exceed the “not to exceed” amounts set forth in the Petition, such amounts, by a signed and entered order of this Court, will be deemed legally binding, incontestable liabilities of the District, the District may issue Bonds that meet the requirements of the parameters heretofore established).

M. The Post-Petition Bond Issuances

On March 29, 2017, the Debtor filed the Agreed Emergency Motion for Approval of Stipulation and Agreed Order Between the Debtor, the Texas Attorney General’s Office, and UHS of Delaware, Inc. (“Remedial Action Stipulation”), Dkt. No. 99.

On April 5, 2017, the Court entered an order approving the Stipulation and Agreed Order Between Debtor, the Texas Attorney General’s Office, and UHS of Delaware, Inc, Dkt. No. 103. In connection with the Remedial Action Stipulation, the Debtor issued its Limited Tax Refunding Bonds, Taxable Series 2017, issued on April 20, 2017, in the amount of $18,610,000.00 to fund an irrevocable escrow to pay and redeem the Debtor’s outstanding General Obligation Refunding Bonds, Series 2007.

On October 23, 2017, the Debtor filed the Unopposed Motion for Approval of Stipulation and Agreed Order between the Debtor, the Texas Attorney General’s Office, and UHS of Delaware, Inc. (the “First Series Stipulation”), Dkt. No. 136.

On October 27, 2017, the Court entered an order approving the First Series Stipulation. In connection with the First Series Stipulation, the Debtor issued its Limited Tax Refunding Bonds, Taxable Series 2017A on November 20, 2017 in the amount of $3,830,000 to satisfy fees and expenses associated with its DIP Loan Liability in the amount of $3,600,000 and Prepetition and Unpaid Postpetition Obligations in the amount of $230,000.

On November 28, 2017, the Debtor filed the Stipulation and Agreed Order between the Debtor and the Texas Attorney General’s Office (the “Second Series Stipulation”) [Dkt No. 146], as amended on December 5, 2017, Dkt. No. 152.


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On December 6, 2017, the Court entered an order approving the Second Series Stipulation. In connection with the Second Series Stipulation, the Debtor issued its Limited Tax Refunding Bonds, Taxable Series 2017B on December 22, 2017 in the amount of $14,210,000 to satisfy fees and expenses associated with Pension Liability in the amount of $12,425,000 and Prepetition and Unpaid Postpetition Obligations in the amount of $1,785,000.

On July 11, 2018, the Debtor filed the Stipulation and Agreed Order between the Debtor and the Texas Attorney General’s Office (the “Third Series Stipulation”), Dkt. No. 177.

On July 19, 2018, the Court entered an Order approving the Third Series Stipulation. In connection with the Third Series Stipulation, the Debtor issued its Limited Tax Refunding Bonds, Taxable Series 2018 on August 10, 2018 in the amount of $3,465,000 to satisfy the OIG Obligation in the amount of $1,610,000 and Prepetition and Unpaid Postpetition Obligations in the amount of $1,855,000.

N. Property Taxation

As a political subdivision of the State of Texas, the Debtor has the power to tax properties situated within its boundaries, and it does so each year. Property tax revenues are a function of each year’s assessed valuations of the separate tracts, improvements, and other items of property and the tax rate applied to such valuations. The Cooke County Appraisal District sets and determines the property valuations each year; the Debtor has a contract with the Appraisal District to utilize such valuations. The District’s Board of Directors establishes the tax rate each calendar year. In 2016, the Debtor utilized the effective tax rate of 0.119 ($3,087,381). In 2017, Debtor authorized a rate of 0.1113 ($3,173,354), and in 2018 the authorized rate is $0.1691. It has been and is the political judgment and governmental decision of the leadership of the Debtor that the properties of the citizens and taxpayers within the District can bear the imposition of a higher tax rate due to the economic conditions that exist within the District and due to the political and electoral sentiments of the taxpayers.

O. Development of the Debtor’s Business Plan

On January 20, 2017, the Debtor entered into a Management Agreement with UHS. For over a year following the commencement of the Case, UHS continued to provide high-quality leadership and operational support to the Hospital. In the spring of 2018, however, UHS provided notice to the Debtor of its intent to terminate the Management Agreement, In doing so, UHS declined its opportunity to enter into a long-term lease of the Debtor’s hospital facilities. Consequently, in early April of 2018, the Gainesville Hospital District Board of Directors voted unanimously in favor of a new management agreement with Community Hospital Consulting (“CHC Consulting”), the management and consulting arm of Community Hospital Corporation (“CHC”). Management services by CHC Consulting commenced on May 1, 2018. The agreement consists of a five-year management term, with the potential to either extend same or to evolve the relationship into a long-term lease as was originally contemplated with respect to UHS.


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V. SUMMARY OF THE CLAIMS, CLASSIFICATION,

AND TREATMENT UNDER THE PLAN

A. Introduction

The following summary of the principal provisions of the Plan relating to the treatment of Classes of Claims is qualified in its entirety by the Plan itself, which is controlling in the event of any conflict. Only Allowed Claims shall participate in the Distributions under the Plan.

B. Classification, Treatment, and Voting Rights of Classified Claims

The Plan provides for the division of Claims against the Debtor into three Classes:

Class Class Description Status Voting Rights Class 1 Administrative Claims Unimpaired Deemed to accept Class 2 Secured Claims Unimpaired Deemed to accept Class 3 General Unsecured Claims Unimpaired Deemed to accept

Such claims shall be treated as follows:

(a) Class 1 —Administrative Claims

Classification. Class 1 consists of all Administrative Claims against the Debtor.

Treatment. Except to the extent that the Holder of an Administrative Claim and the Debtor agree to different treatment, as soon as reasonably practicable after an Administrative Claim becomes Allowed, each Holder of an Allowed Administrative Claim shall either (a) be paid in full in Cash in the ordinary course of business or (b) receive such other treatment rendering such Claim Unimpaired.

Voting. Class 1 Claims are Unimpaired under the Plan, and each Holder of an Administrative Claim is deemed to accept the Plan.

(b) Class 2 — Secured Claims

Classification. Class 2 consists of all Secured Claims against the Debtor.

Treatment. Except to the extent that the Holder of a Secured Claim and the Debtor agree to different treatment, as soon as reasonably practicable after a Secured Claim becomes Allowed, each Holder of an Allowed Secured Claim shall either (a) be paid in full in Cash in the ordinary course of business or (b) receive such other treatment rendering such Claim Unimpaired.


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Voting. Class 2 Claims are Unimpaired under the Plan, and each Holder of a Secured Claim is deemed to accept the Plan.

(c) Class 3 — General Unsecured Claims

Classification. Class 3 consists of all General Unsecured Claims against the Debtor.

Treatment. Except to the extent that the Holder of an Allowed General Unsecured Claim and the Debtor agree to different treatment, as soon as reasonably practicable after a General Unsecured Claim becomes Allowed, each Holder of an Allowed General Unsecured Claim shall either (a) be paid in full in Cash upon the Effective Date to the extent any such Claims have not been paid in full prior to confirmation of the Plan or (b) receive such other treatment rendering such Claim Unimpaired.

Voting. Class 3 Claims are Unimpaired under the Plan, and each Holder of a General Unsecured Claim is deemed to accept the Plan.

C. Allowance and Treatment of Administrative Claims

1. Treatment of Administrative Claims. Except as otherwise provided herein, the Holder of an Allowed Administrative Claim, in full satisfaction and discharge of, and in exchange for such Claim, shall, to the extent not already paid during the pendency of the Case, (a) be paid by the Disbursing Agent the full amount of such Allowed Administrative Claim, without interest, on or before the later of (i) the Effective Date of the Plan or (ii) ten (10) Business Days after the date such Claim is Allowed by Final Order or (b) receive such other less favorable treatment as may be agreed upon in writing by such Holder and the Debtor. Notwithstanding the foregoing, any Administrative Claim based upon liability incurred by the Debtor in the ordinary course of business during the Case may be paid by the Debtor under its authority preserved by Bankruptcy Code §§ 903 and 904 in the ordinary course of business, in accordance with the terms and conditions of any agreement related thereto or upon such other terms as may be agreed upon between the Holder of such Claim and the Debtor, without application by or on behalf of such parties to the Bankruptcy Court, and without notice and a hearing, unless specifically required by the Bankruptcy Court.

2. Allowance of Administrative Claims. Each Holder of an Administrative Claim (other than any Administrative Claims that have been paid in the ordinary course of business, Claims, Cure Amounts, or Professional Fees) shall File with the Bankruptcy Court, and serve upon all parties required to receive notice, a motion explaining the factual and legal bases for and requesting allowance of such Administrative Claim on or before the Administrative Claims Bar Date. The failure to timely File such a motion will result in such Administrative Claim being forever barred and discharged without any further order of the Bankruptcy Court being required. The Debtor or other party in interest may file an objection to such motion for allowance of any Administrative Claims within sixty (60) calendar days after the expiration of the Administrative Claims Bar Date, unless such time period for filing any such objection is extended by the Bankruptcy Court. Any such Administrative Claim shall only be an Allowed Administrative Claim


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upon entry of, and to the extent granted by, a Final Order by the Bankruptcy Court finding that such asserted Administrative Claim is an Allowed Claim.

3. Cure Payments Owed Pursuant to § 1123(d)

Cure Claims shall be Allowed and paid in accordance with the procedures set forth in Article X of the Plan. The Debtor anticipates and estimates approximately $-0- of Cure Claims to be paid on the Effective Date.

4. Disclosure of the Debtor’s Professional Fees

Pursuant to Bankruptcy Code § 943(b)(3), all amounts paid or to be paid for professional services or expenses in the Case or incident to the Plan must be fully disclosed to the Bankruptcy Court and must be reasonable. By this “Professional Fee Disclosure” in this Disclosure Statement, the Debtor hereby discloses such amounts to the Court for determination as to their reasonableness as required by Bankruptcy Code § 943(b)(3).

The professionals the Debtor has retained for services “in the case or incident to the plan” for purposes of § 943(b)(3) are: Norton Rose Fulbright US LLP (“NRF”); Reed, Claymon, Meeker & Hargett, PLLC; McCall, Parkhurst & Horton LLP; and Hilltop Securities, Inc. (“Hilltop”)

The Debtor has paid most of NRF’s fees and expense from proceeds of the various bond issuances throughout the Case. The Debtor has paid the remainder of NRF’s fees in the ordinary course. Paid invoices of NRF from the retention date of December 2, 2016 through and including August 31, 2018 for services rendered in this Case total $1,270,021.11 in fees and $92,513.34 in expenses. The foregoing total encompasses NRF’s services rendered in connection with compliance issues and settlement negotiations with the Department of Justice, the bond validation suit and restructuring advice. As of September 30, 2018, NRF has $34,178.49 in unpaid fees and unreimbursed expenses for services rendered to the Debtor in the Case. The foregoing fees incorporate a 15% discount that NRF afforded the Debtor for services rendered throughout the Case. Savings to the Debtor on account of NRF’s rate exceed $225,000. In light of the complicated public finance, compliance, restructuring and litigation issues involved in the Case, combined with the successful negotiations with the various creditors, NRF submits that all of its Professional Fees as disclosed herein are reasonable and should be approved by the Court.

Hilltop has served as the Debtor’s financial advisor throughout the duration of the Case. Among other things, Hilltop was retained by the Debtor to advise it on strategic partnerships. The Debtor has paid Hilltop’s fees and expenses from the proceeds of the various bond issuances. Paid invoices to Hilltop from January 2017 through September 30, 2018 amount to $444,301.36. As of September 30, 2018, Hilltop dos not have any outstanding invoices for unpaid fees and/or unreimbursed expenses for services rendered to the Debtor in the Case. In light of the complexity of the Debtor’s restructuring, Hilltop submits that all of its Professional Fees as disclosed herein are reasonable and should be approved by the Court.

In the Confirmation Order, or by prior separate orders, the Court has been and may be requested to determine the reasonableness of the amounts incurred, paid to, and owed to various professionals for professional services in the Case or incident to the Plan. Any unpaid amounts


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owed to these professionals and approved as reasonable by the Bankruptcy Court by such order may be paid by the Debtor on or as soon as reasonably practicable following the date on which the Bankruptcy Court enters an order determining reasonableness or at such other time as may be agreed upon in writing by such professional and the Debtor.

After the Effective Date, the Debtor, in the ordinary course of its business, may continue to pay for professional services rendered and expenses.

5. Medicare and Medicaid Claims and Related Processes

During the pendency of the Case, the Debtor has continued its relationship with its Medicare Administrative Contractor (Novitas Solutions, Inc.), the paying agency responsible for administration of the Medicare program in which the Debtor is enrolled and in which it participates. The Debtor has also continued its relationship with the Texas Medicaid and Healthcare Partnership, the paying agency responsible for administration of the Medicaid program in which the Debtor is enrolled and in which it participates. Recognizing the rights of recoupment available to such parties, the Debtor has continued to submit its cost reports and to undergo reconciliation thereof with such agencies in the normal course. For the sake of clarity: the Plan is intended to continue the Debtor’s relationships with such agencies, and nothing in the Plan shall be construed to alter or affect such relationships or any claim arising from such relationships, past, present, or future.

VI. VOTING PROCEDURES AND REQUIREMENTS

A. Ballots and Voting Deadline

Because all of the Classes of Claims in this Case are all Unimpaired, there will be no Ballots and no Voting Deadline.

B. Definition of Impairment/Unimpairment

Pursuant to § 1124 of the Bankruptcy Code, except to the extent that the Holder of a particular Claim within a Class agrees to less favorable treatment of the Holder’s Claim, a Class of Claims is impaired if the Plan does at least one of the following two things:

1. The Plan alters the legal, equitable, and contractual rights to which such Claim entitles the Holder of such Claim; or

2. Notwithstanding any contractual provision or applicable law that entitles the holder of such claim or interest to demand or receive accelerated payment of such claim or interest after the occurrence of a default:

(a) cures any such default that occurred before or after the commencement of the case under this title, other than a default of a kind specified in section 365(b)(2) of this title or of a kind that section 365(b)(2) expressly does not require to be cured;


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(b) reinstates the maturity of such claim or interest as such maturity existed before such default;

(c) compensates the holder of such claim or interest for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such applicable law;

(d) if such claim or such interest arises from any failure to perform a nonmonetary obligation, other than a default arising from failure to operate a nonresidential real property lease subject to section 365(b)(1)(A), compensates the holder of such claim or such interest (other than the debtor or an insider) for any actual pecuniary loss incurred by such holder as a result of such failure; and

(e) does not otherwise alter the legal, equitable, or contractual rights to which such claim or interest entitles the holder of such claim or interest.

If a Class of Claims is not impaired pursuant to § 1124 of the Bankruptcy Code, such Class of Claims is Unimpaired.

C. Classes Unimpaired Under the Plan

Classes 1, 2, and 3 are Unimpaired under the Plan. Accordingly, Classes 1, 2, and 3 are deemed to accept the Plan.

VII. CONFIRMATION OF THE PLAN

A. Confirmation Hearing and Objection Deadline

Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a hearing on Confirmation of the Plan (the “Confirmation Hearing”). Section 1128(b) of the Bankruptcy Code provides that any party in interest may object to Confirmation of the Plan.

The Confirmation Hearing has been scheduled for November 15, 2018, at 10:00 a.m., in the U.S. Bankruptcy Court, Courtroom of the Honorable Brenda T. Rhoades.

Any objection to the Plan or Confirmation of the Plan must be made in writing, and such written objection must be Filed with the Bankruptcy Court and served by overnight delivery, fax, or email to the Debtor and its counsel so as to be actually received on or before 4:00 p.m., central standard time, on November 1, 2018.

The Debtor:

Gainesville Hospital District d/b/a North Texas Medical Center Attn: Ms. Christy Daughtry 1900 Hospital Blvd.


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Gainesville, Texas 76240 (940) 665-1751

Counsel for the Debtor:

Ryan E. Manns Norton Rose Fulbright US LLP| 2200 Ross Avenue, Suite 3600 Dallas, Texas 75201-7932 [email protected]

and

William R. Greendyke Julie Goodrich Harrison Norton Rose Fulbright US LLP 1301 McKinney Street, Suite 5100 Houston, Texas 77010-3095 [email protected]

UNLESS A WRITTEN OBJECTION TO CONFIRMATION IS TIMELY FILED AND SERVED, IT MAY NOT BE CONSIDERED BY THE BANKRUPTCY COURT.

B. Requirements for Confirmation

At the Confirmation Hearing, the Bankruptcy Court will determine whether the confirmation requirements under Bankruptcy Code § 943(b) have been satisfied. If so, and if all other conditions to confirmation set forth in the Plan have been met, the Court will confirm the Plan.

(1) Bankruptcy Code § 943(b) Confirmation Requirements

In a Chapter 9 case, the Bankruptcy Court must find that the Plan complies with various other applicable provisions of the Bankruptcy Code, including the following:

(a) Pursuant to § 943(b)(1), the Plan must comply with the following provisions of the Bankruptcy Code made applicable by Bankruptcy Code §§ 103(f) and 901: §§ 1122, 1123(a)((1)-(5), 1123(b), 1123(d), 1125, 1126(a)-(c) and (e)-(g), 1127(d), 1128, 1129(a)(2), (a)(3), (a)(6), (a)(8), (a)(10), 1129(b)(1) and (b)(2)(A)-(B);

(b) Pursuant to § 943(b)(2), the Plan must comply with the provisions of Chapter 9;

(c) Pursuant to § 943(b)(3), all amounts to be paid by the Debtor or by any person for services or expenses in the Case or incident to the Plan have been fully disclosed and are reasonable;

(d) Pursuant to § 943(b)(4), the Debtor is not prohibited by law from taking any action necessary to carry out the Plan;


mailto:[email protected]

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(e) Pursuant to § 943(b)(5), except to the extent that the holder of a particular claim has agreed to a different treatment of such claim, the plan provides that on the effective date of the plan each holder of a claim of a kind specified in section 507(a)(2) of this title will receive on account of such claim cash equal to the allowed amount of such claim;

(f) Pursuant to § 943(b)(6), any regulatory or electoral approval necessary under applicable nonbankruptcy law in order to carry out any provision of the Plan has been obtained, or such provision is expressly conditioned upon such approval; and

(g) Pursuant to § 943(b)(7), the plan is in the best interests of creditors and is feasible.

(2) Bankruptcy Code § 1129 Confirmation Requirements

At the Confirmation Hearing, in accordance with Bankruptcy Code § 943(b)(1), the Bankruptcy Court will determine whether certain confirmation requirements of § 1129(a) of the Bankruptcy Code have been satisfied. Those requirements of § 1129(a) applicable to the Chapter 9 Plan of the Debtor are:

1. The proponent of the plan complies with the applicable provisions of the Bankruptcy Code (§ 1129(a)(2));

2. The Plan has been proposed in good faith and not by any means forbidden by law (§ 1129(a)(3));

3. Any governmental regulatory commission with jurisdiction, after confirmation of the Plan, over the rates of the Debtor has approved any rate change provided for in the plan, or such rate change is expressly conditioned on such approval (§ 1129(a)(6));

4. With respect to each Class of Claims, (a) such Class has accepted the Plan or (b) such Class is not impaired under the Plan (§ 1129(a)(8)); and

5. If a Class of Claims is impaired under the Plan, at least one Class of Claims that is impaired under the Plan has accepted the Plan, determined without including any acceptance of the Plan by any insider (§ 1129(a)(10)).

The Debtor believes that the Plan will satisfy all of the applicable requirements of § 1129(a) of the Bankruptcy Code.

(3) The Plan is in the Best Interests of Creditors and is Feasible (§ 943(b)(7))

(a) The “Best Interests” Test

The Bankruptcy Court must also determine that the Plan is in the “best interests of creditors” in accordance with Bankruptcy Code § 943(b)(7). In Chapter 9 cases, the “best interests of creditors” test has been interpreted to mean that the plan must be better than the alternative – which likely would be dismissal of the case, leaving creditors to fend for themselves in a chaotic


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and uncertain race to seek nonbankruptcy remedies under state or federal law and to try to collect any proceeds.

Unlike non-municipal debtors, municipalities are not eligible for court-supervised liquidation under Chapter 7 of the Bankruptcy Code, and, accordingly, Creditors have only state law rights in the event a Chapter 9 Plan of Adjustment were not confirmed and the Case were to be dismissed. Moreover, Creditors cannot expect that all of the Debtor’s cash will go toward the payment of their Claims because the Debtor must retain sufficient funds with which to operate, make necessary improvements, and maintain its facilities.2

The Debtor submits that the Plan is in the best interests of all Creditors because it provides the best available payments to Creditors while assuring that the Hospital maintains the vital and critical resources it needs to sustain its healthcare mission for the benefit of the residents of Gainesville and Cooke County, Texas.

(b) Feasibility

In order to meet the “feasibility” standard of Bankruptcy Code § 943(b)(7), the Debtor must demonstrate its likely ability to make the payments provided under the Plan while maintaining its operations at the level that it determines is necessary to the continued viability of the Hospital. The Debtor is entitled to retain sufficient assets to provide adequate levels of municipal services, to fund normal municipal operations, and to remain financially viable after exiting Chapter 9. As to feasibility, the Bankruptcy Court’s role is limited to determining whether the Debtor’s proposals and undertakings are reasonable and whether, based on its financial condition, the Debtor will likely be able to make the payments required under the Plan. A Chapter 9 Debtor cannot be required to pay more than is reasonably feasible.3

The Debtor believes that, based upon its business plan before the Confirmation, it will be able to make the payments specified in the Plan, and, accordingly, the Plan is feasible.

VIII. MEANS FOR IMPLEMENTATION OF THE PLAN

A. Consent

Pursuant to and for purposes of Bankruptcy Code § 904, the Debtor consents to entry of the Confirmation Order on the terms and conditions set forth in the Plan and to entry of any further

2 See COLLIER ON BANKRUPTCY ¶ 943.03[7][a] (16th ed.).

3 Id.


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orders as necessary or required to implement the provisions of the Plan or any and all related transactions.

B. Conditions Precedent to the Effective Date

The following events are conditions precedent to the occurrence of the Effective Date, each of which must be satisfied or expressly waived by the Debtor, in its sole discretion:

(a) the Confirmation Order, in a form and substance reasonably acceptable to the Debtor, shall have been entered by the Bankruptcy Court and shall not be subject to any stay;

(b) the Debtor shall have obtained any regulatory or electoral approval necessary under applicable nonbankruptcy law in order to carry out any provision of the Plan, or such Plan provision is expressly conditioned upon such approval being obtained;

(c) all other documents required to be included in the Plan as Plan Documents, each in form and substance reasonably acceptable to the Debtor, shall have been executed and delivered by the parties thereto, and all conditions to their effectiveness shall have been satisfied or waived; and

(d) not more than sixty (60) Business Days shall have elapsed after the Confirmation Date.

C. Means for Payment of Claims

Sources of funds for all Distributions and all other amounts payable under the Plan are (i) the revenues from the operation of the Hospital, (ii) proceeds of property taxation by the Debtor, and (iii) proceeds from the issuance of refunding bonds.

D. Continuation of Operations

From and after the Effective Date, the Debtor shall continue its operations without any further Bankruptcy Court oversight or supervision. In connection with the foregoing, the Debtor acknowledges and confirms that on May 1, 2018 it entered a management agreement with Community Hospital Consulting, the management and consulting arm of Community Hospital Corporation (“CHC”). The CHC management agreement has an initial 5-year management term which can be extended by mutual agreement of the parties.

E. Bond Issuances to Effectuate Plan

As described in Section IV M. above (The Post-Petition Bond Issuances), the Debtor issued a number of series of Limited Tax Refunding Bonds, each of the series of bonds having been authorized by the Bankruptcy Court, to permit the Debtor to adjust its debts as a part of this Case and to continue to operate the Hospital.

As soon as practicable following the Effective Date of the Debtor’s Plan, the Debtor shall issue an additional series of limited tax bonds in the aggregate principal amount of approximately


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$42,500,000, to refund, refinance and defease all of the series of Limited Tax Refunding Bonds described above which were issued during the pendency of the Case (the “Post-Emergence Bonds”).

The Post-Emergence Bonds shall be issued pursuant to a bond order in the form attached hereto as Exhibit B, which shall constitute a security agreement as defined in the Bankruptcy Code. The payment of the principal of and interest on the Post-Emergence Bonds shall be secured by and payable from an annual ad valorem tax that shall be levied, within the limits prescribed by law (not to exceed $0.65 per $100 valuation for interest and sinking fund purposes, and in an amount which together with taxes levied for the care of indigents does not exceed $0.75 per $100 valuation), upon all taxable property within the Debtor (the “Pledged Tax Revenues”), which levy shall continue and remain in place until all of the principal of and interest on the Post-Emergence Bonds have been paid in full or defeased.

Upon the issuance of the Post-Emergence Bonds, the Pledged Tax Revenues will have been absolutely and irrevocably pledged to secure, and shall be applied solely to, the payment of the principal of and interest on the Post-Emergence Bonds, as such principal matures and as such interest comes due, and cannot be used for any other purpose.

The Pledged Tax Revenues, as collected, will be deposited into an interest and sinking fund established solely for the payment of the principal and interest on the Post-Emergence Bonds. All funds in the interest and sinking fund will be dedicated solely for the payment of the principal and interest on the Post-Emergence Bonds and will not be subject to any other claim, right or set-off, and will not be used for any other purpose. The Pledged Tax Revenues are “special revenues” as defined in 11 U.S.C. §902(2)(E) of the U.S. Bankruptcy Code, and as such, are entitled to the protections of Sections 922(d) and 928 of the Bankruptcy Code, whereby the pledge and lien on Pledged Tax Revenues shall continue to be binding, effective and enforceable post-petition in any future Chapter 9 filing of the District.

F. Retention of Property

Except as otherwise expressly provided in the Plan, all property and interests in property of the Debtor shall be retained by the Debtor on the Effective Date, free and clear of all Claims, liens, encumbrances, charges, and interests. From and after the Effective Date, the Debtor may conduct its affairs and use, acquire, and dispose of any assets or property without supervision by or approval of the Bankruptcy Court and free of any and all restrictions of the Bankruptcy Code or Bankruptcy Rules and in all respects as if there were not a pending case under any chapter or provision of the Bankruptcy Code, other than any restrictions expressly imposed by the Plan or Confirmation Order. Except as otherwise provided in the Plan, any Person having a lien, Claim, or other interest against the Debtor’s properties shall be conclusively deemed to have consented to the vesting of such assets in the Debtor from and after the Effective Date free and clear of such lien, Claim, or other interest by failing to object to the Confirmation of the Plan.

G. Plan Administration

1. Debtor’s Authority. As of the Effective Date, the Debtor shall retain and have all the rights, powers, and duties necessary to carry out its


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responsibilities under the Plan and as may be otherwise provided in the Confirmation Order.

2. Disbursing Agent. The Debtor shall serve as Disbursing Agent under the Plan and shall carry out the tasks of administration of the Plan, including the disbursement of any Distributions to be paid to Holders of Claims under the Plan. The Confirmation Order being entered shall serve as the appointment by the Bankruptcy Court of the Debtor as Disbursing Agent in compliance with the requirement of the appointment of a “disbursing agent” in accordance with Bankruptcy Code § 944(b)(2).

3. Retention of Professionals. From and after the Effective Date, the Debtor shall have the right to retain the services of, and pay the fees and expenses of, attorneys, accountants, and other professionals that, in its sole discretion, are reasonable and necessary to assist it in the performance of all duties with respect to the Plan. The reasonable fees and expenses of such professionals shall be paid as they are invoiced in the ordinary course of business of the Debtor and shall not be subject to the approval of the Bankruptcy Court.

4. Debtor’s Expenses. All costs, expenses, and obligations incurred by the Debtor in administering the Plan, in any manner connected, incidental, or relating to such administration, or in effecting Distributions from the Debtor thereunder (including the reimbursement of reasonable expenses) shall be paid in the ordinary course of business of the Debtor as they are incurred without the need for Bankruptcy Court approval.

IX. LEGAL PROCEEDINGS AFFECTING THE DEBTOR

This section of this Disclosure Statement contains a discussion of the Causes of Action held by the Debtor, which shall be preserved under the Plan for assertion by the Debtor.

A. Preservation of Rights of Action

(1) Preservation of Causes of Action. Except as otherwise ordered by the Bankruptcy Court, and subject to any releases in the Plan, on the Effective Date, all Causes of Action shall vest in the Debtor, which may waive, enforce, sue on, and settle or compromise (or decline to do any of the foregoing) any or all of the Causes of Action. Except as otherwise ordered by the Bankruptcy Court, the Debtor shall be vested with authority and standing to prosecute any Causes of Action.

(2) Settlement of Litigation Claims and Disputed Claims. At any time after the Confirmation Date and before the Effective Date, notwithstanding anything in the Plan to the contrary, the Debtor may settle some or all of the Causes of Action and/or the Disputed Claims, subject to obtaining Bankruptcy Court approval. To the extent they


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would be payable to the Debtor, the net proceeds from the settlement of a Cause of Action shall vest in the Debtor on the Effective Date in accordance with the Plan.

B. Litigation Pending as of the Petition Date

On the Petition Date, there was no pending litigation instituted by the Debtor against third parties.

X. OTHER SIGNIFICANT PLAN PROVISIONS

A. Executory Contracts and Unexpired Leases

(1) Assumption of Certain Contracts and Leases. The Executory Contracts and Unexpired Leases identified on the Executory Contract and Unexpired Lease List, attached to the Plan as Exhibit A, which constitute the Assumed Executory Contracts and Unexpired Leases, shall be assumed by the Debtor pursuant to the Plan. The Plan shall serve as, and shall be deemed to be, a motion for entry of an order approving the assumption of the Assumed Contracts and the assignment of the Assumed Contracts to the Debtor, both as of the Effective Date. Except as otherwise set by Order of the Bankruptcy Court, any objection to the assumption, vesting of, or the proposed cure amount related to an Assumed Contract (as reflected in Exhibit A to the Plan) must be made as an objection to Confirmation of the Plan. If no objection to the assumption, vesting of, or the proposed cure amount under any particular Assumed Executory Contract or Unexpired Lease is Filed and timely served as an objection to Confirmation of the Plan, an Order (which may be the Confirmation Order) that approves the assumption and assignment of, and the proposed cure amount under, each respective Assumed Executory Contract or Unexpired Lease may be entered by the Bankruptcy Court. If any such objections are so Filed and timely served, a hearing with respect to the assumption and assignment or cure of any of the Assumed Executory Contracts or Unexpired Leases, and the objections thereto, shall be scheduled by the Bankruptcy Court, which hearing may, but is not required to, coincide with the Confirmation Hearing.

If the Bankruptcy Court approves the assumption and assignment of one or more Assumed Executory Contracts or Unexpired Leases , such Assumed Executory Contracts or Unexpired Leases shall be assumed by the Debtor effective as of the Effective Date. Any Cure Claims relating to the assumption and assignment of an Assumed Executory Contract or Unexpired Lease and ordered to be paid by the Bankruptcy Court shall be paid by the Debtor on or as soon as reasonably practicable after the Effective Date. Such Cure Claims shall be satisfied in full and shall be deemed in final satisfaction of all defaults, including arrearages, under the Assumed Executory Contracts and Unexpired Leases as of the Effective Date. As of the Effective Date, the Debtor shall be relieved and discharged from any liability arising on or before the Effective Date under the Assumed Executory Contracts and Unexpired Leases other than the obligation to satisfy Cure Claims.

Neither the exclusion nor inclusion of any contract or lease in the Executory Contract and Unexpired Lease List, Exhibit A, nor anything contained in the Plan, shall constitute an admission


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by the Debtor that any such contract or lease is in fact an Executory Contract or Unexpired Lease or that the Debtor has any liability thereunder. If there is a dispute regarding whether a contract or lease is or was executory or unexpired at the time of assumption or rejection, the Debtor shall have thirty (30) days following the Effective Date to resolve such dispute or to alter the treatment of such contract or lease.

(2) Rejection of Certain Contracts and Leases. Except to the extent (a) the Debtor has previously assumed or rejected an Executory Contract or Unexpired Lease, (b) prior to the Effective Date, the Bankruptcy Court has entered an Order granting assumption of an Executory Contract or Unexpired Lease, (c) at the Confirmation Hearing, the Bankruptcy Court approves the assumption of an Executory Contract or Unexpired Lease, or (d) an Executory Contract or Unexpired Lease is set forth on the Executory Contract and Unexpired Lease List, attached as Exhibit A to the Plan, all other of the Debtor’s Executory Contracts and Unexpired Leases shall be deemed rejected on the Effective Date, pursuant to Bankruptcy Code §§ 365, 901, and 1123.

Non-debtor counterparties to Executory Contracts and Unexpired Leases that are deemed rejected on the Effective Date have until the Rejection Damages Bar Date to file Claims with the Bankruptcy Court asserting any claims for rejection damages. Any Claims for rejection damages that are not Filed by the Rejection Damages Bar Date are forever barred and discharged without any further order of the Bankruptcy Court being required. The Rejection Damages Bar Date will be set forth in either the Confirmation Order or a notice to be Filed.

B. Distributions Under the Plan

1. Distributions under the Plan will only be made to Creditors holding Allowed Claims. “Allowed” is defined under the Plan as, with respect to a Claim or any portion thereof (i) a Claim as to which Proof of Claim or request for payment for which, if required, was Filed on or before the applicable Bar Date or the Administrative Claims Bar Date; (ii) a Claim that is scheduled by the Debtor as not contingent, not unliquidated, and not disputed, and for which no Proof of Claim, as applicable, has been timely Filed; (iii) a Claim that the Holder and the Debtor have agreed in writing is allowed; or (iv) a Claim approved by a Final Order; provided, that with respect to a Claim described in clauses (i) and (ii) above, such Claim shall be considered Allowed only if and to the extent that with respect to such Claim no objection to the allowance thereof is interposed within the applicable period of time fixed by the Plan, the Bankruptcy Code, the Bankruptcy Rules, or the Bankruptcy Court, or such an objection is so interposed and the Claim has been Allowed by a Final Order.

(1) Disbursing Agent

The Debtor shall serve as Disbursing Agent under the Plan and shall carry out the tasks of administration of this Plan, including the disbursement of any Distributions to be paid to Holders of Claims under this Plan. The Confirmation Order being entered shall serve as the appointment by the Bankruptcy Court of the Debtor as Disbursing Agent in compliance with the requirement of the appointment of a “disbursing agent” in accordance with Bankruptcy Code § 944(b)(2).


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(2) Means of Cash Payment

The Debtor, as Disbursing Agent, may utilize any of its existing bank accounts (operational or other) to make Cash payments or distributions required under the Plan. All Cash payments to be made from time to time pursuant to the Plan shall be in U.S. funds, by appropriate means, including by check or wire transfer, at Debtor’s election.

(3) Delivery of Distributions

Except as otherwise provided in the Plan, Distributions to Holders of Allowed Claims shall be made (a) at the addresses set forth on the Proofs of Claim Filed by such Holders (or at the last known address of such Holders if no Proof of Claim is Filed or if the Debtor has been notified of a change of address), (b) at the addresses set forth in any written notices of address changes delivered to the Debtor after the date of any related Proof of Claim, or (c) if no Proof of Claim has been Filed and the Debtor has not received a written notice of a change of address, at the addresses set forth in the List of Creditors attached to the Verification of Creditor Matrix Dkt. No. 31, filed by the Debtor on January 24, 2017, and any amended or subsequent lists filed by the Debtor.

(4) Fractional Dollars; De Minimis Distributions

Notwithstanding any other provision of the Plan, payments of fractions of dollars will not be made. Whenever any payment of a fraction of a dollar under the Plan would otherwise be called for, actual payment made shall reflect a rounding of such fraction to the nearest whole dollar (up or down). No payment of less than $10 with respect to any Claim shall be made unless a request therefor is made in writing to the Debtor. Notwithstanding the foregoing, the Debtor may, in its sole discretion, make payments of fractions of dollars and/or of less than $10.

(5) Withholding and Reporting Requirements

In connection with the Plan and all Distributions hereunder, the Debtor shall, to the extent applicable, comply with all tax withholding and reporting requirements imposed by any federal, state, local, or foreign taxing authority, and all Distributions hereunder shall be subject to any such withholding and reporting requirements. The Debtor shall be authorized to take any and all actions that may be reasonably necessary or appropriate to comply with any applicable withholding or reporting requirements.

(6) Offsets

The Debtor may, but shall not be required to, set off (a) any Claims it may have (of any nature whatsoever) against the Holder of a Claim against (b) such Holder’s Claim and the payments or other Distributions to be made pursuant to the Plan in respect of such Claim; provided, however, that neither the failure to do so nor the allowance of any Claim against the Debtor or the Debtor shall constitute a waiver or release of any such Claim that the Debtor may have against such Holder, unless otherwise agreed to in writing by such Holder and the Debtor.


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(7) Duty to Disgorge Overpayments

To the extent that a Claim may be an Allowed Claim in more than one Class or an Allowed Claim asserted in duplicate, the Holder of such Claim shall not be entitled to recover more than the full amount of its Allowed Claim. The Holder of an Allowed Claim that receives Distributions exceeding payment in full of its Allowed Claim shall immediately return any such excess Distributions to the Debtor. In the event that the Holder of an Allowed Claim fails to return any excess Distributions, the Debtor may bring suit against such Holder for the return of any such excess Distributions in the Bankruptcy Court or any other court of competent jurisdiction.

C. Claims Administration by the Debtor

(1) Late-Filed Claims Barred

Unless otherwise provided in the Plan or in an Order of the Bankruptcy Court or agreed to by the Debtor, any Claim that is not timely filed shall not be treated as an Allowed Claim for purposes of voting or distribution under the Plan, whether or not an objection to such Claim has been filed, and such Claims shall be forever barred and discharged upon the occurrence of the Effective Date.

(2) Means for Resolving Disputed Claims

On or before the Claim Objection Deadline, the Debtor shall File objections to Claims and serve such objections, respectively, upon the Holders of each of the Claims to which objections are made. Subject to the limitations set forth in the Plan, the Debtor shall be authorized to resolve all Disputed Claims by withdrawing or settling such objections thereto or by litigating to judgment in the Bankruptcy Court or such other court having competent jurisdiction, the validity, nature, and/or amount thereof. If the Debtor and the Holder of a Disputed Claim agree to compromise, settle, and/or resolve a Disputed Claim by granting such Holder an Allowed Claim, the Debtor may compromise, settle, and/or resolve such Disputed Claim without further Bankruptcy Court approval; provided, however, that the Debtor shall File a notice with the Bankruptcy Court advising that the Allowed Claim has been compromised, settled, and/or resolved.

Any Proofs of Claim that are Filed after the applicable Bar Date, including amendments to existing Proofs of Claim, and any applications for the allowance of any Administrative Claims that are Filed after the Administrative Claims Bar Date, shall be deemed invalid and Disallowed unless consented to by the Debtor in writing or expressly authorized by Order of the Bankruptcy Court.

D. Miscellaneous Provisions

(1) Revocation, Withdrawal, or Non-Consummation

The Debtor reserves the right to revoke or withdraw the Plan prior to the Confirmation Date and to file any amended or subsequent plans. If Confirmation does not occur, or if the Effective Date does not occur on or prior to 15 days after the Confirmation Date, then (a) the Plan shall be null and void in all respects, (b) any settlements or compromises embodied in the Plan (including the fixing or limiting to an amount certain of any Claim or Class of Claims),


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assumptions or rejections of executory contracts or unexpired leases affected by the Plan, and any documents or agreements executed pursuant to the Plan, shall be deemed null and void, and (c) nothing contained in the Plan or the Disclosure Statement shall (i) constitute a waiver or release of any Claims by or against the Debtor or any other Person, (ii) prejudice in any manner the rights of the Debtor or any other Person, or (iii) constitute an admission of any sort by the Debtor or any other Person.

(2) Severability of Plan Provisions

If, prior to Confirmation, any term or provision of the Plan is held by the Bankruptcy Court to be invalid, void, or unenforceable, the Bankruptcy Court, solely at the request of the Debtor, shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void, or unenforceable, and such term or provision shall then be applicable as altered or interpreted. Notwithstanding any such holding, alteration, or interpretation, the remainder of the terms and provisions of the Plan shall remain in full force and effect and shall in no way be affected, impaired, or invalidated by such holding, alteration, or interpretation. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan, as it may be altered or interpreted in accordance with the foregoing, is valid and enforceable pursuant to its terms.

(3) Notices to the Debtor

Any notice, request, or demand required or permitted to be made or provided to or upon the Debtor or the Debtor under the Plan shall be (a) in writing, (b) served by (i) certified mail, return receipt requested, (ii) hand delivery, (iii) overnight delivery service, or (iv) facsimile transmission, and (c) deemed to have been duly given or made when actually delivered or, in the case of notice by facsimile transmission, when received and telephonically confirmed, addressed as follows:

Gainesville Hospital District d/b/a North Texas Medical Center Attn: Ms. Christy Daughtry 1900 Hospital Blvd. Gainesville, Texas 76240 (940) 665-1751 —and— Ryan E. Manns Norton Rose Fulbright US LLP 2200 Ross Avenue, Suite 3600 Dallas, Texas 75201-7932 [email protected] —and—


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William R. Greendyke Julie Goodrich Harrison Norton Rose Fulbright US LLP 1301 McKinney Street, Suite 5100 Houston, Texas 77010-3095 [email protected]

(4) Interest Accrual

Except as otherwise provided in the Plan, no postpetition interest shall accrue or be paid on any Claim.

(5) Plan Documents

The Plan Documents are incorporated into and are a part of the Plan as if set forth in full therein.

(6) Further Assurances

The Debtor, all Holders of Claims receiving Distributions under the Plan, and all other parties in interest may and shall, from time to time, prepare, execute, and deliver any agreements or documents and take any other actions as may be necessary or advisable to effectuate the provisions and intent of the Plan.

(7) Successors and Assigns

The Plan and all rights, benefits, and obligations of any Person named or referred to in the Plan shall be binding on, and shall inure to the benefit of, any heir, executor, administrator, personal representative, successor, or assign of such Person.

(8) Governing Law

Unless a rule of law or procedure is supplied by federal law, including the Bankruptcy Code and Bankruptcy Rules, (a) the construction and implementation of the Plan and any agreements, documents, and instruments executed in connection with the Plan and (b) governance matters shall be governed by the laws of the State of Texas.

(9) Abandonment

By way of a Plan Document, the Debtor may File a list of property to be abandoned, if any. Such property will be deemed abandoned on and as of the Effective Date, and Persons in possession of such abandoned property may dispose of such property at their discretion, and any such disposal shall be without any recourse to the Debtor or the Debtor.


mailto:[email protected]

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(10) Notice of Effective Date

On or before five (5) Business Days after the occurrence of the Effective Date, the Debtor shall file with the Bankruptcy Court and shall mail or cause to be mailed to all Holders of Claims a notice that informs such Persons of (a) the entry of the Confirmation Order, (b) the occurrence of the Effective Date, and (c) such other matters as the Debtor deems appropriate or as may be ordered by the Bankruptcy Court.

(11) Entire Agreement

The Plan and the Plan Documents set forth the entire agreement and understanding among the parties in interest relating to the subject matter thereof and supersede all prior discussions and documents.

(12) Modification of the Plan

The Debtor may alter, amend, or modify the Plan or any Plan Documents under Bankruptcy Code § 942 at any time prior to the Confirmation Date. Further, under Bankruptcy Code § 1127(d), any Holder of a Claim that has accepted or rejected the Plan is deemed to have accepted or rejected the Plan, as the case may be, as modified, unless such Holder changes such Holder’s previous acceptance or rejection within the time allotted for voting on the Plan or any later date set by Final Order of the Bankruptcy Court.

E. Effects of Confirmation of the Plan; Discharge; Injunction

The Plan provides:

(1) Discharge

ON THE EFFECTIVE DATE, THE DEBTOR, ITS REPRESENTATIVES AND INHABITANTS, AND ITS PROPERTY ARE FOREVER DISCHARGED AND RELEASED FROM ALL DEBTS TO THE FULLEST EXTENT PERMITTED UNDER BANKRUPTCY CODE § 944. EXCEPT AS OTHERWISE SET FORTH IN THIS PLAN OR THE CONFIRMATION ORDER, THE RIGHTS AFFORDED UNDER THIS PLAN AND THE TREATMENT OF CLAIMS UNDER THIS PLAN ARE IN EXCHANGE FOR AND IN COMPLETE SATISFACTION, DISCHARGE, AND RELEASE OF ALL CLAIMS, INCLUDING ANY INTEREST ACCRUED ON ANY CLAIMS AGAINST THE DEBTOR, ITS REPRESENTATIVES AND INHABITANTS. EXCEPT AS SET FORTH IN THIS PLAN OR THE CONFIRMATION ORDER, AND AS PROVIDED IN § 524(A)(1) AND (A)(2) OF THE BANKRUPTCY CODE, SUCH DISCHARGE SHALL VOID ANY JUDGMENT AGAINST THE DEBTOR AT ANY TIME OBTAINED TO THE EXTENT IT RELATES TO A DISCHARGED CLAIM. UPON THE EFFECTIVE DATE, ALL PERSONS SHALL BE FOREVER PRECLUDED AND ENJOINED, PURSUANT TO § 524(A)(1) AND (A)(2) OF THE BANKRUPTCY CODE, FROM PROSECUTING OR ASSERTING ANY DISCHARGED CLAIM AGAINST THE DEBTOR, ITS REPRESENTATIVES AND INHABITANTS IN ANY MANNER INCONSISTENT WITH THIS PLAN. PURSUANT TO § 944(A), SUCH DISCHARGE IS BINDING ON ALL CREDITORS, WHETHER OR NOT SUCH CREDITOR


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FILED A PROOF OF CLAIM, OR WAS DEEMED TO HAVE FILED A PROOF OF CLAIM, WHETHER SUCH CLAIM HAS BEEN ALLOWED, OR WHETHER SUCH CREDITOR ACCEPTED THE PLAN.

(2) Injunction or Stay

EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS PLAN, THE CONFIRMATION ORDER, OR ANY PRIOR ORDER OF THE BANKRUPTCY COURT IN THIS CASE, ALL PERSONS WHO HAVE HELD, HOLD, OR MAY HOLD CLAIMS AGAINST THE DEBTOR, ITS REPRESENTATIVES AND INHABITANTS, THAT ARE DISCHARGED UNDER SECTION 11.01 OF THIS PLAN, ARE HEREBY PERMANENTLY ENJOINED, FROM AND AFTER THE EFFECTIVE DATE, FROM TAKING ANY OF THE FOLLOWING ACTIONS, WHETHER DIRECTLY OR INDIRECTLY, AGAINST THE DEBTOR, OR ANY OF ITS PROPERTY WITH RESPECT TO SUCH CLAIM (OTHER THAN ACTIONS BROUGHT TO ENFORCE ANY RIGHTS OR OBLIGATIONS UNDER THIS PLAN):

(a) COMMENCING OR CONTINUING, IN ANY MANNER, ANY ACTION OR OTHER PROCEEDING OF ANY KIND;

(b) ENFORCING, ATTACHING, COLLECTING, OR RECOVERING, BY ANY MANNER OR MEANS, ANY JUDGMENT, AWARD, DECREE, OR ORDER;

(c) CREATING, PERFECTING, OR ENFORCING, IN ANY MANNER, ANY LIEN OF ANY KIND;

(d) ASSERTING ANY RIGHT OF OFFSET, SUBROGATION, OR RECOUPMENT OF ANY KIND (EXCEPT WITH RESPECT TO ANY VALID RIGHT OF OFFSET UNDER § 553 OF THE BANKRUPTCY CODE APPLICABLE TO ANY ALLOWED CLAIM THAT WAS PROPERLY AND TIMELY FILED WITH THE BANKRUPTCY COURT BY THE APPLICABLE BAR DATE OR 503(B)(9) BAR DATE);

(e) PROCEEDING IN ANY MANNER IN ANY PLACE, WHATSOEVER, THAT DOES NOT CONFORM TO OR COMPLY WITH OR IS INCONSISTENT WITH THE PROVISIONS OF THIS PLAN OR THE CONFIRMATION ORDER; AND

(f) TAKING ANY ACTIONS TO INTERFERE WITH THE IMPLEMENTATION OR CONSUMMATION OF THIS PLAN.

SUCH INJUNCTION EXTENDS TO AND INCLUDES ANY SUCCESSORS OF THE DEBTOR AND THEIR RESPECTIVE PROPERTY.

(3) Term of Injunction or Stays

EXCEPT AS OTHERWISE PROVIDED IN THIS PLAN, THE AUTOMATIC STAY OF BANKRUPTCY CODE §§ 362(A) AND 922(A) AND ANY INJUNCTION OR OTHER STAY ARISING UNDER OR ENTERED DURING THE CASE UNDER BANKRUPTCY CODE §§ 105 OR OTHERWISE THAT IS IN EXISTENCE ON THE CONFIRMATION DATE SHALL REMAIN IN FULL FORCE AND EFFECT UNTIL THE LATER OF THE DATE OF THE


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CLOSING OF THE CASE OR ANY DATE INDICATED IN THE ORDER PROVIDING FOR SUCH INJUNCTION OR STAY.

(4) Exculpation

WITHOUT LIMITING THE GENERALITY OF THE FOREGOING PROVISIONS OF THIS ARTICLE XII, FROM AND AFTER THE EFFECTIVE DATE, TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, AND EXCEPT AS EXPRESSLY SET FORTH HEREIN, THE DEBTOR, AND ITS REPRESENTATIVES AND INHABITANTS, SHALL HAVE OR INCUR NO LIABILITY, WHATSOEVER, TO ANY PERSON FOR ANY ACT OR OMISSION IN CONNECTION WITH, RELATING TO, OR ARISING OUT OF THE DEBTOR’S RESTRUCTURING EFFORTS OR THE CHAPTER 9 CASE; HOWEVER, THE FOREGOING EXCULPATION SHALL NOT EXCLUDE LIABILITY, IF ANY, THAT WOULD RESULT FROM ANY ACT OR OMISSION TO THE EXTENT THAT SUCH ACT OR OMISSION IS DETERMINED IN A FINAL ORDER TO HAVE CONSTITUTED GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. THE DEBTOR SHALL BE ENTITLED TO RELY UPON THE ADVICE OF COUNSEL AND FINANCIAL ADVISORS WITH RESPECT TO ITS DUTIES AND RESPONSIBILITIES UNDER, OR IN CONNECTION WITH, THE CASE, THE ADMINISTRATION THEREOF, AND THIS PLAN.

(5) Settlement and Release of Claims

EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS PLAN, ON THE EFFECTIVE DATE, EACH PERSON THAT HAS HELD OR NOW HOLDS A CLAIM AND WHO HAS RECEIVED NOTICE OF THE CASE OR WHO HAS ACTUAL KNOWLEDGE OF THE CASE, IN CONSIDERATION FOR THE OBLIGATIONS OF THE DEBTOR UNDER THE PLAN, SHALL HAVE CONCLUSIVELY, ABSOLUTELY, IRREVOCABLY, AND FOREVER RELEASED AND EXONERATED THE DEBTOR AND ITS REPRESENTATIVES AND INHABITANTS FROM ANY AND ALL CAUSES OF ACTION BELONGING TO THE DEBTOR WHATSOEVER, INCLUDING ANY CAUSES OF ACTION THAT ARE DERIVATIVE OR ARE PROPERTY OF THE DEBTOR IN ITS CAPACITY AS CHAPTER 9 DEBTOR, ASSERTED OR ASSERTABLE BY OR ON BEHALF OF THE DEBTOR, WHETHER KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, EXISTING OR HEREINAFTER ARISING, IN LAW, EQUITY, OR OTHERWISE.

(6) Patient Care Ombudsman

Upon the Effective Date of the Plan, the Patient Care Ombudsman, who was appointed by the United States Trustee on February 23, 2017 [Dkt. No. 65], is released and fully discharged of her duties in the Case.

(7) Legal Binding Effect

The provisions of the Plan shall bind all Holders of Claims and their respective successors and assigns, whether or not they accept the Plan. On and after the Effective Date, except as otherwise expressly provided in the Plan, all Holders of Claims shall be precluded from asserting any Claim or lien against the Debtor or its respective property or interests in property based on any


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act, omission, event, transaction, or other activity of any kind that occurred or came into existence prior to the Effective Date.

(8) Insurance

Confirmation and consummation of the Plan shall have no effect on insurance policies of the Debtor or its current or former directors and officers (including director and officer liability policies to the extent that the Debtor or its current or former directors and officers have any rights under such policies) in which the Debtor or its current or former directors and officers are or were an insured party. Each insurance company is prohibited from, and the Confirmation Order shall include an injunction against, denying, refusing, altering, or delaying coverage for the Debtor, or its current or former directors and officers on any basis regarding or related to the Case and related proceedings, the Plan, or any provision within the Plan, including the treatment or means of satisfaction set out within the Plan for any insured Claims.

F. Request for Waiver of Automatic Stay of Confirmation Order

The Plan shall serve as a motion seeking a waiver of the automatic stay of the Confirmation Order imposed by Bankruptcy Rule 3020(e). Any objection to such request shall take the form of a timely objection to confirmation of the Plan.

G. No Diminution of State Power

No term of the Plan shall be construed: (1) to limit or diminish the power of the State of Texas to control, by legislation or otherwise, (a) the Debtor in the exercise of political or governmental powers and (b) the provision by the Debtor of healthcare-related services or any other activities or matters subject to the regulatory agencies of the state; or (2) as a waiver by the State of Texas of its rights as a sovereign state and the rights reserved for it pursuant to the Tenth Amendment of the United States Constitution.

H. Retention of Jurisdiction

Under Bankruptcy Code §§ 105(a) and 945, and notwithstanding entry of the Confirmation Order and occurrence of the Effective Date, the Bankruptcy Court shall retain exclusive jurisdiction over all matters arising out of and related to the Case or the Plan to the fullest extent permitted by law, as is necessary for the successful implementation of the Plan, including, among other things, jurisdiction to:

(a) allow, disallow, determine, liquidate, classify, estimate, or establish the priority or the secured or unsecured status of any Claim, including the resolution of any application or request for payment of any Administrative Claim, and the resolution of any objections to the allowance or priority of Claims;

(b) determine any and all adversary proceedings, motions, applications, and contested or litigated matters, including, but not limited to, all Causes of Action, and, to the extent approval may be sought by the Debtor, to consider and act upon the compromise and settlement of any Claim or Cause of Action;


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(c) enter such Orders as may be necessary or appropriate to construe, execute, implement, or consummate the provisions of the Plan and all property, contracts, instruments, releases, and other agreements or documents transferred, vested, or created in connection therewith;

(d) hear and determine disputes arising in connection with the interpretation, implementation, consummation, or enforcement of the Plan, the Confirmation Order, any transactions or payments contemplated hereby, or any disputes arising under agreements, documents, or instruments executed in connection therewith;

(e) consider any modifications of the Plan or this Disclosure Statement or cure any defect or omission or reconcile any inconsistency in any Order, including the Confirmation Order;

(f) issue injunctions, enter and implement other Orders, or take such other actions as may be necessary or appropriate to restrain interference by any Person with the implementation, consummation, or enforcement of the Plan, the Confirmation Order, or any other Order;

(g) hear and determine any matters arising in connection with or relating to the Plan, the Disclosure Statement, the Confirmation Order or any contract, instrument, release, or other agreement or document created in connection with the Plan, the Disclosure Statement, or the Confirmation Order;

(h) enforce all orders, judgments, injunctions, releases, exculpations, indemnifications, and rulings entered in the Case;

(i) hear and determine all matters related to the property of the Debtor from and after the Effective Date;

(j) hear and determine such other matters as may be provided in the Confirmation Order and as may be authorized under the provisions of the Bankruptcy Code;

(k) hear and determine all matters with respect to the assumption or rejection of executory contracts or unexpired leases and the allowance of Cure Claims;

(l) enter, implement, or enforce such Orders as may be appropriate in the event the Confirmation Order is for any reason stayed, reversed, revoked, modified, or vacated;

(m) hear and determine any other matters related to the Plan and not inconsistent with the Bankruptcy Code;

(n) determine any other matters that may arise in connection with or are related to the Plan, the Disclosure Statement, the Disclosure Statement Approval Order, the Confirmation Order, any Plan Documents, or any other contract, instrument, release, other agreement, or other document related to the Plan, the Disclosure Statement, or the Plan Supplement;

(o) hear any other matter not inconsistent with the Bankruptcy Code; and


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(p) enter final decrees closing the Case, in accordance with § 945(b) of the Bankruptcy Code.

XI. COMPARISON OF PLAN TO ALTERNATIVES

A. Alternative Plan of Adjustment

If the Plan is not confirmed, the Debtor could attempt to formulate a different plan. Such a plan might involve provisions that are different than those in the Plan for adjusting the Debtor’s debts. Formulation and prosecution of an alternative plan would necessarily involve delay, uncertainty, and additional expense. Moreover, there is no assurance that the Debtor could formulate and propose any other and better alternative plan of adjustment. The Debtor believes the Plan enables Creditors to realize the most value under the circumstances and that there is no better, feasible alternative Chapter 9 plan of adjustment available.

B. Dismissal

As an alternative to Confirmation of the Plan, the Debtor could elect to, or the Bankruptcy Court could, dismiss the Case under Bankruptcy Code § 930. If dismissal were to occur, the Debtor would no longer have the protection of the automatic stay and other applicable provisions of the Bankruptcy Code.

XII. MATERIAL UNCERTAINTIES AND RISKS

In considering whether to support or object to the Plan, Creditors should consider the following risks associated with the Plan: (a) that all of the conditions to Confirmation of the Plan are not satisfied or waived (as applicable); (b) that all of the conditions to the effectiveness of the Plan are not satisfied or waived (as applicable) or that such conditions are delayed by a significant period of time; and (c) that the Debtor’s estimations and projections may ultimately prove to be materially inaccurate.

There can also be no assurance that the Plan will not be modified up to and through the Confirmation Date in accordance with Bankruptcy Code § 942, and the Debtor reserves the right to modify the Plan, subject to compliance with the Bankruptcy Code, in the event modification becomes warranted or necessary in furtherance of Confirmation.

XIII. CERTAIN TAX CONSEQUENCES OF THE PLAN

A. Federal Income Tax Aspects of the Plan

Implementation of the Plan may have federal, state, or local tax consequences to the Hospital’s Creditors. As the Debtor is a political subdivision duly organized and existing under the laws of the State of Texas and is treated as a political subdivision of the State of Texas for federal income tax purposes, the Debtor believes that it will not be subject to any federal or state income tax liability from implementation of the Plan.


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Because individual circumstances may differ, and the federal income tax consequences of a Chapter 9 case may be complex, this summary does not address all federal income tax consequences that may be relevant to the Creditors of the Debtor as a result of the implementation of the Plan. In addition, this summary does not address any state or local tax consequences resulting from the Plan. Creditors of the Debtor should consult their own tax advisors regarding the federal, state, or local income tax consequences of the Plan.

No tax opinion has been sought or will be obtained with respect to any tax consequences of the Plan, and this summary does not constitute and is not intended to constitute either a tax opinion or tax advice to any Person.

CREDITORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING ANY FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS CONTEMPLATED BY THE PLAN.

B. Tax Withholding

The Plan provides for the Debtor to comply with all tax withholding and reporting requirements validly imposed on it by any governmental authority. Accordingly, the Plan provides that Distributions made pursuant to the Plan shall be subject to any withholding and reporting requirements and authorizes the Debtor to take all actions necessary or appropriate to comply with any withholding and reporting requirements, including, without limitation, payment of applicable withholding taxes from a Creditor’s Distribution or conditioning such Distributions upon receipt of necessary tax reporting information from such Creditor.

C. Disclaimers Regarding Matters of Taxation

PERSONS CONCERNED WITH THE TAX CONSEQUENCES OF THE PLAN SHOULD CONSULT THEIR OWN ACCOUNTANTS, ATTORNEYS, AND/OR ADVISORS. THE DEBTOR MAKES THE ABOVE-NOTED DISCLOSURE OF THE POSSIBILITY OF TAX CONSEQUENCES FOR THE SOLE PURPOSE OF ALERTING READERS TO THE POSSIBILITY OF TAX ISSUES THAT THEY MAY WISH TO CONSIDER. THE DEBTOR CANNOT, AND DOES NOT, REPRESENT THAT THE TAX CONSEQUENCES MENTIONED ABOVE ARE COMPLETELY ACCURATE BECAUSE, AMONG OTHER THINGS, THE TAX LAW EMBODIES MANY COMPLICATED RULES THAT MAKE IT DIFFICULT TO STATE ACCURATELY WHAT THE TAX IMPLICATIONS OF ANY POTENTIAL ACTION MIGHT BE; AND THE DEBTOR HAS NO OBLIGATION TO ADVISE ITS CREDITORS AS TO SUCH IMPLICATIONS.

IRS CIRCULAR 230 NOTICE: TO ENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE INTERNAL REVENUE SERVICE, THE DEBTOR INFORMS ALL RECIPIENTS OF THIS DISCLOSURE STATEMENT THAT ANY U.S. TAX INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT (INCLUDING THE EXHIBITS HERETO) IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF (A) AVOIDING PENALTIES UNDER THE INTERNAL REVENUE CODE OR (B) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TRANSACTION OR MATTER ADDRESSED HEREIN.


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XIV. CONCLUSION

The Debtor believes that the Plan complies with Bankruptcy Code § 943, is fair and equitable, and is in the best interests of the Debtor and its Creditors.

[Signature page follows.]


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DATED: October 5, 2018 /s/ Andrew Anderson

NTMC Board of Directors Title: President

Prepared by: NORTON ROSE FULBRIGHT US LLP

William Greendyke Julie Goodrich Harrison 1301 McKinney, Suite 5100 Houston, Texas 77010-3095 Telephone:(713) 651-5151 Facsimile: (713) 651-5246

-and-

Ryan E. Manns 2200 Ross Avenue, Suite 3600 Dallas, Texas 75201-7932 Telephone:(214) 855-8304 Facsimile: (214) 855-8200

Counsel for the Debtor
