<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended November 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File number 1-13626
HORIZON HEALTH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2293354
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1500 Waters Ridge Drive
Lewisville, Texas 75057-6011
(Address of principal executive offices, including zip code)
(972) 420-8200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ x ] No [ ]
The number of shares outstanding of the registrant's Common Stock, $0.01 Par
Value, as of December 15, 1997 was 7,068,262 shares.
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INDEX
HORIZON HEALTH CORPORATION
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.............................................................................. 3
HORIZON HEALTH CORPORATION
Consolidated Balance Sheets as of August 31, 1997,
and November 30, 1997 (unaudited)........................................................ 3
Consolidated Statements of Operations for the three months
ended November 30, 1996 and November 30, 1997 (each unaudited)........................... 5
Consolidated Statements of Cash Flows for the three months
ended November 30, 1996 and November 30, 1997 (each unaudited)........................... 6
Notes to Consolidated Financial Statements (unaudited)................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................................................. 18
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................................. 25
</TABLE>
2
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HORIZON HEALTH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, 1997 NOVEMBER 30, 1997
--------------- -----------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $ 5,516,575 $ 1,757,868
Accounts receivable less allowance for uncollectible
accounts of $1,357,423 at August 31, 1997 and
$1,800,494 at November 30, 1997 11,995,254 16,895,430
Receivable from employees 63,303 49,001
Prepaid expenses and supplies 182,208 249,933
Income taxes receivable 951,256 --
Other receivables 51,877 155,583
Other current assets 170,154 51,340
Current deferred taxes 1,687,512 1,865,980
----------- -----------
TOTAL CURRENT ASSETS 20,618,139 21,025,135
----------- -----------
PROPERTY AND EQUIPMENT:
Equipment 3,694,717 4,065,763
Building improvements 255,406 260,298
----------- -----------
3,950,123 4,326,061
Less accumulated depreciation 2,208,083 2,393,171
----------- -----------
1,742,040 1,932,890
Goodwill, net of accumulated amortization
of $2,078,177 at August 31, 1997, and
$2,245,188 at November 30, 1997 21,553,594 30,645,096
Management contracts, net of accumulated
amortization of $2,744,666 and
$3,004,464 at November 30, 1997 4,451,426 7,562,376
Other assets 363,208 413,028
----------- -----------
TOTAL ASSETS $48,728,407 $61,578,525
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
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HORIZON HEALTH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, 1997 NOVEMBER 30, 1997
--------------- -----------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,747,393 $ 872,273
Employee compensation and benefits 6,233,477 5,853,081
Income taxes payable -- 734,839
Accrued expenses (Note 5) 7,572,929 6,994,407
Current debt maturities -- 22,290
----------- -----------
TOTAL CURRENT LIABILITIES 15,553,799 14,476,890
Other liabilities 355,803 425,488
Long-term debt, net of current debt maturities -- 11,023,973
Deferred income taxes 987,704 993,247
----------- -----------
TOTAL LIABILITIES 16,897,306 26,919,598
----------- -----------
Commitments and contingencies (Note 9) -- --
Minority interest 148,648 154,836
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, authorized
500,000 shares; none issued or outstanding -- --
Common stock, $.01 par value, 40,000,000 shares authorized;
6,966,762 shares issued outstanding at August 31, 1997 and
7,026,262 shares issued and outstanding at November 30, 1997 69,668 70,263
Additional paid-in capital 16,739,425 17,036,473
Retained earnings 14,873,360 17,397,355
----------- -----------
31,682,453 34,504,091
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $48,728,407 $61,578,525
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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HORIZON HEALTH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
------------------------------
1996 1997
---- ----
<S> <C> <C>
Revenues:
Contract management $ 24,720,109 $ 26,598,903
Patient services 1,415,026 2,670,438
Other 744,819 53,071
------------ ------------
Total revenues 26,879,954 29,322,412
Expenses:
Salaries and benefits 14,842,069 15,728,569
Purchased services 3,679,232 4,858,679
Provision for bad debts 307,744 355,027
Depreciation and amortization 597,453 611,897
Other 3,394,743 3,574,921
------------ ------------
Total operating expenses 22,821,241 25,129,093
Other income (expense):
Interest expense (106,303) (61,555)
Interest and other income 143,540 105,613
Loss on sale of fixed assets (2,515) --
------------ ------------
Income before income taxes and minority interest 4,093,435 4,237,377
Income tax expense (Note 8) 1,686,382 1,707,194
------------ ------------
Income before minority interest 2,407,053 2,530,183
Minority interest (Note 3) 24,074 6,188
------------ ------------
Net income $ 2,382,979 $ 2,523,995
============ ============
Earnings per common share:
Net income per common share $ 0.30 $ 0.33
============ ============
Weighted average shares outstanding 8,026,796 7,761,243
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
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HORIZON HEALTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1996 1997
------------------ ------------------
<S> <C> <C>
Operating Activities:
Net income $ 2,382,979 $ 2,523,995
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 597,453 611,897
Minority interest 24,074 6,188
Deferred income taxes 95,688 5,543
Loss on sale of equipment 2,515 --
Changes in net assets and liabilities:
Increase in restricted cash (84,828) --
Increase in accounts receivable (2,643,986) (4,724,025)
Decrease in notes & other receivables (6,762) (89,004)
Decrease (increase) in income taxes receivable (8,189) 951,256
Increase in prepaid expenses and supplies (178,948) (54,810)
Increase in other assets (349,639) (108,159)
Decrease (increase) in accounts payable, accrued expenses 569,550 (1,760,922)
Increase in income taxes payable 786,729 734,839
Decrease in payable to health insurance program (661,248) --
Increase (decrease) in other liabilities (262,348) 69,685
------------ ------------
Net cash provided by (used in) operating activities 263,040 (1,833,517)
------------ ------------
Investing activities:
Purchase of property and equipment (669,209) (292,037)
Proceeds from sale of equipment 5,350 --
Increase in goodwill and management contracts (47,825) --
Payment for purchase of Professional Psychological
Services, Inc. net of cash acquired -- (200,985)
Payment for purchase of Acorn Behavioral HealthCare
Corporation, net of cash acquired -- (12,726,120)
------------ ------------
Net cash used in investing activities (711,684) (13,219,142)
------------ ------------
Financing activities:
Payments on long-term debt (337,356) (3,691)
Proceeds from long term borrowings -- 11,000,000
Net proceeds from issuance of common stock -- 119,688
Tax benefit related to stock option exercise 134,410 177,955
------------ ------------
Net cash provided by (used in) financing activities (202,946) 11,293,952
------------ ------------
Net decrease in cash and short term investments (651,590) (3,758,707)
Cash and short-term investments at beginning of period 8,369,838 5,516,575
------------ ------------
Cash and short-term investments at end of period $ 7,718,248 1,757,868
============ ============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 106,303 $ 61,555
============ ============
Income taxes $ 405,617 $ 15,777
============ ============
Supplemental disclosure of non-cash investing activities:
Payment for Professional Psychological Services Inc.
Fair value of assets acquired $ 200,985
------------
Cash paid (200,985)
------------
Liabilities assumed --
============
Payment for Acorn Behavioral HealthCare Management Corporation 12,904,189
------------
Fair value of assets acquired (12,726,357)
------------
Cash paid 177,832
============
Liabilities assumed
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION
Horizon Health Corporation (the "Company"), formerly known as Horizon
Mental Health Management, Inc., is a contract manager of clinical and
related services, primarily of mental health programs, offered by general
acute care hospitals in the United States. These management contracts are
generally for terms ranging from three to five years, the majority of
which have automatic renewal provisions. The Company currently has
offices in the Dallas, Texas; Los Angeles, California; Chicago, Illinois;
Tampa, Florida; and Boston, Massachusetts metropolitan areas. The
Company's National Support Center is in Lewisville, Texas.
The Company was formed in July 1989 for the purpose of acquiring all the
assets of two companies. One of these companies, known as Horizon Health
Management Company, had been formed in 1981 and since that time had been
engaged in the mental health contract management business. The other
company owned a freestanding psychiatric hospital in California.
Effective March 1, 1990, the assets constituting the contract management
business and the psychiatric hospital of the two companies were
transferred to the Company. On January 3, 1995, the Company acquired the
net assets and operations of National Medical Management Services, a
division of National Medical Enterprises, Inc.
On March 13, 1995, the Company's initial public offering of 3,120,000
shares of common stock at an offering price to the public of $6.67 per
share was declared effective by the Securities and Exchange Commission.
Of the 3,120,000 shares of common stock offered, 1,981,850 shares were
offered by the Company and 1,138,150 shares were offered by a stockholder
of the Company. On March 20, 1995, the Company completed the initial
public offering, issued the common stock and received net proceeds of
$11,324,141 (after deducting underwriting discounts and IPO costs of
$1,888,189).
On April 11, 1995, the Company sold an additional 118,150 shares of
common stock at the initial offering price of $6.67 per share pursuant to
the exercise of the overallotment option granted to the underwriters in
the initial public offering. Net proceeds of $675,387 (after deducting
underwriting discounts and IPO costs of $112,283) were received by the
Company.
On April 1, 1996, the Company acquired the Parkside Company ("Parkside"),
a contract manager of mental health services for acute care hospitals.
Parkside has been consolidated with the Company as of April 1, 1996. On
July 31, 1996, the Company acquired eighty percent (80%) of the
outstanding common stock of Florida Professional Psychological Services,
Inc., also known as Professional Psychological Services, Inc. ("PPS") and
PPS has been consolidated with the Company as of August 1, 1996.
Effective March 15, 1997, the Company purchased all of the outstanding
capital stock of Geriatric Medical Care, Inc., a Tennessee corporation
("Geriatric"), and Clay Care, Inc., a Texas corporation ("CCI"), and they
have been consolidated with the Company as of March 15, 1997 (see Note
3).
On August 11, 1997, the Company exchanged 1,400,000 shares of its common
stock for all of the outstanding common stock of Specialty Healthcare
Management, Inc. ("Specialty"). Specialty was a privately held contract
manager of mental health and physical rehabilitation treatment programs
for general acute care hospitals. The exchange has been accounted for
under the pooling of interests method. Accordingly, all financial
statements presented have been restated to include the results of
Specialty (see Note 3).
Effective October 31, 1997, the Company acquired all of the outstanding
capital stock of Acorn Behavioral HealthCare Management Corporation
("Acorn"), a Pennsylvania corporation. The Company accounted for the
acquisition of Acorn by the purchase method as required by generally
accepted accounting principles. Acorn provides employee assistance
programs and other related services to self-insured employers. Acorn
7
<PAGE> 8
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
provides employee assistance programs and other related services to
self-insured employers. Acorn had total revenues of approximately $7.0
million for the year ended August 31, 1997. The purchase price of
approximately $12.7 million in cash was funded from $1.7 million of
working capital and $11.0 million from an advance under the Company's
existing revolving credit facility with Texas Commerce Bank, N.A. (See
note 3)
BASIS OF PRESENTATION:
The accompanying consolidated balance sheet at November 30, 1997, the
consolidated statements of operations for the three month periods ended
November 30, 1996 and 1997, and the consolidated statements of cash flows
for the three months ended November 30, 1996 and 1997 are unaudited.
These financial statements should be read in conjuction with the
Company's audited financial statements for the year ended August 31,
1997. In the opinion of company management, the unaudited consolidated
financial statements include all adjustments, consisting only of normal
recurring accruals, which the Company considers necessary for a fair
presentation of the financial position of the Company as of November 30,
1997, and the results of operations for the three months ended November
30, 1996 and 1997.
Operating results for the three month periods are not necessarily
indicative of the results that may be expected for a full year or any
portion thereof.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND SHORT-TERM INVESTMENTS: Cash and short-term investments include
securities with original maturities of three months or less when
purchased.
RESTRICTED CASH: Restricted cash represents amounts set aside for the
Supplemental Executive Retirement Plan (SERP) and Deferred Compensation
Plan of Specialty Healthcare Management, Inc., which were terminated in
connection with the pooling of interests transaction.
PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost.
Depreciation expense is recorded on the straight-line basis over the
assets' estimated useful lives. The useful lives of furniture and
fixtures and computer equipment are estimated to be five years and three
years, respectively. Building improvements are recorded at cost and
amortized over the estimated useful lives of the improvements or the
terms of the underlying lease, whichever is shorter. Routine maintenance,
repair items, and customer facility and site improvements are charged to
current operations.
MANAGEMENT CONTRACTS: Management contracts represent the fair value of
contracts purchased and are being amortized using the straight-line
method over seven years.
GOODWILL: Goodwill represents the excess of cost over fair value of net
assets acquired and is being amortized using the straight-line method
over 40 years.
LONG-LIVED AND INTANGIBLE ASSETS: The Company has adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-lived Assets and Assets to be Disposed of". Under SFAS
121, the Company recognizes impairment losses on property and equipment
and intangible assets whenever events or changes in circumstances
indicate that the carrying amount of long-lived assets, on an individual
property basis, may not be recoverable through undiscounted future cash
flows. Such
8
<PAGE> 9
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
losses are determined using estimated fair value or by comparing the sum
of the expected future discounted net cash flows to the carrying amount
of the asset. Impairment losses are recognized in operating income as
they are determined.
REVENUE: Contract management revenue is reported at the estimated net
realizable amounts from contracted hospitals for contract management
services rendered. Adjustments are accrued on an estimated basis in the
period the related services are rendered and adjusted in future periods
as final settlement is determined.
Contract management revenue is based on a per diem calculation using
patients per day, a fixed fee, admissions, discharges, direct expenses,
or any combination of the preceding depending on a specific contract.
Other revenue is primarily generated by capitated managed behavioral
health and employee assistance programs. The fees are defined by contract
and are calculated on a per-member/per-month fee, fixed fee and/or a fee
for service basis. Other revenue is accrued in the same manner as
contract management revenue.
Some management contracts include a clause which states that the Company
will indemnify the hospital for any third-party payor denials, including
Medicare. At the time the charges are denied, an allowance for 100% of
the disputed amount is recorded by the Company. Management believes it
has adequately provided for any potential adjustments that may result
from final settlement of these denials.
The customers of the Company are not concentrated in any specific
geographic region, but are concentrated in the health care industry. At
November 30, 1997, the Company had management contracts with 36 hospitals
directly or indirectly owned by Columbia/HCA Healthcare Corporation
("Columbia/HCA"), of which 34 had programs in operation. These 36
contracts accounted for 16.6% of the Company's net revenues for the three
months ended November 30, 1997. In the aggregate, including terminated
contracts, revenues generated by hospitals directly or indirectly owned
by Columbia/HCA accounted for 16.9% of the Company's net revenues for the
three months ended November 30, 1997. Of the 36 Columbia/HCA contracts at
November 30, 1997, 12 contracts contain a provision limiting the number
of contracts which Columbia/HCA can cancel without cause to 33.3% during
any calendar year. The termination or non-renewal of all or a substantial
part of the management contracts with hospitals owned by Columbia/HCA
could have a material adverse effect on the Company's business, financial
condition or results of operations. In recent months, Columbia/HCA and
its business practices have been under intense widespread review by
governmental agencies. Because the Company has a significant number of
management contracts with Columbia/HCA which could also be subject to
review, the governmental scrutiny of Columbia/HCA could directly or
indirectly affect the Company or its relationship with Columbia/HCA.
At November 30, 1997, accounts receivable from hospitals directly or
indirectly owned by Columbia/HCA were approximately $2.7 million. The
Company generally does not require collateral to support outstanding
accounts receivable.
INCOME TAXES: The Company has adopted SFAS No. 109, "Accounting for
Income Taxes." SFAS 109 generally requires an asset and liability
approach and requires recognition of deferred tax assets and liabilities
resulting from differing book and tax bases of assets and liabilities. It
requires that deferred tax assets and liabilities be determined using the
tax rate expected to apply to taxable income in the periods in which the
deferred tax asset or liability is expected to be realized or settled.
Under this method, future financial results will be impacted by the
effect of changes in income tax rates on cumulative deferred income tax
balances.
9
<PAGE> 10
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NET INCOME PER SHARE: Net income per common share is calculated using
the weighted average number of common shares and common equivalent
shares outstanding during the respective periods. Dilutive common
equivalents consist of stock options and warrants calculated using the
treasury stock method. Pursuant to the requirements of the Securities
and Exchange Commission, common shares and common equivalent shares
issued at prices below the public offering price during the twelve
months immediately preceding the date of the initial filing of the
Registration Statement have been included in the calculation of common
shares and common equivalent shares, using the treasury stock method, as
if they were outstanding for all periods presented. All shares and per
share data, except par value per share, have been retroactively adjusted
to reflect a three for two stock split effected as a 50% stock dividend
by the Company.
SALE OF RIGHTS TO PURCHASE OPTIONS: During the year ended August 31,
1995, the Company issued rights to purchase nonstatutory stock options to
purchase 168,000 shares of common stock. Certain of these options
required payment of $0.67 per option by the recipient prior to issuance
of the option. The Company recognized these payments as an addition to
Additional Paid-in Capital.
HEALTH INSURANCE PROGRAM REIMBURSEMENT: Services were provided by the
Company to patients who are eligible for coverage under Title XVIII
(Medicare) Health Insurance Programs. Amounts received are generally less
than the standard billing rates of the hospital and receivables are
recorded in the consolidated balance sheet at the estimated amount to be
reimbursed. Amounts due to/from Health Insurance Programs under Medicare
are subject to final determination through an audit by a fiscal
intermediary. All amounts due were finalized in fiscal 1997.
FINANCIAL INSTRUMENTS: Financial instruments consist of cash and
short-term investments, restricted cash, accounts receivable, current
liabilities and long-term debt obligations. The carrying amounts reported
in the balance sheets for these financial instruments approximate fair
value.
USE OF ESTIMATES: The Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform to the current year presentation.
NEW ACCOUNTING STANDARDS: In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
128, "Earnings Per Share", which establishes new standards for computing
and presenting earnings per share. SFAS No. 128 is effective for the
Company for periods ending after December 15, 1997, and requires
restatement of all prior-period earnings per share amounts. If the
Company had computed net earnings per share in accordance with the
provisions of SFAS No. 128, the basic and diluted earnings per share for
the three months ended November 30, 1996 and 1997 would have been $0.35
and $0.31, and $0.36 and $0.33, respectively.
10
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HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components. SFAS No. 130 is effective for
the Company for fiscal years beginning after December 15, 1997, and
requires reclassification of financial statements in earlier periods for
comparative purposes. Adoption of this Statement is not expected to have
a material impact on the presentation of the Company's financial
statements.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which establishes standards for
the way that public business enterprises report information about
operating segments in interim and annual financial statements. SFAS No.
131 is effective for the Company for fiscal years beginning after
December 15, 1997, and requires comparative information for earlier years
to be restated. Management has not yet completed its assessment of how
this Statement will impact segment disclosures.
3. ACQUISITIONS
ACORN
Effective October 31, 1997, the Company acquired all of the outstanding
capital stock of Acorn Behavioral HealthCare Management Corporation
("Acorn"), a Pennsylvania corporation. The Company accounted for the
acquisition of Acorn by the purchase method as required by generally
accepted accounting principles. Acorn provides employee assistance
programs and other related services to self-insured employers. Acorn had
total revenues of approximately $7.0 million for the year ended
August 31, 1997. The purchase price of approximately $12.7 million in
cash was funded from $1.7 million of working capital and $11.0 million
from an advance under the Company's existing revolving credit facility
with Texas Commerce Bank, N.A. The purchase price exceeded the fair value
of Acorn's tangible net assets by $12,629,261, of which $9,258,513 is
recorded as goodwill and $3,370,748 as contracts.
11
<PAGE> 12
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The unaudited pro forma combined results of operations of the company and
Acorn for the three months ended November 30, 1996 and 1997 after
giving effect to certain pro forma adjustments are as follows:
<TABLE>
<CAPTION> THREE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 1996 NOVEMBER 30, 1997
<S> <C> <C>
Revenue $ 28,400,176 $30,707,392
============ ===========
Net income $ 2,396,267 $ 2,677,753
============ ===========
Net income per common share $ .30 $ .35
</TABLE> ============ ===========
SPECIALTY HEALTHCARE MANAGEMENT, INC.
On August 11, 1997, the Company exchanged 1,400,000 shares of its common
stock for all of the outstanding common stock of Specialty Healthcare
Management, Inc. The exchange has been accounted for under the pooling of
interests method. Accordingly, the November 30, 1996 financial statements
presented have been restated to include the results of Specialty.
Specialty's results of operations for the three months ended November 30,
1996 have been combined with Horizon's results of operations for the same
period. Prior to the exchange Specialty prepared its financial statements
on a December 31 calendar year end which has subsequently been changed to
conform to the Company's fiscal year end.
GERIATRIC MEDICAL CARE, INC.
Effective March 15, 1997, the Company purchased all of the outstanding
capital stock of Geriatric Medical Care, Inc., a Tennessee corporation,
and Geriatric has been consolidated with the Company as of March 15,
1997. The Company accounted for the acquisition of Geriatric by the
purchase method as required by generally accepted accounting principles.
Geriatric is a contract manager of mental health services for acute care
hospitals. Geriatric had total revenues of approximately $5.7 million in
1996 and, at March 15, 1997, had 18 management contract locations, of
which three were not yet in operation. The purchase price of
approximately $4.6 million, of which approximately $4.3 million was paid
at closing from existing cash of the Company, included retiring
essentially all of Geriatric's outstanding debt. The final purchase price
payment of $270,000 was made on April 16, 1997. The purchase price
exceeded the fair value of Geriatric's tangible net assets by $5,005,986,
of which $4,498,038 is recorded as goodwill and $507,948 as management
contracts. Tangible assets acquired and liabilities assumed totaled
$1,042,683 and $1,421,931, respectively. Pro forma financial data is not
presented because the impact of this acquisition is not material to the
Company's results of operations for any period presented.
CLAY CARE, INC.
Also effective March 15, 1997, the Company purchased all of the
outstanding capital stock of Clay Care, Inc., a Texas corporation, and
CCI has been consolidated with the Company as of March 15, 1997. The
Company accounted for the acquisition of CCI by the purchase method as
required by generally accepted
12
<PAGE> 13
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
accounting principles. CCI is a contract manager of mental health
services for acute care hospitals. At March 15, 1997, CCI had management
contracts with five hospitals of which four were in operation and one of
which opened in April 1997. CCI had total revenues of approximately $1.3
million in 1996. A total of $475,000 of the $1,000,000 purchase price was
paid at the closing from existing cash of the Company. The remaining
$525,000 of the total purchase price was paid by the Company in April
1997 and June 1997. The purchase price exceeded the fair value of CCI's
tangible net assets by $855,738, of which $714,672 is recorded as
goodwill and $141,066 as management contracts. Tangible assets acquired
and liabilities assumed totaled $201,794 and $57,532, respectively. Pro
forma financial data is not presented because the impact of this
acquisition is not material to the Company's results of operations for
any period presented.
INVESTMENT IN PPS
On July 31, 1996, the Company acquired eighty percent (80%) of the
outstanding common stock of Florida Professional Psychological Services,
Inc., also known as Professional Psychological Services, Inc., and PPS
has been consolidated with the Company as of August 1, 1996. The Company
accounted for the acquisition of PPS by the purchase method as required
by generally accepted accounting principles. Based in Clearwater,
Florida, PPS specializes in full risk, capitated managed behavioral
health programs and employee assistance programs. The final purchase
price of $3,324,310 was based primarily on a multiple of the 1996 pre-tax
income of PPS. The purchase price exceeded the fair value of PPS' net
assets by $3,298,885 which is recorded as goodwill. Assets acquired and
liabilities assumed totaled $540,960 and $515,535, respectively. Cash
payments for the purchase of PPS, net of cash acquired, were $786,767 and
$1,898,230 during 1996 and 1997, respectively. The final payment of
$200,985 was made on September 30, 1997.
In addition, the Company also obtained an option to acquire the remaining
twenty percent (20%) of the outstanding PPS common stock at a future
date. The sellers, constituting all the shareholders of PPS, also
obtained the right to put to the Company such shares on certain dates.
The option and put prices for the remaining PPS shares are based on a
multiple of the pre-tax income of PPS in future years.
For the three months ended November 30, 1997, PPS generated $1,863,523 in
gross revenues, and net income of $93,994.
PARKSIDE COMPANY
Effective April 1, 1996, the Company purchased all of the outstanding
capital stock of the Parkside Company, and Parkside has been consolidated
with the Company as of April 1, 1996. The Company accounted for the
acquisition of Parkside by the purchase method as required by generally
accepted accounted principles. Parkside is a contract manager of mental
health services for acute care hospitals. The purchase price of $3.5
million included approximately $2,600,000 in cash and 192,437 shares of
the Company's common stock. The purchase price exceeded the fair value of
Parkside's tangible net assets by $3,500,000, of which $1,400,000 is
recorded as goodwill and $2,100,000 as management contracts.
NATIONAL MEDICAL MANAGEMENT SERVICES
Effective January 3, 1995, the Company acquired the net assets and
operations of National Medical Management Services, a division of
National Medical Enterprises, Inc. (the "Division") and the Division has
13
<PAGE> 14
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
been consolidated with the Company as of January 3, 1995 (see Note 10).
The Company accounted for the acquisition by the purchase method as
required by generally accepted accounting principles. The purchase price
exceeded the fair value of the net assets acquired by $1,120,350, of
which $120,350 is recorded as goodwill and $1,000,000 as management
contacts. Tangible assets acquired and liabilities assumed totaled
$6,755,415 and $2,808,566, respectively.
5. ACCRUED EXPENSES
Accrued expenses consisted of the following at August 31, 1997 and
November 30, 1997:
<TABLE>
<CAPTION>
August 31, November 30,
1997 1997
---------- ----------
<S> <C> <C>
Outstanding claims $ 416,552 $ 834,628
Reserve for contract adjustments 1,287,664 1,051,315
Health insurance 936,639 883,454
Other 4,932,074 4,225,010
---------- ----------
$7,572,929 $6,994,407
========== ==========
</TABLE>
6. LONG-TERM DEBT
At August 31, 1997 and November 30,1997, the Company had the following
long-term debt:
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1997 1997
------------ ------------
<S> <C> <C>
SANWA Leasing Corporation -- $ 46,263
Texas Commerce Bank - Revolving Credit Facility -- 11,000,000
------------ ------------
-- 11,046,263
------------ ------------
Less current maturities -- (22,290)
------------ ------------
-- $ 11,023,973
============ ============
</TABLE>
The Company currently has a capitalized lease for computer equipment with
SANWA Leasing Corporation. The lease contains a bargain purchase option
at the term of the Agreement.
Effective September 29, 1995, the Company entered into a loan agreement
with Texas Commerce Bank (TCB) for a revolving line of credit with
maximum advance commitment of $11,000,000. On October 16, 1997, the
Company increased its existing revolving line of credit from TCB from
$11.0 million to $14.0 million. As of November 30, 1997, the Company has
borrowings of $11.0 million outstanding against the available line of
credit and has $2.0 million available for advances under the revolving
credit facility.
14
<PAGE> 15
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The line of credit bears interest at (1) the lesser of the Floating Base
Rate, as defined, or (2) the lesser of the LIBOR Rate plus LIBOR Margin,
as defined. The LIBOR margin varies depending on the debt coverage ratio
of the Company.
The original maturity date of this line of credit is December 15, 1998;
however, it may be extended to December 15, 2000 if certain debt coverage
ratios are met.
On December 9, 1997, the Company entered into a Credit Agreement (the
"Credit Agreement") with Texas Commerce Bank National Association, as
Agent, for itself and other lenders party to the Credit Agreement for a
senior secured credit facility in an aggregate amount of up to $50.0
million (the "New Credit Facility"). The New Credit Facility consists of
a $10.0 million revolving credit facility to fund ongoing working capital
requirements and a $40.0 million advance term loan facility to refinance
certain existing debt and to finance future acquisitions by the Company.
The New Credit Facility replaced the Company's existing $14.0 million
revolving credit facility.
7. STOCK OPTIONS
In accordance with the Company's 1989 and 1995 Stock Option Plans, as
amended, 1,931,843 shares of common stock have been reserved for grant to
key employees. Management believes the exercise prices of the options
granted approximated or exceeded the market value of the common stock at
the date of the grant. The options generally vest ratably over five years
from the date of grant and terminate 10 years from the date of grant.
On April 28, 1995 the board of directors created the 1995 Stock Option
Plan For Eligible Outside Directors for outside directors owning less
than 5% of the stock of the Company. 150,000 shares of common stock are
reserved for issuance under this plan. This plan has been amended and
restated to provide for 3,000 option grants to each eligible director
each time he is re-elected to the board after having served as a director
for at least one year since his initial grant under the plan. Options
vest ratably over five years from the date of grant.
On April 1, 1996, the Company filed an S-8 registration statement which
registered 2,054,549 shares granted or eligible for granting to employees
and directors under the 1989 and 1995 stock option plans, as amended, and
the outside director stock option plan.
8. INCOME TAXES
The Company recorded federal and state income taxes for the three months
ended November 30, 1997 in the amount of $1,707,194 resulting in a
combined tax rate of 40.3%.
15
<PAGE> 16
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
The Company leases various office facilities and equipment under
operating leases. The following is a schedule of minimum rental payments
under these leases which expire at various dates:
<TABLE>
<S> <C>
Nine months ending August 31, 1998 $ 814,297
For the year ending August 31, 1999 779,816
For the year ending August 31, 2000 650,931
For the year ending August 31, 2001 557,047
For the years ending August 31, 2002 and thereafter 181,923
----------
$2,984,014
</TABLE>
Rent expense for the three months ended November 30, 1996, and 1997
totaled $251,992 and $243,174, respectively.
The Company leases a building it occupies as its executive offices and
National Support Center in Lewisville, Texas. In connection with this
lease transaction, the Company guaranteed a loan of approximately
$900,000 by a financial institution to the building owner. The Company
also agreed to purchase the leased building for approximately $4.5
million at the end of the lease term if it is not sold to a third party,
or the Company does not extend its lease.
On July 31, 1996, the Company acquired eighty-percent (80%) of the
outstanding common stock of Florida Professional Psychological Services,
Inc. The owners of the minority interest (20%) have an option to put to
the Company their remaining interest through January 1998, 1999, or 2000,
based upon a multiple of pre-tax earnings of the preceding fiscal year.
The Company is insured for professional and general liability on a
claims-made policy, with additional tail coverage being obtained when
necessary. Management is unaware of any claims against the Company that
would cause the final expenses for professional and general liability to
vary materially from amounts provided.
The Company is involved in litigation arising in the ordinary course of
business, including matters involving professional liability. It is the
opinion of management that the ultimate disposition of such litigation
would not be in excess of any reserves or have a material adverse effect
on the Company's financial position or results of operations.
10. COMMON STOCK AND WARRANTS
As part of the purchase of National Medical Management Services,
effective January 3, 1995, the Company issued warrants to National
Medical Enterprises, Inc. to purchase 171,793 shares of common stock at
an exercise price of $0.000558 per share. The warrants were exercisable
at any time subsequent to January 3, 1997 and the exercise price and
number of shares were adjustable to maintain proportional ownership of
the Company. The value of the warrants at the date of issuance was
determined to be $389,350. The remaining warrants of 179,178 at August
11, 1997 were exercised in connection with the Specialty exchange (see
note 3). In conjunction with the purchase transaction the Company issued
additional shares to existing management shareholders, other senior
management and an outside shareholder. The proceeds from the sale of
these shares were used in the purchase transaction.
16
<PAGE> 17
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Board of Directors of the Company approved a three-for-two stock
split effected in the form of a 50% stock dividend, pursuant to which one
additional share of Common Stock of the Company was issued on January 31,
1997 for every two shares of Common Stock held by stockholders of record
at the close of business on January 22, 1997. As a result of such stock
split/dividend, a total of $18,253 originally recorded as additional paid
in capital was reclassified as common stock. Upon effecting the stock
split/dividend, the stock options and their related exercise prices were
adjusted proportionately.
In February 1997, the Certificate of Incorporation, as amended, of the
Company was amended to increase the number of authorized shares of Common
Stock, $.01 par value per share, of the Company from 10,000,000 shares to
40,000,000 shares.
In February 1997, the Company entered into a Rights Agreement pursuant to
which it approved the distribution of one Common Stock purchase right,
exercisable under certain conditions, for each outstanding share of
Common Stock of the Company.
11. RETIREMENT PLAN
The Company sponsors a 401(k) plan that covers substantially all eligible
employees. The Company can elect to make matching contributions at its
discretion. For the three months ended November 30, 1996 and 1997 the
Company recognized matching contributions of approximately $59,000 and
$84,000 respectively.
12. MOUNTAIN CREST HOSPITAL
A subsidiary of the Company leased and began operating Mountain Crest
Hospital ("MCH") in December 1990. In July 1994, the Company subleased
MCH to MHM for a period commencing July 31, 1994 through December 31,
2000. The Company, which had previously guaranteed the obligations under
the primary lease, has provided the substitute guaranty of MHM to the
lessor. Management believes it has satisfied the conditions in the
primary lease for release of its guaranty. The sublease requires monthly
rental payments to the Company of 50% of operating cash flow, as defined,
subject to a minimum monthly payment of $20,000, not to exceed $1,200,000
in the aggregate over the sublease life which expires upon expiration of
the primary lease on December 31, 2000. As of November 30, 1997, the
Company has received $904,000 of the $1,200,000 resulting in future
receipts of $296,000 to be received on or before February 1, 1999
assuming minimum monthly payments of $20,000.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company provides contract management of clinical and related services
for general acute care hospitals and is currently the leading manager of mental
health programs offered by general acute care hospitals in the United States.
The Company has grown both internally and through acquisitions, increasing both
the number of its management contracts and the variety of its treatment programs
and services. The Company was formed in July 1989 as the successor to Horizon
Health Management Company, which had been engaged in the mental health contract
management business since 1981. During the period from 1989 to 1994, the Company
grew primarily from its internal sales efforts as it focused its business
operations entirely on the contract management of mental health programs. In
1995, the Company began to pursue acquisitions as an additional source of
growth. Over the last five years, the Company has increased its management
contracts from 43 to a total of 194 as of November 30, 1997, and currently
operates in 38 states. Of those management contracts, 176 related to mental
health programs and 18 related to physical rehabilitation programs. The 194
management contracts cover 308 various treatment programs. The Company has also
developed a proprietary mental health outcomes measurement system known as CQI+
and at November 30, 1997 provided outcome measurement services at 87 hospital
locations.
Effective October 31, 1997, the Company acquired all of the outstanding
capital stock of Acorn Behavioral HealthCare Management Corporation ("Acorn"), a
Pennsylvania corporation. The Company accounted for the acquisition of Acorn by
the purchase method as required by generally accepted accounting principles.
Acorn provides employee assistance programs and other related services to
self-insured employers. Acorn had total revenues of approximately $7.0 million
for the year ended August 31, 1997. The purchase price of approximately $12.7
million in cash was funded from $1.7 million of working capital and $11.0
million from an advance under the Company's existing revolving credit facility
with Texas Commerce Bank, N.A. The purchase price exceeded the fair value of
Acorn's tangible net assets by $12,629,261, of which $9,258,513 is recorded as
goodwill and $3,370,748 as contracts.
On August 11, 1997, Horizon acquired Specialty in a transaction accounted
for as a pooling of interests, resulting in a restatement of the Company's
financial results for the fiscal years ended August 31, 1995, 1996 and 1997.
Specialty was a contract manager of mental health and physical rehabilitation
treatment programs for general acute care hospitals. At August 11, 1997,
Specialty had 44 management contracts. In the Specialty transaction, 1,400,000
shares of Horizon common stock were issued and exchanged for all outstanding
shares of Speciality capital stock. The 1,400,000 shares represented
approximately 20.1% of the Company's common stock outstanding after the
acquisition. Upon the acquisition, the Specialty outstanding bank indebtedness
of approximately $3.2 million was paid in full. Included in the Company's
financial statements for the three months ended November 30, 1996 are the
financial results of Specialty for the same period.
Effective March 15, 1997, the Company purchased all of the outstanding
capital stock of Geriatric Medical Care, Inc., a Tennessee corporation, and
Geriatric has been consolidated with the Company as of March 15, 1997. The
Company accounted for the acquisition of Geriatric by the purchase method as
required by generally accepted accounting principles. Geriatric is a contract
manager of mental health services for acute care hospitals. Geriatric had total
revenues of approximately $5.7 million in 1996 and, at March 15, 1997, had 18
management contract locations, of which three were not yet in operation. The
purchase price of approximatley $4.6 million, of which approximately $4.3
million was paid at closing from existing cash of the Company, included retiring
essentially all
18
<PAGE> 19
of Geriatric's oustanding debt. The final purchase price payment
of $270,000 was made on April 16, 1997. The purchase price exceeded the fair
value of Geriatric's tangible net assets by $5,005,986, of which $4,498,038 is
recorded as goodwill and $507,948 as management contracts. Tangible assets
acquired and liabilities assumed totaled $1,042,683 and $1,421,931,
respectively.
Also effective March 15, 1997, the Company purchased all of the outstanding
capital stock of Clay Care, Inc., a Texas corporation, and CCI has been
consolidated with the Company as of March 15, 1997. The Company accounted for
the acquisition of CCI by the purchase method as required by generally accepted
accounting principles. CCI is a contract manager of mental health services for
acute care hospitals. At March 15, 1997, CCI had management contracts with five
hospitals of which four were in operation and one of which opened in April 1997.
CCI had total revenues of approximately $1.3 million in 1996. A total of
$475,000 of the $1,000,000 purchase price was paid at the closing from existing
cash of the Company. The remaining $525,000 of the total purchase price was paid
by the Company in April 1997 and June 1997. The purchase price exceeded the fair
value of CCI's tangible net assets of $855,738, of which $714,672 is recorded as
goodwill and $141,066 as management contracts. Tangible assets acquired and
liabilities assumed totaled $201,794 and $57,532, respectively.
In July 1996, the Company acquired 80% of the outstanding common stock of
Florida PPS. The Company accounted for the acquisition of Florida PPS by the
purchase method as required by generally accepted accounting principles. Florida
PPS has been consolidated with the Company as of August 1, 1996. Based in
Clearwater, Florida, Florida PPS specializes in full risk, capitated managed
mental health programs and employee assistance programs. The purchase price for
80% of the outstanding capital stock was approximately $3.3 million, based
primarily on a 6.25 multiple of the 1996 pre-tax income of Florida PPS, and was
paid from existing cash. In addition, the Company obtained an option to acquire
the remaining 20% of the outstanding Florida PPS common stock at a future date.
The sellers, constituting all the shareholders of Florida PPS, also obtained the
right to put to the Company such shares on certain dates. The option and put
prices for the remaining Florida PPS shares are based on a multiple of the
pre-tax income of Florida PPS in future years.
Specialty acquired the assets of National Medical Management Services
effective January 1, 1995. In the transaction, Specialty paid approximately
$3.95 million in cash and a note of approximately $731,000 payable to NME as
payment for the assets. Specialty also issued to NME a warrant to acquire common
stock of Specialty, which warrant was subsequently exercised as part of
Horizon's acquisition of Specialty in August 1997. The NME promissory note was
paid in January 1996. In April, 1996 Specialty acquired The Parkside Company, a
contract manager of mental health programs, in a merger in which common stock
was issued and approximately $2.6 million was paid in cash which was financed
under a bank credit facility.
19
<PAGE> 20
SUMMARY STATISTICAL DATA
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
- --------------------------------------------------------- ----------------
1995 1996 1997 1997
- --------------------------------------------------------- ----------------
NUMBER OF CONTRACT LOCATIONS:
<S> <C> <C> <C> <C>
Contract locations in operation 146 163 181 179
Contract locations signed
and unopened 15 16 14 15
---- ---- ---- ----
Total contract locations 161 179 195 194
==== ==== ==== ====
SERVICES COVERED BY CONTRACTS
IN OPERATION:
Inpatient (A) 138 156 166 165
Partial Hospitalization (A) 64 84 104 103
Outpatient 15 20 24 27
Home health 1 13 17 13
CQI Plus (under contract) 46 64 86 87
TYPES OF TREATMENT PROGRAMS
IN OPERATION:
Geropsychiatric (A) 102 144 197 193
Adult psychiatric (A) 81 82 75 70
Substance abuse (A) 9 20 10 12
Physical Rehabilitation 23 22 20 21
Other (A) 2 5 9 12
</TABLE>
(A) Beginning with the quarter ended February 29, 1996 a new
methodology which redefined the statistical definition of an
operating service or program was implemented. To avoid duplicity,
multiple services/treatment programs within each category at one
location are now being reported as a single service/treatment
program where the predominant treatment defines the appropriate
categories. As a result of this reporting change, prior periods
have been restated as estimates based on the new reporting
definition.
20
<PAGE> 21
RESULTS OF OPERATIONS
The following table sets forth for the three months ended November 30,
1996 and 1997, the percentage relationship to total net revenues of certain
costs, expenses and income and the number of management contracts in operation
at the end of each quarter.
THREE MONTHS ENDED NOVEMBER 30,
-------------------------------
1996 1997
------ ------
Revenues:
Contract management revenues .................... 92.0% 90.7%
Patient services ................................ 5.2 9.1
Other ........................................... 2.8 0.2
------ ------
Total revenues .................................... 100.0 100.0
Operating expenses
Salaries and benefits ........................... 55.2 53.6
Purchased services .............................. 13.7 16.6
Provision for bad debts ......................... 1.1 1.2
Depreciation and amortization ................... 2.2 2.2
Other ........................................... 12.7 12.1
------ ------
Total operating expenses .......................... 84.9 85.7
------ ------
Operating income .................................. 15.1 14.3
------ ------
Interest and other income (expense), net .......... 0.1 0.2
------ ------
Income before taxes ............................... 15.2 14.5
Income tax expense ................................ 6.2 5.9
------ ------
Income before minority interest ................... 9.0 8.6
Minority interest ................................. -- --
------ ------
Net income ........................................ 9.0% 8.6%
====== ======
Number of contracts in operation, end of period ... 162 179
21
<PAGE> 22
THREE MONTHS ENDED NOVEMBER 30, 1997 COMPARED TO THE THREE MONTHS ENDED
NOVEMBER 30, 1996
Revenue. Revenues for the three months ended November 30, 1997 were $29.3
million representing an increase of $2.4 million, or 8.9%, as compared to
revenues of $26.9 million for the corresponding period in the prior fiscal year.
An increase in contract management revenues accounted for $1.9 million of the
$2.4 million increase in revenues. The $1.9 million increase in contract
management revenues results from revenue recorded for Geriatric Medical Care,
Inc. ("Geriatric") and Clay Care, Inc. ("CCI"). Horizon acquired 100% of the
outstanding voting stock of Geriatric and CCI effective March 15, 1997 and
consolidated Geriatric and CCI with Horizon as of the effective date of
acquisition. An increase in patient service revenue accounted for $1.3 million
of the $2.4 million increase in revenues. $690,000 of the $1.3 million increase
in patient service revenue results from revenue recorded for Acorn Behavioral
HealthCare Management Corporation ("Acorn"). Horizon acquired 100% of the
outstanding voting stock of Acorn effective October 31, 1997 and consolidated
Acorn with Horizon as of the effective date of acquisition. The remaining
increase in patient service revenue results from the expansion of provider
services at Florida Professional Psychological Services, Inc. ("PPS"). Other
revenues decreased $700,000 due to a favorable cost report adjustment for
Mountain Crest recorded in November 1996.
Salaries and Benefits. Salaries and benefits for the three months ended
November 30, 1997 were $15.7 million representing an increase of $887,000, or
6.0%, as compared to salaries and benefits of $14.8 million for the prior fiscal
year. Salary and benefits cost per full time equivalent for the three months
ended November 30, 1997 were $14,338 representing an increase of $121 per full
time equivalent, or 0.9%, as compared to salary and benefits cost of $14,217 per
full time equivalent for the prior fiscal year. The number of full time
equivalents for the three months ended November 30, 1997 was approximately
1,097, representing an increase of 53.0, or 5.1%, as compared to approximately
1,044 full time equivalents in the prior fiscal year.
Depreciation and Amortization. Depreciation and amortization expenses for
the three months ended November 30, 1997 were $612,000 representing an increase
of $14,000, or 2.3%, as compared to depreciation and amortization expenses of
$597,000 for the corresponding period in the prior fiscal year. An increase of
$52,000 is due to the amortization of goodwill of $9.3 million, $4.5 million,
and $700,000 resulting from the acquisition of Acorn, Geriatric and CCI,
respectively. Amortization expense also increased $63,000 in relation to the
value placed on the contracts of Acorn, Geriatric and CCI. These increases were
offset by a decrease in amortization expense of $37,000 associated with
contracts acquired in 1990 which were fully amortized at February 1997. These
increases were also offset by the recording of an additional $73,000 of
depreciation expense in November 1996 due to the change in the Company's
definition of a capital expenditure. The remaining increase results from the
depreciation expense of additional equipment acquired by acquisition or
purchased for the operation of Horizon's contract management business.
Other Operating Expenses (Including Purchased Services and Provision for
Bad Debts). Other operating expenses for the three months ended November 30,
1997 were $8.8 million representing an increase of $1.4 million, or 18.9%, as
compared to other operating expenses of $7.4 million for the corresponding
period in the prior fiscal year. The following components identify the variances
between the periods reported.
Purchased services included a $635,000 increase in direct service fees for
the three months ended November 30, 1997 as compared to the same period in the
prior fiscal year as a result of the expansion of provider services at PPS and
the acquisition of Acorn on October 31, 1997. Direct service fees increased
$460,000 at PPS and $175,000 in relation to Acorn, respectively. In addition, an
increase occurred in purchased services due to an increase of $397,000 in
consulting fees. Consulting fees increased $164,000 as a result of software
upgrades at the regional offices and National Support Center, $50,000 resulting
from the acquisition of Geriatric and CCI effective March 15, 1997, $53,000 is
related to the annual Program Directors conference, and $32,000 related to a
Mental Health Outcomes assessment study. Purchased services also includes a
$27,000 increase in Medical Directors' administrative fees for the three months
ended November 30, 1997 as compared to the three months ended November 30, 1996.
Medical Directors' administrative fees increased $163,000 and $50,000 as a
result of the acquisitions of Geriatric and CCI effective March 15, 1997. This
increase was offset by a decline in Medical
22
<PAGE> 23
Directors' administrative fees between the periods resulting from certain
physician contracts having been renegotiated resulting in a general lowering of
compensatory fees.
Bad Debt Expense was $355,000 for the three months ended November 30, 1997
as compared to $308,000 for the three months ended November 30, 1996. This
increase was primarily due to the non-timely payment by contracted hospitals.
Other operating expense was $3.6 million for the three months ended
November 30, 1997 as compared to $3.4 million for the three months ended
November 30, 1996. This increase primarily results from the acquisitions of
Geriatric and CCI, effective March 15, 1997, and the acquisition of Acorn
effective October 31, 1997.
Interest and Other Income (Expense), Net. Interest income, net of interest
expense, and other income for the three months ended November 30, 1997 was
$44,000, as compared to net interest expense and other income of $37,000 for the
corresponding period in the prior fiscal year. This change results primarily
from interest income of $7,000 related to Acorn, which was acquired October 31,
1997.
Income Tax Expense. For the three month period ended November 30, 1997, the
Company recorded federal and state income taxes of $1,707,000 resulting in a
combined tax rate of 40.3%. For the three month period ended November 30, 1996,
the Company recorded federal and state income taxes of $1,686,000 resulting in a
combined tax rate of 41.2%.
LIQUIDITY AND CAPITAL RESOURCES
On December 9, 1997, the Company entered into a Credit Agreement (the
"Credit Agreement") with Texas Commerce Bank National Association as Agent (the
"Agent") for itself and other lenders party to the Credit Agreement, for a
senior secured credit facility in an aggregate amount of up to $50.0 million
(the "New Credit Facility"). The New Credit Facility consists of a $10.0 million
revolving credit facilty to fund ongoing working capital requirements (the
"Revolving Credit Facility") and a $40.0 million advance term loan facility to
refinance certain existing debt and to finance future acquisitions by the
Company (the "Advance Term Loan Facility"). The New Credit Facility replaced the
Company's existing $14.0 million revolving credit facility.
The following summary of certain material provisions of the Credit
Agreement does not purport to be complete, and is subject to, and qualified in
its entirety by reference to, the Credit Agreement, a copy of which is filed as
Exhibit 10.2 to this Quarterly Report on Form 10-Q, and is available from the
Company upon request.
The Company is the borrower under the New Credit Facility which is
unconditionally guaranteed by all material domestic subsidiaries of the Company.
The Revolving Credit Facility terminates November 30, 2000 and the Advance Term
Loan Facility has a term of five years, with drawdowns available until November
30, 1999. Once a drawdown is made under the Advance Term Loan Facility, the
commitment thereunder will be reduced by the amount funded. Amounts outstanding
under the Advance Term Loan Facility on November 30, 1999 are to be repaid in
twelve quarterly principal payments, beginning February 28, 2000, based upon a
five year amortization schedule with the first eleven principal payments being
1/20th of the outstanding balance on November 30, 1999, and the twelfth being
the remaining unpaid principal balance. Principal outstanding under the New
Credit Facility bears interest at the "Base Rate" (the greater of the Agent's
"prime rate" or the federal funds rate plus .5%) plus 0% to .5% (depending on
the Company's Indebtedness to EBITDA Ratio as defined in the Credit Agreement)
or the "Eurodollar Rate" plus .75% to 1.5% (depending on the Indebtedness to
EBITDA Ratio), as selected by the Company. The Company incurs quarterly
commitment fees ranging from .25% to .375% per annum (depending on the
Indebtedness to EBITDA Ratio) on the unused portion of the Revolving Credit
Facility (until November 30, 2000) and unused portion of the Advance Term Loan
Facility (until November 30, 1999).
The Company is subject to certain covenants which include prohibitions
against (i) incurring additional debt or liens, except specified permitted debt
or permitted liens, (ii) certain material acquisitions, other than specified
permitted acquisitions (including any single acquisition not greater than $10.0
million or cumulative
23
<PAGE> 24
acquisitions not in excess of $20.0 million during any twelve consecutive
monthly periods), (iii) certain mergers, consolidations or asset dispositions by
the Company or changes of control of the Company, (iv) certain management
vacancies at the Company, and (v) material change in the nature of business
conducted. In addition, the terms of the New Credit Facility require the Company
to satisfy certain ongoing financial covenants. The New Credit Facility is
secured by a first lien or first priority security interest in and/or pledge of
substantially all of the assets of the Company and of all present and future
subsidiaries of the Company.
Effective September 1996, the Company entered into a lease agreement with a
term of five years for a building which had been constructed to the Company's
specifications for its National Support Center. In connection with the lease
transaction, the Company guaranteed a loan of approximately $900,000. The loan
was by a financial institution to the owner. The Company also agreed to purchase
the leased building for approximately $4.5 million at the end of the lease term
in September 2001 if either the building is not sold to a third party or the
Company does not extend its lease.
The Company believes that its cash flow from operations, cash of $1.8
million at November 30, 1997 and $2.0 million currently available under the
revolving credit facility will be sufficient to cover all cash requirements over
the next twelve months, including estimated capital expenditures of $1.2
million. The Company is likely to require additional capital to fund any further
acquisitions.
On October 31, 1997, the Company acquired all the outstanding capital stock
of Acorn for approximately $12.7 million. To fund the acquisition, the Company
utilized approximately $1.7 million of existing cash and incurred debt of
approximately $11.0 million under the revolving credit facility. The Company
believes that its cash flow from operations and the remaining availability under
its revolving credit facility will be sufficient for remaining cash requirements
in fiscal 1998.
Statements contained herein and in various public presentations that are
based on future expectations rather than on historical facts are forward-looking
statements as defined under The Private Securities Litigation Reform Act of 1995
that involve a number of risks and uncertainties. Factors that could cause
actual results to differ materially from those in any such forward-looking
statement include but are not limited to demand by general hospitals for the
Company's services, the Company's ability to retain existing management
contracts and to obtain additional contracts, changes in reimbursement to
general hospitals by Medicare or other third-party payors for costs of providing
mental health services, changes to other regulatory provisions relating to
mental health services, overall economic conditions and various other risks as
outlined in the Company's Securities and Exchange Commission filings.
24
<PAGE> 25
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
NUMBER EXHIBIT
3.1 - Certificate of Incorporation of the Company, as amended
(incorporated herein by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K dated August 11, 1997).
3.2 - Amended and Restated Bylaws of the Company, as amended
(incorporated herein by reference to Exhibit 3.2 to
Amendment No. 2 as filed with the Commission on February 16,
1995 to the Company's Registration Statement on Form S-1
filed with the Commission on January 6, 1995 (Registration
No. 33-88314).
4.1 - Specimen certificate for the Common Stock, $.01 par value of
the Company (incorporated herein by reference to Exhibit 4.1
to the Company's Current Report on Form 8-K dated August 11,
1997).
4.2 - Rights Agreement, dated February 6, 1997, between the
Company and American Stock Transfer & Trust Company, as
Rights Agent (incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form 8-A,
Registration No. 000-22123, as filed with the Commission on
February 7, 1997).
10.1 - Stock Purchase Agreement, dated October 20, 1997, among the
Company, Dr. Melvyn S. Goldsmith, Ph.D., Barbara C.
Goldsmith and Acorn Behavioral HealthCare Management
Corporation (incorporated herein by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K dated September
1, 1997).
10.2 - Credit Agreement dated December 9, 1997 among the Company,
Texas Commerce Bank National Association, ("TCB") as Agent,
and the banks named therein (filed herewith).
10.3 - First Amendment to Letter Loan Agreement and Note
Modification Agreement dated December 9, 1997 among North
Central Development Company, the Company and its
subsidiaries and TCB (filed herewith).
11.1 - Statement Regarding Computation of Per Share Earnings (filed
herewith).
27.1 - Financial Data Schedule (filed herewith).
25
<PAGE> 26
(b) The Company filed the following reports on Form 8-K during the
quarter covered by this report:
Current Report on Form 8-K dated September 1, 1997 and filed with
the Commission on October 21, 1997. The items reported were: (i)
the financial results for thirty days of combined operations
following the Company's acquisition of Specialty Healthcare
Management, Inc., which included the Consolidated Statement of
Income of the Company for the month ended September 30, 1997; (ii)
the Company entering into a Stock Purchase Agreement to acquire
Acorn Behavioral HealthCare Management Corporation ("Acorn"); (iii)
the amendment to increase the Company's existing revolving credit
facility with TCB to $14.0 million; (iv) the Company entering into
a commitment letter with TCB and Chase Securities, Inc. relating to
a new $50.0 million senior secured credit facility; (v) the Company
entering into an Executive Retention Agreement with James Ken
Newman; and (vi) certain amendments to the existing stock option
plans of the Company.
Current Report on Form 8-K dated October 31, 1997 and filed with
the Commission on November 5, 1997. The item reported was the
Company's consummation of its acquisition of Acorn on October 31,
1997. The Financial Statements of Acorn as of and for the year
ended August 31, 1997 and Unaudited Pro Forma Condensed Combined
Financial Statements of the Company and Acorn as of and for the
year ended August 31, 1997 were filed as part of such Current
Report on Form 8-K.
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: DECEMBER 19, 1997
HORIZON HEALTH CORPORATION
BY: /s/ James W. McAtee
------------------------------------------
JAMES W. MCATEE
EXECUTIVE VICE PRESIDENT, FINANCE AND
ADMINISTRATION, CHIEF FINANCIAL
OFFICER AND TREASURER
27
<PAGE> 28
INDEX TO EXHIBITS
3.1 - Certificate of Incorporation of the Company, as amended (incorporated
herein by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K dated August 11, 1997).
3.2 - Amended and Restated Bylaws of the Company, as amended (incorporated
herein by reference to Exhibit 3.2 to Amendment No. 2 as filed with
the Commission on February 16, 1995 to the Company's Registration
Statement on Form S-1 filed with the Commission on January 6, 1995
(Registration No. 33-88314).
4.1 - Specimen certificate for the Common Stock, $.01 par value of the
Company (incorporated herein by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated August 11, 1997).
4.2 - Rights Agreement, dated February 6, 1997, between the Company and
American Stock Transfer & Trust Company, as Rights Agent (incorporated
by reference to Exhibit 4.1 to the Company's Registration Statement on
Form 8-A, Registration No. 000-22123, as filed with the Commission on
February 7, 1997).
10.1 - Stock Purchase Agreement, dated October 20, 1997, among the Company,
Dr. Melvyn S. Goldsmith, Ph.D., Barbara C. Goldsmith and Acorn
Behavioral HealthCare Management Corporation (incorporated herein by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
dated September 1, 1997).
10.2 - Credit Agreement dated December 9, 1997 among the Company, Texas
Commerce Bank National Association, ("TCB") as Agent, and the banks
named therein (filed herewith).
10.3 - First Amendment to Letter Loan Agreement and Note Modification
Agreement dated December 9, 1997 among North Central Development
Company, the Company and its subsidiaries and TCB (filed herewith).
11.1 - Statement Regarding Computation of Per Share Earnings (Filed
herewith).
27.1 - Financial Data Schedule (filed herewith).
28
<PAGE> 1
EXHIBIT 10.2
================================================================================
CREDIT AGREEMENT
among
HORIZON HEALTH CORPORATION
as Borrower,
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,
as Agent,
and
the banks named herein
9 December 1997
================================================================================
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ARTICLE 1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.3 Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.4 Time of Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 2 Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.1 Revolving Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.2 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.3 Repayment of Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.5 Revolving Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.6 Reduction or Termination of Revolving Commitments . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 3 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.1 Term Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.2 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.3 Repayment of Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.5 Term Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.6 Reduction or Termination of Term Commitments. . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 4 Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.1 Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.2 Determinations of Margins and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) "Base Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) "Commitment Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(c) "Eurodollar Rate Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.3 Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.4 Default Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.5 Conversions and Continuations of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.6 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 5 Administrative Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.1 Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.2 Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.3 Certain Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.4 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Mandatory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Optional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.5 Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.6 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.7 Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.8 Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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Section 5.9 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.10 Withholding Tax Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 6 Yield Protection and Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.1 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.2 Limitation on Eurodollar Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.3 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.4 Treatment of Affected Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.5 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.6 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 7 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.1 Initial Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(a) Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(b) Incumbency Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(c) Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(d) Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(e) Governmental Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(f) Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(g) Collateral Documents and Collateral . . . . . . . . . . . . . . . . . . . . . . . . 27
(h) Termination or Assignment of Prior Liens . . . . . . . . . . . . . . . . . . . . . 28
(i) Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(j) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(k) Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(l) Attorneys' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.2 All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(c) Additional Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 8 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.1 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.2 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.3 Corporate Action; No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.4 Operation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.5 Litigation and Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.6 Rights in Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.7 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.8 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.9 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.11 Margin Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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Section 8.14 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.15 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.16 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.17 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.18 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.19 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.20 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.21 Benefit Received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 9 Positive Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.1 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(a) Annual Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(b) Quarterly Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(c) Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(d) Annual Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(e) Management Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(f) Notice of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(g) Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(h) ERISA Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(i) Reports to Other Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(j) Notice of Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . 35
(k) Proxy Statements, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(l) General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 9.2 Maintenance of Existence; Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . 35
Section 9.3 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.4 Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.6 Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.7 Keeping Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.9 Compliance with Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 9.10 Further Assurances and Collateral Matters . . . . . . . . . . . . . . . . . . . . . . . . . 37
(a) Further Assurance and Exceptions to Perfection . . . . . . . . . . . . . . . . . . 37
(b) Subsidiary Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(c) Borrower Pledge of Subsidiary Stock . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 9.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 10 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 10.1 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 10.2 Limitation on Liens and Restrictions on Subsidiaries . . . . . . . . . . . . . . . . . . . 39
Section 10.3 Mergers, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 10.4 Restrictions on Dividends and other Distributions . . . . . . . . . . . . . . . . . . . . . 41
Section 10.5 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 10.6 Limitation on Issuance of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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Section 10.7 Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 10.8 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 10.9 Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.10 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.11 Prepayment of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 11 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.1 Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.2 Indebtedness to Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.3 Fixed Charge Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 11.4 Indebtedness to Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 12 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 12.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 12.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(a) Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(b) Termination of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(c) Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(d) Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(e) Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.3 Performance by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.4 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.5 Continuance of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE 13 The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 13.1 Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 13.2 Rights of Agent as a Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 13.3 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 13.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 13.5 Independent Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 13.6 Several Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 13.7 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 13.8 Agent Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 13.9 Intercreditor Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE 14 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 14.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 14.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 14.3 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 14.4 No Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 14.5 No Fiduciary Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 14.6 Equitable Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 14.7 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 14.8 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
iv
<PAGE> 6
TABLE OF CONTENTS
(con't.)
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a) Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(b) Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(c) Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(d) Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(e) Pledge to Federal Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 14.9 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 14.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 14.11 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 14.12 Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 14.13 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 14.14 Governing Law; Venue of Service of Process . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 14.15 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 14.16 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 14.17 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 14.18 Non-Application of Chapter 346 of The Finance Code of Texas . . . . . . . . . . . . . . . . 63
Section 14.19 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 14.20 Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 14.21 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>
v
<PAGE> 7
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<S> <C>
"A" Revolving Note
"B" Term Note
"C" Guaranty
"D" Borrower Security Agreement
"E" Borrower Pledge Agreement
"F" Subsidiary Security Agreement
"G" Subsidiary Pledge Agreement
"H" Subsidiary Joinder Agreement
"I" Assignment and Acceptance
"J" Compliance Certificate
"K" Collateral Assignment
</TABLE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Schedule Description of Schedule
-------- -----------------------
<S> <C>
1.1(a) Previous Senior Debt
8.14 List of Subsidiaries
10.1 Debt
10.2 Existing Liens
10.5 Existing Investments
</TABLE>
vi
<PAGE> 8
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement"), dated as of December 9, 1997,
is among HORIZON HEALTH CORPORATION, a corporation duly organized and validly
existing under the laws of the State of Delaware (the "Borrower"), each of the
banks or other lending institutions which is or which may from time to time
become a signatory hereto or any successor or assignee thereof (individually, a
"Bank" and, collectively, the "Banks") and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, individually as a Bank and as agent for itself and the other Banks
(in its capacity as agent, together with its successors in such capacity, the
"Agent").
R E C I T A L S:
The Borrower has requested that the Banks extend credit to the
Borrower in the form of a revolving credit facility and a term loan facility.
The Banks are willing to extend such credit to the Borrower upon the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions. As used in this Agreement, the
following terms have the following meanings:
"Account" means either a Base Rate Account or a Eurodollar Account.
"Additional Costs" has the meaning specified in Section 6.1.
"Adjusted Eurodollar Rate" means, for any Eurodollar Account for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of 1%) determined by the Agent to be equal to the Eurodollar
Rate for such Eurodollar Account for such Interest Period divided by 1 minus
the Reserve Requirement for such Eurodollar Account for such Interest Period.
"Adjustment Date" has the meaning specified in Section 4.2.
"Affiliate" means, as to any Person, any other Person (a) that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such Person; (b) that directly
or indirectly beneficially owns or holds five percent (5%) or more of any class
of voting stock of such Person; or (c) five percent (5%) or more of the voting
CREDIT AGREEMENT - PAGE 1
<PAGE> 9
stock of which is directly or indirectly beneficially owned or held by the
Person in question. The term "control" means the possession, directly or
indirectly, of the power to direct or cause direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise; provided, however, in no event shall the Agent or any
Bank be deemed an Affiliate of the Borrower or any Subsidiaries.
"Agent" has the meaning set forth in the introductory paragraph of
this Agreement.
"Agreement" has the meaning set forth in the introductory paragraph of
this Agreement.
"AHG Partnership" means AHG Partnership, a general partnership
organized under the laws of the State of Texas between HHMC Partners, Inc.(a
Subsidiary) and certain other Persons not Affiliates of the Borrower.
"Applicable Lending Office" means for each Bank and each Type of
Account, the lending office of such Bank (or of an Affiliate of such Bank)
designated for such Account below its name on the signature pages hereof or
such other office of such Bank (or of an Affiliate of such Bank) as such Bank
may from time to time specify to the Borrower and the Agent as the office by
which its Loans subject to Accounts of such Type are to be made and maintained.
"Applicable Rate" has the meaning set forth in Section 4.1.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Bank and its assignee and accepted by the Agent pursuant to Section
14.8, in substantially the form of Exhibit "I".
"Bank" has the meaning set forth in the introductory paragraph of this
Agreement.
"Base Margin" has the meaning specified in Section 4.2.
"Base Rate" means, for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greater of (a) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1% or (b) the Prime
Rate in effect on such day. For purposes hereof, "Prime Rate" shall mean the
rate of interest per annum then most recently publicly announced from time to
time by Texas Commerce as its prime rate in effect at its Principal Office;
each change in the Prime Rate shall be effective on the date such change is
publicly announced as effective. "Federal Funds Effective Rate" shall mean,
for any day, the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as released on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so released for any day which
is a Business Day, the arithmetic average (rounded upwards to the next 1/100th
of 1%), as determined by the Agent, of the quotations for the day of such
transactions received by the Agent from three federal funds brokers of
recognized standing selected by it. If for any reason the Agent shall have
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Federal Funds Effective Rate for any reason,
including the inability of the Agent to obtain sufficient quotations in
accordance with the terms thereof, the Base Rate shall be determined without
regard to clause (a)
CREDIT AGREEMENT - PAGE 2
<PAGE> 10
of the first sentence of this definition until the circumstances giving rise to
such inability no longer exist. Any change in the Base Rate due to a change in
the Prime Rate or the Federal Funds Effective Rate shall be effective on the
effective date of such change in the Prime Rate or the Federal Funds Effective
Rate, respectively. The Base Rate may not be any Bank's best or favored rate
and the Banks may make other Loans to other Persons at rates lower than the
Base Rate.
"Base Rate Account" means a portion of a Loan that bears interest at a
rate based upon the Base Rate.
"Borrower" has the meaning set forth in the introductory paragraph of
this Agreement.
"Borrower Pledge Agreement" means the pledge and security agreement
between the Borrower and the Agent for the benefit of itself and the Banks, in
substantially the form of Exhibit "E", as the same may be amended or otherwise
modified.
"Borrower Security Agreement" means the security agreement between the
Borrower and Agent for the benefit of itself and the Banks, in substantially
the form of Exhibit "D", as the same may be amended or otherwise modified.
"Business Day" means (a) any day excluding Saturday, Sunday, and any
day which either is a legal holiday under the laws of the State of Texas or the
State of New York or is a day on which banking institutions located in the
State of Texas or the State of New York are closed, and (b), with respect to
all borrowings, payments, Conversions, Continuations, Interest Periods, and
notices in connection with Loans subject to Eurodollar Accounts, any day which
is a Business Day described in clause (a) above and which is also a day on
which dealings in Dollar deposits are carried out in the European interbank
market.
"Calculation Period" has the meaning specified in Section 4.2.
"Capital Expenditures" means, for any period, all expenditures of the
Borrower and its Subsidiaries which are classified as capital expenditures in
accordance with GAAP including all such expenditures associated with Capital
Lease Obligations.
"Capital Lease Obligations" means, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other
agreement conveying the right to use) real and/or personal property, which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP. For purposes of this Agreement,
the amount of such Capital Lease Obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Closing Date" means December 12, 1997.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
CREDIT AGREEMENT - PAGE 3
<PAGE> 11
"Collateral" means the property in which Liens have been granted
pursuant to the Borrower Security Agreement, the Borrower Pledge Agreement, the
Subsidiary Security Agreement and the Subsidiary Pledge Agreements whether such
Liens are now existing or hereafter arise.
"Collateral Assignment" means that certain Assignment of Liens in
substantially the form of Exhibit "K", to be executed by Texas Commerce
pursuant to which it shall assign to the Agent all Liens securing the Previous
Senior Debt.
"Commitment Fee Rate" means the per annum rate determined in
accordance with Section 4.2.
"Commitment Percentage" means, as to any Bank, the percentage
equivalent of a fraction the numerator of which is the amount of the
Commitments of such Bank and the denominator of which is the aggregate amount
of the Commitments of all of the Banks.
"Commitments" means, as to each Bank, such Bank's Revolving Commitment
and Term Commitment.
"Compliance Certificate" means a certificate in substantially the form
of Exhibit "J" properly completed and executed by the chief financial officer
of the Borrower.
"Consolidated Net Income" has the meaning specified in Section 11.3.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 4.5 of a Eurodollar Account as a Eurodollar
Account from one Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Section 4.5 or Article 6 of one Type of Account into the other Type
of Account.
"Debt" means as to any Person at any time (without duplication): (a)
all obligations of such Person for borrowed money; (b) all obligations of such
Person evidenced by bonds, notes, debentures, or other similar instruments; (c)
all obligations of such Person to pay the deferred purchase price of property
or services, except trade accounts payable of such Person arising in the
ordinary course of business that are not past due by more than ninety (90) days
or that are past due by more than ninety (90) days but are being contested in
good faith by appropriate proceedings diligently pursued; (d) all Capital Lease
Obligations of such Person; (e) all Debt or other obligations of others
Guaranteed by such Person; (f) all obligations secured by a Lien existing on
property owned by such Person, whether or not the obligations secured thereby
have been assumed by such Person or are non-recourse to the credit of such
Person; (g) all reimbursement obligations of such Person (whether contingent or
otherwise) in respect of letters of credit, bankers' acceptances, surety or
other bonds, and similar instruments; (h) all liabilities of such Person in
respect of all unfunded vested benefits under any Plan; (i) all obligations
of such Person in respect of mandatory redemption or mandatory dividend rights
on capital stock (or other equity); (j) all obligations of such Person,
contingent or otherwise, for the payment of money under any
CREDIT AGREEMENT - PAGE 4
<PAGE> 12
noncompete, consulting, performance based or similar agreement entered into
with the seller of a Target or any other similar arrangements providing for the
deferred payment of the purchase price for an acquisition permitted hereby or
an acquisition consummated prior to the date hereof, in each case to the extent
reflected as a liability on the balance sheet of a Person in accordance with
GAAP; (k) all obligations of such Person under any interest rate or currency
swap, cap, collar or similar hedge agreement; and (l) all other amounts which
are required to be reflected as a liability on the balance sheet of a Person in
accordance with GAAP, excluding trade accounts payable excluded from Debt
pursuant to clause (c) of this definition, accruals, deferred credits and loss
contingencies.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Rate" means, in respect of any principal of any Loan, or any
other amount payable by the Borrower under any Loan Document which is not paid
when due (whether at stated maturity, by acceleration, or otherwise), a rate
per annum during the period commencing on the due date until such amount is
paid in full equal to the sum of two percent (2%) plus the Applicable Rate for
Base Rate Accounts as in effect from time to time (provided, that if such
amount in default is principal of a Loan subject to a Eurodollar Account and
the due date is a day other than the last day of an Interest Period therefor,
the "Default Rate" for such principal shall be, for the period from and
including the due date and to but excluding the last day of the Interest Period
therefor, two percent (2%) plus the interest rate for such Loan for such
Interest Period as provided in Section 4.1 hereof, and, thereafter, the rate
provided for above in this definition).
"Dollars" and "$" mean lawful money of the United States of America.
"EBITDA" has the meaning specified in Section 11.3.
"Eligible Assignee" means one or more commercial bank, savings and
loan association, savings bank, finance company, insurance company, pension
fund, mutual fund, or other financial institution (whether a corporation,
partnership, or other entity) which is qualified to make Loans hereunder and
has a combined capital and surplus of at least One Hundred Million Dollars
($100,000,000).
"Environmental Laws" means any and all federal, state, and local laws,
regulations, and requirements pertaining to health, safety, or the environment,
as such laws, regulations, and requirements may be amended or supplemented from
time to time.
"Environmental Liabilities" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs, and expenses,
(including, without limitation, all reasonable fees, disbursements and expenses
of counsel, expert and consulting fees and costs of investigation and
feasibility studies), fines, penalties, sanctions, and interest incurred as a
result of any claim or demand, by any Person, whether based in contract, tort,
implied or express warranty, strict liability, criminal or civil statute,
including any Environmental Law, permit, order, or agreement
CREDIT AGREEMENT - PAGE 5
<PAGE> 13
with any Governmental Authority or other Person, arising from environmental,
health, or safety conditions or the Release or threatened Release of a
Hazardous Material into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower or is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower.
"Eurodollar Account" means a portion of a Loan that bears interest at
a rate based upon the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Account for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) offered to Texas Commerce or one of its Affiliates at
approximately 11:00 a.m. London time (or as soon thereafter as practicable) two
Business Days prior to the first day of such Interest Period by leading banks
in the European interbank market for Dollar deposits in immediately available
funds having a term comparable to such Interest Period and, if necessary to
obtain such offers, in an amount comparable to the principal amount of the
Eurodollar Account applicable to the Agent to which such Interest Period
relates. If the Agent is not participating in a Eurodollar Account during any
Interest Period therefor (pursuant to Section 6.4 hereof or for any other
reason), the Eurodollar Rate for such Account for such Interest Period shall,
if necessary to obtain the Eurodollar Rate offers, be determined by reference
to the amount of the Account which the Agent would have made had it been
participating in such Account.
"Eurodollar Rate Margin" has the meaning specified in Section 4.2.
"Event of Default" has the meaning specified in Section 12.1.
"Federal Funds Effective Rate" has the meaning specified in the
definition of Base Rate.
"Fiscal Quarters" means the four (4) periods falling in each Fiscal
Year, each such period three calendar months in duration with the first such
period in any Fiscal Year beginning on the first day of September and the last
such period in any Fiscal Year ending on the last day of August.
"Fiscal Year" means twelve (12) month period beginning on the first
day of September and ending on the last day of August of the following year.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their respective successors
and which are applicable in the circumstances as of the date in question.
Accounting principles are applied on a "consistent basis" when the accounting
principles applied
CREDIT AGREEMENT - PAGE 6
<PAGE> 14
in a current period are comparable in all material respects to those accounting
principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state or
political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or pertaining
to government.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment
thereof or to protect the obligee against loss in respect thereof (in whole or
in part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The amount of any Guarantee shall
be equal to the amount of the obligations so guaranteed or otherwise supported
or, if not a fixed and determined amount, the maximum amount so guaranteed.
"Guaranty" means the guaranty of the Subsidiaries in favor of the
Agent and the Banks, in substantially the form of Exhibit "C", as the same may
be amended or otherwise modified from time to time.
"Hazardous Material" means any substance, product, waste, pollutant,
material, chemical, contaminant, constituent, or other material which is or
becomes listed, regulated, or addressed under any Environmental Law.
"Indebtedness" has the meaning specified in Section 11.2.
"Indebtedness to EBITDA Ratio" means the ratio of Indebtedness to
Adjusted EBITDA as determined and calculated in accordance with Section 11.4.
"Interest Period" means with respect to any Eurodollar Accounts, each
period commencing on the date such Account is established or Converted from a
Base Rate Account or the last day of the next preceding Interest Period with
respect to such Eurodollar Account, and ending on the numerically corresponding
day in the first, second, third or sixth calendar month thereafter, as the
Borrower may select as provided in Section 4.5 or 5.1, except that each such
Interest Period which commences on the last Business Day of a calendar month
(or on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of
the appropriate subsequent calendar month. Notwithstanding the foregoing: (a)
each Interest Period which would otherwise end on a day which is not a Business
Day shall end on the next succeeding Business Day (or if such succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day); (b) any Interest Period in existence under a Loan which would
otherwise extend beyond the Termination Date applicable to
CREDIT AGREEMENT - PAGE 7
<PAGE> 15
such Loan shall end on the Termination Date applicable to such Loan; (c) no
more than six (6) Interest Periods shall be in effect at the same time; (d) no
Interest Period for any Eurodollar Account shall have a duration of less than
one (1) month and, if the Interest Period would otherwise be a shorter period,
the related Eurodollar Account shall not be available hereunder; and (e) no
Interest Period in respect of Term Loans may extend beyond a principal
repayment date thereof unless, after giving effect thereto, the aggregate
principal amount of the Term Loans, subject to Eurodollar Accounts having
Interest Periods that end after such principal payment date shall be equal to
or less than such Loans to be outstanding hereunder after such principal
payment date.
"Lien" means any lien, mortgage, security interest, tax lien,
financing statement, pledge, charge, hypothecation, assignment, preference,
priority, or other encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or title retention agreement), whether
arising by contract, operation of law, or otherwise.
"Loan Documents" means this Agreement, the Notes, the Borrower
Security Agreement, the Borrower Pledge Agreement, the Guaranties, the
Subsidiary Security Agreement, the Subsidiary Pledge Agreements and all other
promissory notes, security agreements, deeds of trust, assignments, guaranties,
letters of credit, and other instruments, agreements, and other documentation
executed and delivered pursuant to or in connection with this Agreement, as
such instruments, agreements, and other documentation may be amended or
otherwise modified.
"Loans" means Revolving Loans and Term Loans.
"Material Adverse Effect" means (a) a material adverse effect on the
business, condition (financial or otherwise), operations, prospects, or
properties of the Borrower and the Subsidiaries taken as a whole or (b) a
material adverse effect on the validity, perfection, priority, or ability of
the Agent to enforce the Agent's Lien on the Collateral or of the ability of
the Agent or any Bank to enforce a material provision of the Loan Documents.
In determining whether any individual event could reasonably be expected to
result in a Material Adverse Effect, notwithstanding that such event does not
itself have such effect, a Material Adverse Effect shall be deemed to have
occurred if the cumulative effect of such event and all other then existing
events could reasonably be expected to result in a Material Adverse Effect.
"Maximum Rate" means, at any time and with respect to any Bank, the
maximum rate of nonusurious interest under applicable law that such Bank may
charge the Borrower. The Maximum Rate shall be calculated in a manner that
takes into account any and all fees, payments, and other charges contracted
for, charged, or received in connection with the Loan Documents that constitute
interest under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the Maximum Rate
shall take effect without notice to the Borrower at the time of such change in
the Maximum Rate. For purposes of determining the Maximum Rate under Texas
law, the applicable rate ceiling shall be the weekly ceiling described in, and
computed in accordance with, Article 5069, Vernon's Texas Civil Statutes.
CREDIT AGREEMENT - PAGE 8
<PAGE> 16
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the Borrower or
any ERISA Affiliate and which is covered by Title IV of ERISA.
"Notes" means the Revolving Notes and the Term Notes.
"Obligated Party" means the Subsidiaries or any other Person
(exclusive of the Borrower) who is or becomes party to any agreement that
guarantees or secures payment and performance of the Obligations or any part
thereof.
"Obligation" means all obligations, indebtedness, and liabilities of
the Borrower to the Agent and the Banks, or any of them, arising pursuant to
any of the Loan Documents, pursuant to any interest rate swap, interest rate
caps, interest rate collars, or other similar agreements entered into by Agent
or any Bank with the Borrower or any Subsidiary enabling Borrower or a
Subsidiary to fix or limit its interest expense, whether now existing or
hereafter arising, whether direct, indirect, related, unrelated, fixed,
contingent, liquidated, unliquidated, joint, several, or joint and several,
including, without limitation, the obligation of the Borrower to repay the
Loans, interest on the Loans and all fees, costs, and expenses (including
attorneys' fees and expenses) provided for in the Loan Documents or such
agreements enabling the Borrower to fix or limit its interest expense.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Permitted Acquisition" means an acquisition of a Person or its assets
in a transaction complying with the conditions set out in Section 10.5(a).
"Person" means any individual, corporation, business trust,
association, company, partnership, joint venture, Governmental Authority, or
other entity.
"Plan" means any employee benefit plan established or maintained by
the Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA.
"Previous Senior Debt" means all the obligations, indebtedness and
liability of the Borrower and the Subsidiaries arising under or pursuant to
Debt described in Schedule 1.1(a).
"Principal Office" means the principal office of the Agent, located at
1111 Fannin, Houston, Texas.
"Prohibited Transaction" means any transaction set forth in Section
406 or 407 of ERISA or Section 4975(c)(1) of the Code for which there does not
exist a statutory or administrative exemption.
"Quarterly Payment Date" means the last day of February, May, August
and November of each year, the first of which shall be the first such day after
the date of this Agreement.
CREDIT AGREEMENT - PAGE 9
<PAGE> 17
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Bank, any change after
the date of this Agreement in United States federal, state, or foreign laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives, or requests applying to a class of banks
including such Bank of or under any United States federal or state, or any
foreign, laws or regulations (whether or not having the force of law) by any
Governmental Authority or monetary authority charged with the interpretation or
administration thereof.
"Release" means, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, disposal, disbursement, leaching, or
migration of Hazardous Materials into the indoor or outdoor environment or into
or out of property owned by such Person, including, without limitation, the
movement of Hazardous Materials through or in the air, soil, surface water,
ground water, or property in violation of Environmental Laws.
"Remedial Action" means all actions required to (a) cleanup, remove,
treat, or otherwise address Hazardous Materials in the indoor or outdoor
environment, (b) prevent the Release or threat of Release or minimize the
further Release of Hazardous Materials so that they do not migrate or endanger
or threaten to endanger public health or welfare or the indoor or outdoor
environment, or (c) perform pre-remedial studies and investigations and
post-remedial monitoring and care.
"Required Banks" means Banks having (a) sixty-six and two-thirds
percent (66 2/3%) or more of the Commitments or (b), if the Term Commitments
have terminated or have otherwise been fulfilled, sixty-six and two-thirds
percent (66 2/3%) or more of the Revolving Commitments and the aggregate
outstanding principal amount of the Term Loans or (c) if all Commitments have
terminated, sixty-six and two-thirds percent (66 2/3%) or more of the
outstanding principal amount of the Loans.
"Reportable Event" means any of the events set forth in Section 4043
of ERISA.
"Reserve Requirement" means, for any Eurodollar Account for any
Interest Period therefor, the average maximum rate at which reserves (including
any marginal, supplemental, or emergency reserves) are required to be
maintained during such Interest Period under Regulation D by member banks of
the Federal Reserve System in New York City with deposits exceeding one billion
Dollars against "Eurocurrency Liabilities" as such term is used in Regulation
D. Without limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained by such member banks by
reason of any Regulatory Change against any category of liabilities which
includes deposits by reference to which the Adjusted Eurodollar Rate is to be
determined or any category of extensions of credit or other assets which
include Eurodollar Accounts.
"Revolving Commitment" means, as to each Bank, the obligation of such
Bank to make advances of funds in an aggregate principal amount at any one time
outstanding up to but not exceeding the amount set forth opposite the name of
such Bank on the signature pages hereto under
CREDIT AGREEMENT - PAGE 10
<PAGE> 18
the heading "Revolving Commitment" or in the most recent Assignment and
Acceptance executed by such Bank, as the same may be reduced or terminated
pursuant to Section 2.6 or 12.2. The aggregate amount of the Revolving
Commitments of all Banks equals Ten Million Dollars ($10,000,000).
"Revolving Loans" means, as to any Bank, the advances made by such
Bank pursuant to Section 2.1.
"Revolving Notes" means the promissory notes provided for by Section
2.2 and all amendments or other modifications thereof.
"Revolving Termination Date" means November 30, 2000, such earlier
date on which the Revolving Commitments terminate as provided in this
Agreement.
"Subsidiary" means any corporation (or other entity) of which at least
a majority of the outstanding shares of stock (or other ownership interests)
having by the terms thereof ordinary voting power to elect a majority of the
board of directors (or similar governing body) of such corporation (or other
entity) (irrespective of whether or not at the time stock (or other ownership
interests) of any other class or classes of such corporation (or other entity)
shall have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled by the
Borrower or one or more of the Subsidiaries or by the Borrower and one or more
of the Subsidiaries.
"Subsidiary Joinder Agreement" means an agreement which has been or
will be executed by a Subsidiary as required hereby adding it as a party to the
Guaranty and the Subsidiary Security Agreement, in substantially the form of
Exhibit "H", as the same may be amended or otherwise modified.
"Subsidiary Pledge Agreement" means the pledge and security agreement
between a Subsidiary and the Agent for the benefit of itself and the Banks, in
substantially the form of Exhibit "G", as the same may be amended or otherwise
modified.
"Subsidiary Security Agreement" means the security agreement among the
Subsidiaries (other than AHG Partnership) and the Agent for the benefit of
itself and the Banks, in substantially the form of Exhibit "F", as the same may
be amended or otherwise modified.
"Target" means the Person who is to be acquired or whose assets are to
be acquired by a Subsidiary in an acquisition governed by Section 10.5.
"Term Commitment" means, as to each Bank and as of any date of
determination, the obligation of such Bank to make advances of funds under
Section 3.1 in an aggregate principal amount up to but not exceeding the sum of
(A) the amount set forth opposite the name of such Bank on the signature pages
hereto under the heading "Term Commitment" or in the most recent Assignment and
Acceptance executed by such Bank, as the same may be terminated pursuant to
Section 12.2 minus (B) the aggregate amount of all funds advanced by such Bank
under Section
CREDIT AGREEMENT - PAGE 11
<PAGE> 19
3.1. The aggregate amount of the Term Commitments of all Banks on the Closing
Date equals Forty Million Dollars ($40,000,000).
"Term Loan" means, as to any Bank, the advances made by such Bank
pursuant to Section 3.1.
"Term Loan Maturity Date" means November 30, 2002, or such earlier
date on which the Term Loan is due in its entirety as provided in this
Agreement.
"Term Notes" means the promissory notes provided for by Section 3.2
and all amendments and other modifications thereto.
"Termination Date" means, either the Term Loan Maturity Date or the
Revolving Loan Termination Date.
"Texas Commerce" means Texas Commerce Bank National Association in its
individual capacity and not as Agent.
"Type" means either type of Account (i.e., either a Base Rate Account
or Eurodollar Account).
"UCC" means the Uniform Commercial Code as in effect in the State of
Texas.
Section 1.2 Other Definitional Provisions. All definitions
contained in this Agreement are equally applicable to the singular and plural
forms of the terms defined. The words "hereof", "herein", and "hereunder" and
words of similar import referring to this Agreement refer to this Agreement as
a whole and not to any particular provision of this Agreement. Unless
otherwise specified, all Article and Section references pertain to this
Agreement. Terms used herein that are defined in the UCC, unless otherwise
defined herein, shall have the meanings specified in the UCC.
Section 1.3 Accounting Terms and Determinations. Except as
otherwise expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Agent and the Banks hereunder
shall be prepared, in accordance with GAAP, on a basis consistent with those
used in the preparation of the financial statements referred to in Section 8.2
hereof. All calculations made for the purposes of determining compliance with
the provisions of this Agreement shall be made by application of GAAP, on a
basis consistent with those used in the preparation of the financial statements
referred to in Section 8.2 hereof. To enable the ready and consistent
determination of compliance by the Borrower with its obligations under this
Agreement, the Borrower will not change the manner in which either the last day
of its Fiscal Year or the last days of the first three Fiscal Quarters of its
Fiscal Year is calculated. In the event any changes in accounting principles
required by GAAP or recommended by the Borrower's certified public accountants
and implemented by the Borrower occur and such changes result in a change in
the method of the calculation of financial covenants, standards, or terms under
this Agreement, then the Borrower, the Agent, and the Banks agree to enter into
negotiations in order to amend such
CREDIT AGREEMENT - PAGE 12
<PAGE> 20
provisions of this Agreement so as to equitably reflect such changes with the
desired result that the criteria for evaluating such covenants, standards, or
terms shall be the same after such changes as if such changes had not been
made. Until such time as such an amendment shall have been executed and
delivered by the Agent, the Borrower, and the Banks, all financial covenants,
standards, and terms in this Agreement shall continue to be calculated or
construed as if such changes had not occurred.
Section 1.4 Time of Day. Unless otherwise indicated, all
references in this Agreement to times of day shall be references to Dallas,
Texas time.
ARTICLE 2
Revolving Credit Facility
Section 2.1 Revolving Commitments. Subject to the terms and
conditions of this Agreement, each Bank severally agrees to make one or more
advances to the Borrower from time to time from and including the Closing Date
to but excluding the Revolving Termination Date in an aggregate principal
amount at any time outstanding up to but not exceeding the amount of such
Bank's Revolving Commitment as then in effect. Subject to the foregoing
limitations, and the other terms and provisions of this Agreement, the Borrower
may borrow, prepay, and reborrow hereunder the amount of the Revolving
Commitments and may establish Base Rate Accounts and Eurodollar Accounts
thereunder and, until the Revolving Termination Date, the Borrower may Continue
Eurodollar Accounts established under the Revolving Loans or Convert Accounts
established under the Revolving Loans of one Type into Accounts of the other
Type. Accounts of each Type under the Revolving Loan made by each Bank shall
be established and maintained at such Bank's Applicable Lending Office for
Revolving Loans of such Type.
Section 2.2 Notes. The Revolving Loans made by a Bank shall be
evidenced by a single promissory note of the Borrower in substantially the form
of Exhibit "A" hereto, payable to the order of such Bank in a principal amount
equal to its Revolving Commitment and otherwise duly completed.
Section 2.3 Repayment of Revolving Loans. The Borrower shall pay
to the Agent for the account of the Banks the outstanding principal amount of
all of the Revolving Loans on the Revolving Termination Date.
Section 2.4 Use of Proceeds. The proceeds of the Revolving Loans
shall be used by the Borrower for general corporate purposes, including,
without limitation, to finance the purchase price of Permitted Acquisitions and
to refinance Debt.
Section 2.5 Revolving Commitment Fee. The Borrower agrees to pay
to the Agent for the account of each Bank a commitment fee on the daily average
unused amount of such Bank's Revolving Commitment for the period from and
including the Closing Date to and including the Revolving Termination Date, at
a rate equal to the Commitment Fee Rate as determined in
CREDIT AGREEMENT - PAGE 13
<PAGE> 21
accordance with subsection 4.2(b). For the purpose of calculating the
commitment fee hereunder, the Revolving Commitments shall be deemed utilized by
all outstanding Revolving Loans. Accrued commitment fees under this Section
2.5 shall be payable in arrears on each Quarterly Payment Date and on the
Revolving Termination Date.
Section 2.6 Reduction or Termination of Revolving Commitments.
The Borrower shall have the right to terminate or reduce in part the unused
portion of the Revolving Commitments at any time and from time to time,
provided that: (a) the Borrower shall give notice of each such termination or
reduction as provided in Section 5.3; and (b) each partial reduction shall be
in an aggregate amount at least equal to Three Million Dollars ($3,000,000).
The Revolving Commitments may not be reinstated after they have been terminated
or reduced.
ARTICLE 3
Term Loan
Section 3.1 Term Commitments. Subject to the terms and
conditions of this Agreement, each Bank severally agrees to make one or more
advances to Borrower from the Closing Date through November 30, 1999, in an
aggregate principal amount not to exceed the amount of such Bank's Term
Commitment as then in effect. Subject to the foregoing limitations and the
other terms are of this Agreement, the Borrower may establish Base Rate
Accounts or Eurodollar Accounts under the Term Loan and, until the Term Loan
Maturity Date, the Borrower may Continue Eurodollar Accounts established under
the Term Loan or Convert Accounts established under the Term Loan of one Type
into Accounts of another Type. Accounts of each Type established under the
Term Loan made by each Bank shall be made and maintained at such Bank's
Applicable Lending Office for Accounts of such Type.
Section 3.2 Notes. The Term Loan made by a Bank shall be
evidenced by a single promissory note of the Borrower in substantially the form
of Exhibit "B", payable to the order of such Bank in a principal amount equal
its Term Commitment and otherwise duly completed.
Section 3.3 Repayment of Term Loans. The Borrower shall pay to
the Agent for the account of the Banks the Term Loans which are outstanding on
November 30, 1999 in twelve (12) installments as follows: (a) Eleven (11)
installments in the principal amount equal to the Amortization Amount, each due
and payable on each Quarterly Payment Date, beginning February 28, 2000; and
thereafter (b) one final installment in the aggregate amount of all Term Loans
outstanding as of the Term Loan Maturity Date, due and payable on the Term Loan
Maturity Date. The term "Amortization Amount" means an amount equal to the
quotient obtained by dividing the aggregate amount of the Term Loans which are
outstanding on November 30, 1999 by twenty (20).
Section 3.4 Use of Proceeds. The proceeds of Term Loans shall be
used by the Borrower to repay the Previous Senior Debt and to finance Permitted
Acquisitions.
CREDIT AGREEMENT - PAGE 14
<PAGE> 22
Section 3.5 Term Commitment Fee. The Borrower agrees to pay to
the Agent for the account of each Bank a commitment fee on the daily average
unused amount of such Bank's Term Commitment for the period from and including
the Closing Date to and including November 30, 1999, at a rate equal to the
Commitment Fee Rate as determined in accordance with subsection 4.2(b). For
the purpose of calculating the commitment fee hereunder, the Term Commitments
shall be deemed utilized by all outstanding Term Loans. Accrued commitment
fees under this Section 3.5 shall be payable in arrears on each Quarterly
Payment Date and on November 30, 1999.
Section 3.6 Reduction or Termination of Term Commitments. The
Borrower shall have the right to terminate or reduce in part the unused portion
of the Term Commitments at any time and from time to time, provided that: (a)
the Borrower shall give notice of each such termination or reduction as
provided in Section 5.3; and (b) each partial reduction shall be in an
aggregate amount at least equal to Three Million Dollars ($3,000,000). The
Term Commitments may not be reinstated after they have been terminated or
reduced.
ARTICLE 4
Interest and Fees
Section 4.1 Interest Rate. Subject to Section 14.12, the
Borrower shall pay to the Agent for the account of each Bank interest on the
unpaid principal amount of each Loan made by such Bank for the period
commencing on the date of such Loan to but excluding the date such Loan is due,
at a fluctuating rate per annum equal to the Applicable Rate. The term
"Applicable Rate" means (i) during the period that such Loans or portions
thereof are subject to a Base Rate Account, the Base Rate plus the Base Margin
and (ii) during the period that such Loans or portions thereof are subject to a
Eurodollar Account, the Adjusted Eurodollar Rate plus the Eurodollar Rate
Margin.
Section 4.2 Determinations of Margins and Fees. The margins
identified in Section 4.1 and the fees payable under Section 2.5 and 3.5 shall
be defined and determined as follows:
(a) "Base Margin" shall mean (i) during the period
commencing on the Closing Date and ending on but not including the
first Adjustment Date (as defined below), zero percent (0.00%) per
annum and (ii) during each period, from and including one Adjustment
Date to but excluding the next Adjustment Date (herein a "Calculation
Period"), the percent per annum set forth in the table below in this
Section 4.2 under the heading "Base Margin" opposite the Indebtedness
to EBITDA Ratio which corresponds to the Indebtedness to EBITDA Ratio
set forth in, and as calculated in accordance with, the applicable
Compliance Certificate.
(b) "Commitment Fee Rate" shall mean (i) during the
period commencing on the Closing Date and ending on but not including
the first Adjustment Date, one quarter of one percent (0.25%) per
annum and (ii) during each Calculation Period, the percent per annum
set forth in the table below under the heading "Commitment Fee"
opposite the
CREDIT AGREEMENT - PAGE 15
<PAGE> 23
Indebtedness to EBITDA Ratio which corresponds to the Indebtedness to
EBITDA Ratio set forth in, and as calculated in accordance with, the
applicable Compliance Certificate.
(c) "Eurodollar Rate Margin" shall mean (i) during the
period commencing on the Closing Date and ending on but not including
the first Adjustment Date, three quarters of one percent (0.75%) per
annum and (ii) during each Calculation Period, the percent per annum
set forth in the table below under the heading Eurodollar Margin
opposite the Indebtedness to EBITDA Ratio which corresponds to the
Indebtedness to EBITDA Ratio set forth in, and as calculated in
accordance with, the applicable Compliance Certificate.
<TABLE>
<CAPTION>
Indebtedness to EBITDA Base Margin Commitment Fee Eurodollar Margin
---------------------- ----------- -------------- -----------------
<S> <C> <C> <C>
Greater than or equal to 2.00 0.50% 0.3750% 1.50%
Greater than or equal to 1.50 but less 0.250% 0.250% 1.250%
than 2.00
Greater than or equal to 1.00 but less 0.00% 0.250% 1.00%
than 1.50
Less than 1.00 0.00% 0.250% .750%
</TABLE>
Upon delivery of the Compliance Certificate pursuant to subsection 9.1(c) in
connection with the financial statements of the Borrower and the Subsidiaries
required to be delivered pursuant to Section 9.1(b) at the end of each Fiscal
Quarter commencing with such Compliance Certificate delivered with respect to
the Fiscal Quarter ending on November 30, 1997, the Base Margin, the Eurodollar
Rate Margin (for Interest Periods commencing after the applicable Adjustment
Date) and, the Commitment Fee Rate shall automatically be adjusted in
accordance with the Indebtedness to EBITDA Ratio set forth therein and the
table set forth above, such automatic adjustment to take effect as of the first
Business Day after the receipt by the Agent of the related Compliance
Certificate pursuant to Section 9.1(c) (each such Business Day when such
margins or fees change pursuant to this sentence or the next following
sentence, herein an "Adjustment Date"). If the Borrower fails to deliver such
Compliance Certificate which so sets forth the Indebtedness to EBITDA Ratio
within the period of time required by subsection 9.1(c): (i) the Base Margin
shall automatically be adjusted to one-half of one percent (0.50%) per annum;
(ii) the Eurodollar Rate Margin (for Interest Periods commencing after the
applicable Adjustment Date) shall automatically be adjusted to one and one-half
percent (1.50%) per annum; and (iii) the Commitment Fee Rate shall
automatically be adjusted to three-eighths of one percent (0.375%), such
automatic adjustments to take effect as of the first Business Day after the
last day on which the Borrower was required to deliver the applicable
Compliance Certificate in accordance with Section 9.1(c) and to remain in
effect until subsequently adjusted in accordance herewith upon the delivery of
a Compliance Certificate.
Section 4.3 Payment Dates. Accrued interest on the Loans shall
be due and payable as follows: (i) in the case of Loans subject to Base Rate
Accounts, on each Quarterly Payment Date and on the applicable Termination
Date; and (ii) in the case of Loans subject to Eurodollar Accounts and with
respect to each such Account, on the last day of such Interest Period, the
applicable Termination Date and, if such Interest Period is six (6) months
long, on the date ninety (90) days from the start of such Interest Period.
CREDIT AGREEMENT - PAGE 16
<PAGE> 24
Section 4.4 Default Interest. Notwithstanding the foregoing, the
Borrower will pay to the Agent for the account of each Bank interest at the
applicable Default Rate on any principal of any Loan made by such Bank, and (to
the fullest extent permitted by law) any other amount payable by the Borrower
under any Loan Document to or for the account of the Agent or such Bank, that
is not paid in full when due (whether at stated maturity, by acceleration, or
otherwise), for the period from and including the due date thereof to but
excluding the date the same is paid in full. Interest payable at the Default
Rate shall be payable from time to time on demand.
Section 4.5 Conversions and Continuations of Accounts. Subject
to Section 5.2, the Borrower shall have the right from time to time to Convert
all or part of any Base Rate Account in existence under a Loan into a
Eurodollar Account under the same Loan or to Continue Eurodollar Accounts in
existence under a Loan as Eurodollar Accounts under the same Loan, provided
that: (a) the Borrower shall give the Agent notice of each such Conversion or
Continuation as provided in Section 5.3; (b) a Eurodollar Account may only be
Converted on the last day of the Interest Period therefor; and (c) except for
Conversions into Base Rate Accounts, no Conversions or Continuations shall be
made while a Default has occurred and is continuing.
Section 4.6 Computations. Interest and fees payable by the
Borrower hereunder and under the other Loan Documents shall be computed as
follows: (i) with respect to Eurodollar Accounts on the basis of a year of 360
days and the actual number of days elapsed (including the first day but
excluding the last day) occurring in the period for which payable unless such
calculation would result in a usurious rate, in which case interest shall be
calculated on the basis of a year of 365 or 366 days, as the case may be; (ii)
with respect to Base Rate Accounts (A) if based on the Prime Rate, on the basis
of a year of 365 or 366 days, as the case may be and the actual number of days
elapsed (including the first day but excluding the last day) occurring in the
period for which payable or (B) if based on the Federal Funds Effective Rate on
the basis of a year of 360 days and the actual number of days elapsed
(including the first day but excluding the last day) occurring in the period
for which payable unless in the case of clauses (i) or (ii) (B) such
calculation would result in a usurious rate, in which case interest shall be
calculated on the basis of a year of 365 or 366 days, as the case may be.
ARTICLE 5
Administrative Matters
Section 5.1 Borrowing Procedure. The Borrower shall give the
Agent, and the Agent will give the Banks, notice of each borrowing under any
Commitment in accordance with Section 5.3. Not later than 1:00 p.m. on the
date specified for each borrowing under the applicable Commitment each Bank
will make available to the Agent the amount of the Loan to be made by it on
such date, at the Principal Office, in immediately available funds, for the
account of the Borrower. The amount so received by the Agent shall, subject to
the terms and conditions of this Agreement, be made available to the Borrower
by (a) depositing the same, in immediately available funds, in an account of
the Borrower (designated by the Borrower) maintained with the
CREDIT AGREEMENT - PAGE 17
<PAGE> 25
Agent at the Principal Office or (b) wire transferring such funds to a Person
or Persons designated by the Borrower in writing.
Section 5.2 Minimum Amounts. Except for prepayments pursuant to
Article 6, each borrowing under a Loan and each prepayment of principal of a
Loan shall be in an amount at least equal to Five Hundred Thousand Dollars
($500,000) with respect to the Revolving Loans, One Million Dollars
($1,000,000) with respect to the borrowings under the Term Loans, and One
Million Dollars ($1,000,000) with respect to prepayments on the Term Loans, or,
in each case, any larger amounts in increments of One Hundred Thousand Dollars
($100,000). Except for Conversions pursuant to Article 6, each Eurodollar
Account applicable to a Loan shall be in a minimum principal amount of One
Million Dollars ($1,000,000) or any larger amounts in increments of Five
Hundred Thousand Dollars ($500,000).
Section 5.3 Certain Notices. Notices by the Borrower to the
Agent of terminations or reductions of Commitments, of borrowings and
prepayments of Loans, and of Conversions and Continuations of Accounts shall be
irrevocable and shall be effective only if received by the Agent not later than
10:00 a.m. (a) on the Business Day of the borrowing, prepayment or repayment of
Loans subject to Base Rate Accounts or of the Conversion into Base Rate
Accounts and (b) with respect to any other repayments, terminations,
reductions, borrowings, Conversions, Continuations, or prepayments, on the
Business Day which is the number of Business Days prior to the day of the
relevant action specified below:
<TABLE>
<CAPTION>
Action Number of Business Days Prior
to Action
<S> <C>
Termination or reduction of Commitments, prepayment of Loans 5
Borrowing of Loans subject to Eurodollar Accounts, Conversions into or
Continuations as Eurodollar Accounts 3
</TABLE>
Any notices of the type described in this Section 5.3 which are received by the
Agent after 10:00 a.m. on a Business Day shall be deemed to be received and
shall be effective on the next Business Day. Each such notice of termination
or reduction shall specify the applicable Commitments to be affected and the
amount of the Commitments to be terminated or reduced. Each such notice of
borrowing, Conversion, Continuation, or prepayment shall: (a) specify the Loans
to be borrowed or prepaid or the Accounts to be Converted or Continued; (b) the
amount (subject to Section 5.2 hereof) to be borrowed, Converted, Continued, or
prepaid; (c) in the case of a Conversion, the Type of Account to result from
such Conversion; (d) in the case of a borrowing the Type of Account or Accounts
to be applicable to such borrowing and the amounts thereof; (e) in the event a
Eurodollar Account is selected, the duration of the Interest Period therefor;
and (f) the date of borrowing, Conversion, Continuation, or prepayment (which
shall be a Business Day). The Agent shall notify the Banks of the contents of
each such notice on the date of its receipt of the same or, if received on or
after 10:00 a.m. on a Business Day, on the next Business Day. In the event the
Borrower fails to select the Type of Account applicable to a Loan, or the
duration of any Interest Period for any Eurodollar Account, within the time
period and otherwise as provided in this Section 5.3, such Account (if
outstanding as a Eurodollar Account) will be
CREDIT AGREEMENT - PAGE 18
<PAGE> 26
automatically Converted into a Base Rate Account on the last day of the
preceding Interest Period for such Account or (if outstanding as a Base Rate
Account) will remain as, or (if not then outstanding) will be made as, a Base
Rate Account. The Borrower may not borrow any Loans subject to a Eurodollar
Account, Convert any Base Rate Accounts into Eurodollar Accounts, or Continue
any Eurodollar Account as a Eurodollar Account if the Applicable Rate for such
Eurodollar Accounts would exceed the Maximum Rate or if a Default exists.
Section 5.4 Prepayments.
(a) Mandatory.
(i) Excess Cash Flow. If the aggregate
outstanding principal amount of the Term Loans equals or
exceeds Fifteen Million Dollars ($15,000,000) as of the date
ninety (90) days after the end of a Fiscal Year (the "Excess
Cash Flow Payment Date") beginning with the Fiscal Year ending
August 31, 1998, then Borrower shall prepay the Term Loans on
or before the Excess Cash Flow Date relating to such Fiscal
Year in an amount equal to fifty percent (50%) of the Excess
Cash Flow calculated for the Fiscal Year then most recently
ended on the basis of the audited financial statement for such
Fiscal Year delivered to Agent pursuant to Section 9.1(a). As
used herein, the term "Excess Cash Flow" means, for any Fiscal
Year, the total of the following for the Borrower and its
Subsidiaries on a consolidated basis, each calculated for such
period (without duplication): (a) net income; plus (b)
amortization and depreciation expense deducted in determining
net income; plus (c) any other noncash charges reducing net
income; less (d) the unfinanced portion of Capital
Expenditures (including those funded with advances under the
Revolving Loan); less (e) scheduled amortization of Debt
actually paid; less (f) the aggregate of all voluntary
prepayments of the Term Loans made in accordance with Section
5.4; less (g) cash interest expense (including the interest
portion of Capital Lease Obligations) deducted in determining
net income; less (h) any noncash gains increasing net income.
(ii) Prepayments from Asset Dispositions. If the
Net Proceeds relating to any Asset Disposition exceed Two
Hundred Thousand Dollars ($200,000) (it being understood that
if the Net Proceeds exceed Two Hundred Thousand Dollars
($200,000), the entire Net Proceeds and not just the portion
in excess of the foregoing amount shall be subject to this
subsection) for any single transaction or series of related
transactions or if such Net Proceeds when aggregated with all
other Net Proceeds from Asset Dispositions received during the
same Fiscal Year exceed Three Hundred Thousand Dollars
($300,000) (it being understood that if the Net Proceeds
exceed Three Hundred Thousand Dollars ($300,000), the entire
Net Proceeds not just the portion in excess of the foregoing
amount shall be subject to this Subsection), Borrower shall
within five (5) days of receipt of such Net Proceeds prepay
the Term Loans as of such date in an amount equal to the Net
Proceeds of such Asset Disposition required to be applied
under this Subsection 5.4(a)(ii). Notwithstanding the
foregoing, Borrower or a Subsidiary may retain proceeds
otherwise required to be delivered in accordance with the
CREDIT AGREEMENT - PAGE 19
<PAGE> 27
foregoing from an Asset Disposition if no Default exists and
in the event the Person disposing of the asset in question
reasonably expects the proceeds of such Asset Disposition to
be reinvested in productive assets then used or useable in its
business or, in case of proceeds received due to loss, damage,
destruction or condemnation, to be used for rebuilding,
repairing or replacing assets, in each case within ninety (90)
days after receipt of such proceeds. For purposes of this
Subsection 5.4 (a)(ii) the following terms shall have the
following meanings:
"Asset Disposition" means the disposition
whether by sale, lease, transfer, loss, damage,
destruction, condemnation or otherwise of any assets
of Borrower or any Subsidiary other than sales of
inventory in the ordinary course of business.
"Net Proceeds" means cash proceeds (including
casualty insurance proceeds paid with respect to
damage to property) received by Borrower or any
Subsidiaries from any Asset Disposition (including
payments under notes or other debt securities
received in connection with any Asset Disposition and
insurance proceeds and awards of condemnation), net
of (a) the costs of such sale, lease, transfer or
other disposition (including professional fees and
expenses and taxes attributable to such sale, lease
or transfer which are actually expected to be paid)
and (b) amounts applied to repayment of Debt (other
than the Obligations) secured by a Lien on the asset
disposed.
Each prepayment under Subsections 5.4(a)(i) and (ii) shall
be accompanied with accrued and unpaid interest on the amount prepaid
to the date of prepayment and any amounts payable under Section 6.5
and, if paid after November 30, 1999, shall be applied to the
installments of principal due under the Term Loans in the inverse
order of maturity.
(b) Optional. Subject to Section 5.2 and the provisions
of this clause (b), the Borrower may, at any time and from time to
time without premium or penalty upon prior notice to the Agent as
specified in Section 5.3, prepay or repay any Loan in full or in part.
Any optional prepayment of the Term Loans shall be accompanied with
accrued interest on the amount prepaid to the date of prepayment and
any partial prepayments thereof received after November 30, 1999 shall
be applied to the principal installments due in the inverse order of
maturity. Loans subject to a Eurodollar Account may be prepaid or
repaid only on the last day of the Interest Period applicable thereto
unless (i) the Borrower pays to the Agent for the account of the
applicable Banks any amounts due under Section 6.5 as a result of such
prepayment or repayment or (ii) after giving effect to such prepayment
or repayment the aggregate principal amount of the Eurodollar Accounts
applicable to the Loan being prepaid or repaid having Interest Periods
that end after such payment date shall be equal to or less than the
principal amount of such Loan after such prepayment or repayment.
CREDIT AGREEMENT - PAGE 20
<PAGE> 28
Section 5.5 Method of Payment. Except as otherwise expressly
provided herein, all payments of principal, interest, and other amounts to be
made by the Borrower or any Obligated Party under the Loan Documents shall be
made to the Agent at the Principal Office for the account of each Bank's
Applicable Lending Office in Dollars and in immediately available funds,
without setoff, deduction, or counterclaim, not later than 1:00 p.m. on the
date on which such payment shall become due (each such payment made after such
time on such due date to be deemed to have been made on the next succeeding
Business Day). The Borrower and each Obligated Party shall, at the time of
making each such payment, specify to the Agent the sums payable under the Loan
Documents to which such payment is to be applied (and in the event that the
Borrower fails to so specify, or if an Event of Default has occurred and is
continuing, the Agent may apply such payment and any proceeds of any Collateral
to the Obligations in such order and manner as the Required Banks may elect in
their sole discretion, subject to Section 5.6 hereof). Each payment received
by the Agent under any Loan Document for the account of a Bank shall be paid to
such Bank by 3:00 p.m. on the date the payment is deemed made to the Agent in
immediately available funds, for the account of such Bank's Applicable Lending
Office. Whenever any payment under any Loan Document shall be stated to be due
on a day that is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of the payment of interest and commitment fee, as
the case may be.
Section 5.6 Pro Rata Treatment. Except to the extent otherwise
provided herein: (a) each Loan shall be made by the Banks, each payment of
commitment fees under Section 2.5 shall be made for the account of the Banks,
and each termination or reduction of the Commitments shall be applied to the
Commitments of the Banks, pro rata according to their respective Commitment
Percentages; (b) the making, Conversion, and Continuation of Accounts of a
particular Type (other than Conversions provided for by Section 6.4) shall be
made pro rata among the Banks holding Accounts of such Type according to their
respective Commitment Percentages; (c) each payment and prepayment of principal
of or interest on Loans by the Borrower shall be made to the Agent for the
account of the Agent or the Banks holding such Loans pro rata in accordance
with the respective unpaid principal amounts of such Loans or participation
interests held by the Agent or such Banks; and (d) proceeds of Collateral shall
be shared by the Agent and the Banks pro rata in accordance with the respective
unpaid principal amounts of and interest on the Obligations then due the Agent
and the Banks. If at any time payment, in whole or in part, of any amount
distributed by the Agent hereunder is rescinded or must otherwise be restored
or returned by Agent as a preference, fraudulent conveyance, or otherwise under
any bankruptcy, insolvency, or similar law, then each Person receiving any
portion of such amount agrees, upon demand, to return the portion of such
amount it has received to the Agent.
Section 5.7 Sharing of Payments. If a Bank shall obtain payment
of any principal of or interest on any of the Obligations due to such Bank
hereunder directly (and not through the Agent) through the exercise of any
right of set-off, banker's lien, counterclaim, or similar right, or otherwise,
it shall promptly purchase from the other Banks participations in the
Obligations held by the other Banks in such amounts, and make such other
adjustments from time to time as shall be equitable to the end that all the
Banks shall share the benefit of such payment pro rata in accordance with the
unpaid principal of and interest on the Obligations then due to each of them.
To such end, all of the Banks shall make appropriate adjustments among
themselves (by the resale
CREDIT AGREEMENT - PAGE 21
<PAGE> 29
of participations sold or otherwise) if all or any portion of such excess
payment is thereafter rescinded or must otherwise be restored. The Borrower
agrees, to the fullest extent it may effectively do so under applicable law,
that any Bank so purchasing a participation in the Obligations held by the
other Banks may exercise all rights of set-off, banker's lien, counterclaim, or
similar rights with respect to such participation as fully as if such Bank were
a direct holder of Obligations in the amount of such participation. Nothing
contained herein shall require any Bank to exercise any such right or shall
affect the right of any Bank to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness or obligation
of the Borrower.
Section 5.8 Non-Receipt of Funds by the Agent. Unless the Agent
shall have been notified by a Bank or the Borrower (the "Payor") prior to the
date on which such Bank is to make payment to the Agent hereunder or the
Borrower is to make a payment to the Agent for the account of one or more of
the Banks, as the case may be (such payment being herein called the "Required
Payment"), which notice shall be effective upon receipt, that the Payor does
not intend to make the Required Payment to the Agent, the Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient on such date and, if the Payor has not in fact made the
Required Payment to the Agent, (a) the recipient of such payment shall, on
demand, pay to the Agent the amount made available to it together with interest
thereon in respect of the period commencing on the date such amount was so made
available by the Agent until the date the Agent recovers such amount at a rate
per annum equal to the Federal Funds Effective Rate for such period and (b) the
Agent shall be entitled to offset against any and all sums to be paid to such
recipient, the amount calculated in accordance with the foregoing clause (a).
Section 5.9 Withholding Taxes. All payments by the Borrower of
amounts payable under any Loan Document shall be payable without deduction for
or on account of any present or future taxes, duties, or other charges levied
or imposed by the United States of America or by the government of any
jurisdiction outside the United States of America or by any political
subdivision or taxing authority of or in any of the foregoing through
withholding or deduction with respect to any such payments (but excluding any
tax imposed on or measured by the net income or profit of a Bank pursuant to
the laws of the jurisdiction in which it is organized or in which the principal
office or Applicable Lending Office of such Bank is located or any subdivision
thereof or therein). If any such taxes, duties, or other charges are so levied
or imposed, the Borrower will make additional payments in such amounts so that
every net payment of amounts payable by it under any Loan Document, after
withholding or deduction for or on account of any such present or future taxes,
duties, or other charges, will not be less than the amount provided for herein
or therein, provided that the Borrower may withhold to the extent required by
law and shall have no obligation to pay such additional amounts to any Bank to
the extent that such taxes, duties, or other charges are levied or imposed by
reason of the failure or inability of such Bank to comply with the provisions
of Section 5.10. The Borrower shall furnish promptly to the Agent for
distribution to each affected Bank, as the case may be, official receipts
evidencing any such withholding or reduction.
Section 5.10 Withholding Tax Exemption. Each Bank that is not
organized under the laws of the United States of America or a state thereof
agrees that it will deliver to the Borrower and the Agent two duly completed
copies of United States Internal Revenue Service Form 1001
CREDIT AGREEMENT - PAGE 22
<PAGE> 30
or 4224 (or a successor form), certifying in either case that such Bank is
entitled to receive payments from the Borrower under any Loan Document without
deduction or withholding of any United States federal income taxes. Each Bank
which so delivers a Form 1001 or 4224 further undertakes to deliver to the
Borrower and the Agent two (2) additional copies of such form (or a successor
form) on or before the date such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form so delivered
by it, and such amendments thereto or extensions or renewals thereof as may be
reasonably requested by the Borrower or the Agent, in each case certifying that
such Bank is entitled to receive payments from the Borrower under any Loan
Document without deduction or withholding of any United States federal income
taxes, unless an event (including without limitation any change in treaty, law,
or regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Bank from duly completing and delivering any such form with
respect to it and such Bank advises the Borrower and the Agent that it is not
capable of receiving such payments without any deduction or withholding of
United States federal income tax.
ARTICLE 6
Yield Protection and Illegality
Section 6.1 Additional Costs.
(a) The Borrower shall pay directly to each Bank from
time to time such amounts as such Bank may determine to be necessary
to compensate it for any reasonable costs incurred by such Bank which
such Bank determines are attributable to its making or maintaining of
any Loans subject to Eurodollar Accounts hereunder or its obligation
to make any of such Loans hereunder, or any reduction in any amount
receivable by such Bank hereunder in respect of any such Loans or such
obligation (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which:
(i) changes the basis of taxation of any amounts
payable to such Bank under this Agreement or its Notes in
respect of any of such Loans (other than franchise taxes and
taxes imposed on the overall net income of such Bank or its
Applicable Lending Office for any of such Loans by the United
States of America or the jurisdiction in which such Bank has
its Principal Office or such Applicable Lending Office);
(ii) imposes or modifies any reserve, special
deposit, minimum capital, capital ratio, or similar
requirement relating to any extensions of credit or other
assets of, or any deposits with or other liabilities or
commitments of, such Bank (including any of such Loans or any
deposits referred to in the definition of "Eurodollar Rate" in
Section 1.1 hereof); or
CREDIT AGREEMENT - PAGE 23
<PAGE> 31
(iii) imposes any other condition affecting this
Agreement or the Notes or any of such extensions of credit or
liabilities or commitments.
Each Bank will notify the Borrower (with a copy to the Agent) of any
event occurring after the date of this Agreement which will entitle
such Bank to compensation pursuant to this subsection 6.1(a) as
promptly as practicable after it obtains knowledge thereof and
determines to request such compensation, and will designate a
different Applicable Lending Office for the Loans affected by such
event if such designation will avoid the need for, or reduce the
amount of, such compensation and will not, in the sole opinion of such
Bank, violate any law, rule, or regulation or be in any way
disadvantageous to such Bank. Each Bank will furnish the Borrower
with a certificate setting forth the basis and the amount of each
request of such Bank for compensation under this subsection 6.1(a). If
any Bank requests compensation from the Borrower under this subsection
6.1(a), the Borrower may, by notice to such Bank (with a copy to the
Agent) suspend the obligation of such Bank to make Loans subject to
Eurodollar Accounts or Continue Eurodollar Accounts as Eurodollar
Accounts or Convert Base Rate Accounts into Eurodollar Accounts until
the Regulatory Change giving rise to such request ceases to be in
effect (in which case the provisions of Section 6.4 hereof shall be
applicable with respect to such Eurodollar Accounts).
(b) Without limiting the effect of the foregoing
provisions of this Section 6.1, in the event that, by reason of any
Regulatory Change, any Bank either (i) incurs Additional Costs based
on or measured by the excess above a specified level of the amount of
a category of deposits or other liabilities of such Bank which
includes deposits by reference to which the interest rate on the Loans
subject to Eurodollar Accounts is determined as provided in this
Agreement or a category of extensions of credit or other assets of
such Bank which includes Loans subject to Eurodollar Accounts or (ii)
becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if such Bank so elects
by notice to the Borrower (with a copy to the Agent), the obligation
of such Bank to make Loans subject to Eurodollar Accounts or Continue
Eurodollar Accounts as Eurodollar Accounts or Convert Base Rate
Accounts into Eurodollar Accounts hereunder shall be suspended until
the Regulatory Change giving rise to such request ceases to be in
effect (in which case the provisions of Section 6.4 hereof shall be
applicable).
(c) Determinations and allocations by any Bank for
purposes of this Section 6.1 of the effect of any Regulatory Change on
its costs of maintaining its obligation to make Loans or of making or
maintaining Loans or on amounts receivable by it in respect of the
Loans, and of the additional amounts required to compensate such Bank
in respect of any Additional Costs, shall, absent manifest error, be
conclusive, provided that such determinations and allocations are made
on a reasonable basis.
Section 6.2 Limitation on Eurodollar Accounts. Anything herein
to the contrary notwithstanding, if with respect to any Eurodollar Accounts
under a Loan for any Interest Period therefor:
CREDIT AGREEMENT - PAGE 24
<PAGE> 32
(a) The Agent determines (which determination shall be
conclusive) that quotations of interest rates for the relevant
deposits referred to in the definition of "Eurodollar Rate" in Section
1.1 hereof are not being provided in the relative amounts or for the
relative maturities for purposes of determining the rate of interest
for the Loans subject to such Eurodollar Accounts as provided in this
Agreement; or
(b) Required Banks determine (which determination shall
be conclusive) and notify the Agent that the relevant rates of
interest referred to in the definition of "Adjusted Eurodollar Rate"
in Section 1.1 hereof on the basis of which the rate of interest for
such Loans for such Interest Period is to be determined do not
accurately reflect the cost to the Banks of making or maintaining such
Loans for such Interest Period;
then the Agent shall give the Borrower prompt notice thereof specifying the
relevant Eurodollar Account and the relevant amounts or periods, and so long as
such condition remains in effect, the Banks shall be under no obligation to
make additional Loans subject to a Eurodollar Account or to Convert Base Rate
Accounts into Eurodollar Accounts and the Borrower shall, on the last day(s) of
the then current Interest Period(s) for the outstanding Eurodollar Accounts,
either prepay the Loans subject to such Eurodollar Accounts or Convert such
Eurodollar Accounts into Base Rate Accounts in accordance with the terms of
this Agreement. Determinations made under this Section 6.2 shall be made on a
reasonable basis.
Section 6.3 Illegality. Notwithstanding any other provision of
this Agreement, in the event that it becomes unlawful for any Bank or its
Applicable Lending Office to (a) honor its obligation to make Loans subject to
a Eurodollar Account hereunder or (b) maintain Loans subject to a Eurodollar
Account hereunder, then such Bank shall promptly notify the Borrower (with a
copy to the Agent) thereof and such Bank's obligation to make or maintain Loans
subject to a Eurodollar Account and to Convert Base Rate Accounts into
Eurodollar Accounts hereunder shall be suspended until such time as such Bank
may again make and maintain Loans subject to a Eurodollar Account (in which
case the provisions of Section 6.4 hereof shall be applicable).
Section 6.4 Treatment of Affected Loans. If the Accounts
applicable to a Loan of any Bank (hereinafter called "Affected Accounts") are
to be Converted pursuant to Section 6.1 or 6.3 hereof, the Bank's Affected
Accounts shall be automatically Converted into Base Rate Accounts on the last
day(s) of the then current Interest Period(s) (or, in the case of a Conversion
required by subsection 6.1(b) or Section 6.3 hereof, on such earlier date as
such Bank may specify to the Borrower with a copy to the Agent) and, unless and
until such Bank gives notice as provided below that the circumstances specified
in Section 6.1 or 6.3 hereof which gave rise to such Conversion no longer
exist: (a) to the extent that such Bank's Affected Accounts have been so
Converted, all payments and prepayments of principal which would otherwise be
applied to such Bank's Affected Accounts shall be applied instead to its Base
Rate Accounts; and (b) all Accounts which would otherwise be established or
Continued by such Bank as Eurodollar Accounts shall be made as or Converted
into Base Rate Accounts and all Accounts of such Bank which would otherwise be
Converted into Eurodollar Accounts shall be Converted instead into (or shall
remain as) Base Rate Accounts. If such Bank gives notice to the Borrower (with
a copy to the Agent) that the circumstances specified in Section 6.1 or 6.3
hereof which gave rise to the Conversion of such Bank's Affected Accounts
pursuant to this Section 6.4 no longer exist (which such Bank agrees
CREDIT AGREEMENT - PAGE 25
<PAGE> 33
to do promptly upon such circumstances ceasing to exist) at a time when
Eurodollar Accounts are outstanding, such Bank's Base Rate Accounts shall be
automatically Converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding Eurodollar Accounts to the extent necessary so
that, after giving effect thereto, all Accounts held by the Banks holding
Eurodollar Accounts and by such Bank are held pro rata (as to principal
amounts, Types, and Interest Periods) in accordance with their respective
Commitment Percentages.
Section 6.5 Compensation. The Borrower shall pay to the Agent
for the account of each Bank, upon the request of such Bank, such amount or
amounts as shall be sufficient (in the reasonable opinion of such Bank) to
compensate it for any loss, cost, or expense incurred by it as a result of:
(a) Any payment or prepayment of a Loan subject to a
Eurodollar Account or Conversion of a Eurodollar Account for any
reason (including, without limitation, the acceleration of the
outstanding Loans pursuant to subsection 12.2(a)) on a date other than
the last day of an Interest Period for the applicable Eurodollar
Account; or
(b) Any failure by the Borrower for any reason
(including, without limitation, the failure of any conditions
precedent specified in Article 7 to be satisfied) to borrow or prepay
a Loan subject to a Eurodollar Account, or Convert a Base Rate Account
to a Eurodollar Account on the date for such borrowing, Conversion, or
prepayment specified in the relevant notice of borrowing, prepayment,
or Conversion under this Agreement.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so paid or Converted
or not borrowed for the period from the date of such payment, Conversion, or
failure to borrow to the last day of the Interest Period for such Eurodollar
Account (or, in the case of a failure to borrow, the Interest Period for such
Eurodollar Account which would have commenced on the date specified for such
borrowing) at the applicable rate of interest for such Eurodollar Account
provided for herein over (ii) the interest component of the amount such Bank
would have bid in the European interbank market for Dollar deposits of leading
banks and amounts comparable to such principal amount and with maturities
comparable to such period.
Section 6.6 Capital Adequacy. If after the date hereof, any Bank
shall have determined that any Regulatory Change has or would have the effect
of reducing the rate of return on such Bank's (or its parent's) capital as a
consequence of its obligations hereunder or the transactions contemplated
hereby to a level below that which such Bank (or its parent) could have
achieved but for such adoption, implementation, change, or compliance (taking
into consideration such Bank's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within ten
(10) Business Days after demand by such Bank (with a copy to the Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank (or its parent) for such reduction. A certificate of such
Bank claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive, provided that
the determination thereof is made on a reasonable
CREDIT AGREEMENT - PAGE 26
<PAGE> 34
basis. In determining such amount or amounts, such Bank may use any reasonable
averaging and attribution methods.
ARTICLE 7
Conditions Precedent
Section 7.1 Initial Loan. The obligation of each Bank to make
its initial Loan are subject to the condition precedent that the Agent shall
have received on or before the day of any such Loan and on or before December
31, 1997 all of the following, each dated (unless otherwise indicated) the date
hereof, in form and substance satisfactory to the Agent:
(a) Resolutions. Resolutions of the Board of Directors
of the Borrower and each Subsidiary (other than AHG Partnership)
certified by its Secretary or an Assistant Secretary which authorize
its execution, delivery, and performance of the Loan Documents to
which it is or is to be a party.
(b) Incumbency Certificate. A certificate of incumbency
certified by the Secretary or an Assistant Secretary of the Borrower
and each Subsidiary (other than AHG Partnership) certifying the name
of each of its officers (i) who are authorized to sign the Loan
Documents to which it is or is to be a party (including the
certificates contemplated herein) together with specimen signatures of
each such officers and (ii) who will, until replaced by other officers
duly authorized for that purpose, act as its representative for the
purposes of signing documentation and giving notices and other
communications in connection with the Loan Documents.
(c) Articles of Incorporation. The articles of
incorporation of the Borrower and each Subsidiary (other than AHG
Partnership) certified by the Secretary of State of the state of its
incorporation (or the other appropriate governmental officials of its
jurisdiction of organization) and dated a current date.
(d) Bylaws. The bylaws of the Borrower and each
Subsidiary (other than AHG Partnership) certified by its Secretary or
an Assistant Secretary.
(e) Governmental Certificates. Certificates of the
appropriate government officials of the state of incorporation of the
Borrower and each Subsidiary (other than AHG Partnership) as to its
existence and good standing and certificates of the appropriate
government officials of each jurisdiction in which the Borrower and
each Subsidiary (other than AHG Partnership) is required to qualify
to do business and where failure to so qualify could reasonably be
expected to have a Material Adverse Effect, as to the Borrower's and
each Subsidiary's (other than AHG Partnership) qualification to do
business and good standing in such jurisdiction, all dated a current
date.
(f) Notes. The Notes executed by the Borrower.
CREDIT AGREEMENT - PAGE 27
<PAGE> 35
(g) Collateral Documents and Collateral. The Collateral
Assignment executed by Texas Commerce, the Borrower Security Agreement
and the Borrower Pledge Agreement executed by the Borrower, the
Subsidiary Security Agreement and the Guaranty executed by the
Subsidiaries (other than AHG Partnership); a Subsidiary Pledge
Agreement executed by Horizon Mental Health Management, Inc.;
certificates representing the capital stock of the Subsidiaries
pledged pursuant to the Borrower Pledge Agreement and the Subsidiary
Pledge Agreement together with undated stock powers duly executed in
blank; UCC, tax and judgment Lien search reports listing all
documentation on file against the Borrower and each Subsidiary (other
than AHG Partnership) in each jurisdiction in which the Borrower, any
such Subsidiary or any Collateral is located or registered; a lien
subordination agreement from the landlord of the Borrower's property
located at 1500 Water Ridge, Lewisville, Texas containing such access
agreements and subordinations as the Agent may require; subject to
Section 9.10, waivers, subordinations or acknowledgments from all
other third parties who have possession or control of any Collateral;
and such other executed documentation as the Agent may deem necessary
to perfect or protect its Liens, including, without limitation,
financing statements under the UCC and other applicable documentation
under the laws of any jurisdiction with respect to the perfection of
Liens but subject to Section 9.10.
(h) Termination or Assignment of Prior Liens. Duly
executed UCC-3 assignments or termination statements, mortgage
releases, and such other documentation as shall be necessary to
terminate, release or assign to the Agent all Liens other than those
permitted by Section 10.2.
(i) Insurance Policies. Certificates of insurance
summarizing the insurance policies of the Borrower and the
Subsidiaries required by this Agreement and reflecting the Agent as
additional insured under such policies and as loss payee with respect
to all policies covering Collateral.
(j) Opinion of Counsel. Favorable opinions of legal
counsel to the Borrower and the Subsidiaries, as to such matters as
the Agent may reasonably request.
(k) Fees. The fees due on the Closing Date as described
in the commitment letter dated October 8, 1997 from Chase Securities,
Inc. and Texas Commerce to the Borrower and, without duplication, the
upfront fees due each Bank as described in the Summary of Terms and
Conditions set out in that certain Confidential Information Memorandum
dated October 1997 relating to the facility contemplated hereby.
(l) Attorneys' Fees and Expenses. Evidence that the
costs and expenses (including attorneys' fees) referred to in Section
14.1, to the extent incurred, shall have been paid in full by the
Borrower.
Section 7.2 All Loans. The obligation of each Bank to make any
Loan (including the initial Loan) is subject to the following additional
conditions precedent:
CREDIT AGREEMENT - PAGE 28
<PAGE> 36
(a) No Default. No Default shall have occurred and be
continuing, or would result from such Loan;
(b) Representations and Warranties. All of the
representations and warranties contained in Article 8 hereof and in
the other Loan Documents shall be true and correct on and as of the
date of such Loan with the same force and effect as if such
representations and warranties had been made on and as of such date
except to the extent that such representations and warranties relate
specifically to another date; and
(c) Additional Documentation. The Agent shall have
received such additional approvals, opinions, or documents as the
Agent may reasonably request.
Each notice of borrowing by the Borrower hereunder, shall constitute a
representation and warranty by the Borrower that the conditions precedent set
forth in subsections 7.2(a) and (b) have been satisfied (both as of the date of
such notice and, unless the Borrower otherwise notifies the Agent prior to the
date of such borrowing, as of the date of such borrowing).
ARTICLE 8
Representations and Warranties
To induce the Agent and the Banks to enter into this Agreement, the
Borrower represents and warrants to the Agent and the Banks that:
Section 8.1 Corporate Existence. The Borrower and each
Subsidiary (a) is a corporation or other entity (as reflected on Schedule 8.14)
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation or organization, (b) has all requisite power
and authority to own its assets and carry on its business as now being or as
proposed to be conducted, and (c) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where the failure to so qualify could reasonably be expected to
have a Material Adverse Effect. The Borrower and each Subsidiary has the
corporate power and authority to execute, deliver, and perform their respective
obligations under the Loan Documents to which it is or may become a party.
Section 8.2 Financial Statements. The Borrower has delivered to
the Agent and the Banks audited consolidated financial statements of the
Borrower and the Subsidiaries as at and for the Fiscal Year ended August 31,
1997. Such financial statements, have been prepared in accordance with GAAP,
and present fairly, on a consolidated basis, the financial condition of the
Borrower and the Subsidiaries as of the respective dates indicated therein and
the results of operations for the respective periods indicated therein.
Neither the Borrower nor any of the Subsidiaries has any material contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments,
or unrealized or anticipated losses from any unfavorable commitments except as
referred to or reflected in such financial statements. There has been no
material adverse change in the business, condition (financial or otherwise),
operations, prospects, or properties of
CREDIT AGREEMENT - PAGE 29
<PAGE> 37
the Borrower and the Subsidiaries taken as a whole since the effective date of
the most recent financial statements referred to in this Section.
Section 8.3 Corporate Action; No Breach. The execution,
delivery, and performance by the Borrower and each Subsidiary of the Loan
Documents to which each is or may become a party and compliance with the terms
and provisions hereof and thereof have been duly authorized by all requisite
action on the part of the Borrower and each Subsidiary and do not and will not
(a) violate or conflict with, or result in a breach of, or require any consent
under (i) the articles of incorporation, bylaws or other governing documents of
the Borrower or any of the Subsidiaries, (ii) any applicable law, rule, or
regulation or any order, writ, injunction, or decree of any Governmental
Authority or arbitrator or (iii) any material agreement or instrument to which
the Borrower or any Subsidiary is a party or by which any of them or any of
their property is bound or subject, or (b) constitute a default under any such
agreement or instrument, or result in the creation or imposition of any Lien
(except as provided herein) upon any of the revenues or assets of the Borrower
or any Subsidiary.
Section 8.4 Operation of Business. The Borrower and each of the
Subsidiaries possess all licenses, permits, franchises, patents, copyrights,
trademarks, and tradenames, or rights thereto, necessary to conduct their
respective businesses substantially as now conducted except those that the
failure to so possess could not reasonably be expected to have a Material
Adverse Effect, and the Borrower and each of its Subsidiaries are not in
violation of any valid rights of others with respect to any of the foregoing
except violations that could not reasonably be expected to have a Material
Adverse Effect.
Section 8.5 Litigation and Judgments. There is no action, suit,
investigation, or proceeding before or by any Governmental Authority or
arbitrator pending, or to the knowledge of the Borrower, threatened against or
affecting the Borrower or any Subsidiary, that would, if adversely determined,
have a Material Adverse Effect. There are no outstanding judgments against the
Borrower or any Subsidiary.
Section 8.6 Rights in Properties; Liens. The Borrower and each
Subsidiary have good title to or valid leasehold interests in their respective
properties and assets, real and personal, including the properties, assets, and
leasehold interests reflected in the financial statements described in Section
8.2, and none of the properties, assets, or leasehold interests of the Borrower
or any Subsidiary is subject to any Lien, except as permitted by Section 10.2.
Section 8.7 Enforceability. The Loan Documents to which the
Borrower or any Subsidiary is a party, when delivered, shall constitute the
legal, valid, and binding obligations of the Borrower or the Subsidiary, as
applicable, enforceable against the Borrower or the applicable Subsidiary in
accordance with their respective terms, except as limited by bankruptcy,
insolvency, or other laws of general application relating to the enforcement of
creditors' rights and general principles of equity.
Section 8.8 Approvals. All authorizations, approvals, and
consents of, and all filings or registrations with, any Governmental Authority
or third party necessary for the execution,
CREDIT AGREEMENT - PAGE 30
<PAGE> 38
delivery, or performance by the Borrower or any Subsidiary of the Loan
Documents to which each is or may become a party or for the validity or
enforceability thereof have been obtained or made.
Section 8.9 Debt. The Borrower and the Subsidiaries have no
Debt, except as permitted by Section 10.1.
Section 8.10 Taxes. The Borrower and each Subsidiary have filed
all material tax returns (federal, state, and local) required to be filed,
including all income, franchise, employment, property, and sales tax returns,
and have paid all of their respective liabilities for taxes, assessments,
governmental charges, and other levies that are due and payable other than
those being contested in good faith by appropriate proceedings diligently
pursued for which adequate reserves have been established. The Borrower knows
of no pending investigation of the Borrower or any Subsidiary by any taxing
authority or of any pending but unassessed tax liability of the Borrower or any
Subsidiary.
Section 8.11 Margin Securities. Neither the Borrower nor any
Subsidiary is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T, U, or X of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
Loan will be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying margin stock.
Section 8.12 ERISA. The Borrower and each Subsidiary are in
compliance in all material respects with all applicable provisions of ERISA.
Neither a Reportable Event nor a Prohibited Transaction has occurred and is
continuing with respect to any Plan. No notice of intent to terminate a Plan
has been filed, nor has any Plan been terminated. No circumstances exist which
constitute grounds entitling the PBGC to institute proceedings to terminate, or
appoint a trustee to administer, a Plan, nor has the PBGC instituted any such
proceedings. Neither the Borrower nor any ERISA Affiliate has completely or
partially withdrawn from a Multiemployer Plan. The Borrower and each ERISA
Affiliate have met their minimum funding requirements under ERISA with respect
to all of their Plans. The present value of all vested benefits under each
Plan do not exceed the fair market value of all Plan assets allocable to such
benefits, as determined on the most recent valuation date of the Plan and in
accordance with ERISA, by an amount that will exceed One Hundred Thousand
Dollars ($100,000). Neither the Borrower nor any ERISA Affiliate has incurred
any liability to the PBGC under ERISA.
Section 8.13 Disclosure. All factual information furnished by or
on behalf of the Borrower in writing to the Agent or any Bank (including,
without limitation, all information contained in the Loan Documents) for
purposes of or in connection with this Agreement, the other Loan Documents or
any transaction contemplated herein or therein is, and all other such factual
information hereafter furnished by or on behalf of the Borrower to the Agent or
any Bank, will be true and accurate in all material respects on the date as of
which such information is dated or certified and not incomplete by omitting to
state any fact necessary to make such information not misleading in any
material respect at such time in light of the circumstances under which such
information was provided.
CREDIT AGREEMENT - PAGE 31
<PAGE> 39
Section 8.14 Subsidiaries. As of the Closing Date, the Borrower
has no Subsidiaries other than those listed on Schedule 8.14 hereto. Schedule
8.14 sets forth the type of each Subsidiary listed thereon, the jurisdiction of
incorporation or organization of each such Subsidiary, the percentage of the
Borrower's or a Subsidiary's ownership of the outstanding voting stock (or
other ownership interests) of each such Subsidiary and, the authorized, issued,
and outstanding capital stock (or other equity interests) of each such
Subsidiary. All of the outstanding capital stock (or other equity interests)
of each Subsidiary listed on Schedule 8.14 has been validly issued, is fully
paid, and is nonassessable. There are no outstanding subscriptions, options,
warrants, calls, or rights (including preemptive rights) to acquire, and no
outstanding securities or instruments convertible into, capital stock of any
Subsidiary except as disclosed on Schedule 8.14.
Section 8.15 Agreements. Neither the Borrower nor any Subsidiary
is a party to any indenture, loan, or credit agreement, or to any lease or
other agreement or instrument, or subject to any charter or corporate
restriction that could reasonably be expected to have a Material Adverse
Effect. Neither the Borrower nor any Subsidiary is in default in any respect
in the performance, observance, or fulfillment of any of the obligations,
covenants, or conditions contained in any agreement or instrument to which it
is a party other than defaults which will not have a Material Adverse Effect.
Section 8.16 Compliance with Laws. Neither the Borrower nor any
Subsidiary is in violation in any material respect of any law, rule,
regulation, order, or decree of any Governmental Authority or arbitrator.
Section 8.17 Investment Company Act. Neither the Borrower nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 8.18 Public Utility Holding Company Act. Neither the
Borrower nor any Subsidiary is a "holding company" or a "subsidiary company" of
a "holding company" or an "affiliate" of a "holding company" or a "public
utility" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
Section 8.19 Environmental Matters.
(a) The Borrower, each Subsidiary, and all of their
respective properties, assets, and operations are in full compliance
with all Environmental Laws. The Borrower is not aware of, nor has
the Borrower received written notice of, any past, present, or future
conditions, events, activities, practices, or incidents which may
interfere with or prevent the compliance or continued compliance of
the Borrower and the Subsidiaries with all Environmental Laws;
(b) The Borrower and each Subsidiary have obtained all
permits, licenses, and authorizations that are required under
applicable Environmental Laws, and all such permits are in good
standing and the Borrower and its Subsidiaries are in compliance with
all of the terms and conditions of such permits;
CREDIT AGREEMENT - PAGE 32
<PAGE> 40
(c) No Hazardous Materials have been used, generated,
stored, transported, disposed of on, or Released from any of the
properties or assets of the Borrower or any Subsidiary, and to the
knowledge of Borrower, no Hazardous Materials are present at such
properties, except in compliance with Environmental Laws. The use
which the Borrower and the Subsidiaries make and intend to make of
their respective properties and assets will not result in the use,
generation, storage, transportation, accumulation, disposal, or
Release of any Hazardous Material on, in, or from any of their
properties or assets except in compliance with Environmental Laws;
(d) Neither the Borrower nor any of the Subsidiaries nor
any of their respective currently or previously owned or leased
properties or operations is subject to any outstanding or, to the best
of its knowledge, threatened order from or agreement with any
Governmental Authority or other Person or subject to any judicial or
administrative proceeding with respect to (i) failure to comply with
Environmental Laws, (ii) Remedial Action, or (iii) any Environmental
Liabilities arising from a Release or threatened Release;
(e) Neither the Borrower nor any of the Subsidiaries is a
treatment, storage, or disposal facility requiring a permit under the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq., regulations thereunder or any comparable provision of state law.
The Borrower and the Subsidiaries are in compliance with all
applicable financial responsibility requirements of all Environmental
Laws;
(f) Neither the Borrower nor any of the Subsidiaries has
filed or failed to file any notice required under applicable
Environmental Law reporting a Release; and
(g) No Lien arising under any Environmental Law has
attached to any property or revenues of the Borrower or the
Subsidiaries.
Section 8.20 Solvency. Borrower and each Subsidiary, both
individually and on a consolidated basis: (a) owns and will own assets the fair
saleable value of which are (i) greater than the total amount of its
liabilities (including contingent liabilities) and (ii) greater than the amount
that will be required to pay probable liabilities of then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to it; (b) has capital that is not
unreasonably small in relation to its business as presently conducted; and (c)
does not intend to incur and does not believe that it will incur debts beyond
its ability to pay such debts as they become due.
Section 8.21 Benefit Received. Borrower and the Subsidiaries will
receive reasonably equivalent value in exchange for the obligations incurred
under the Loan Documents to which each is a party.
CREDIT AGREEMENT - PAGE 33
<PAGE> 41
ARTICLE 9
Positive Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder, the
Borrower will perform and observe the following positive covenants:
Section 9.1 Reporting Requirements. The Borrower will furnish to
the Agent and each Bank:
(a) Annual Financial Statements. As soon as available,
and in any event within ninety (90) days after the end of each Fiscal
Year, beginning with the Fiscal Year ending on August 31, 1998, a copy
of the annual audit report of the Borrower and the Subsidiaries for
such Fiscal Year containing, on a consolidated basis, balance sheets
and statements of income, retained earnings, and cash flow as at the
end of such Fiscal Year and for the Fiscal Year then ended, in each
case setting forth in comparative form the figures for the preceding
Fiscal Year, all in reasonable detail and audited and certified on an
unqualified basis by independent certified public accountants of
recognized standing acceptable to the Agent, to the effect that such
report has been prepared in accordance with GAAP;
(b) Quarterly Financial Statements. As soon as
available, and in any event within forty-five (45) days after the end
of each of the first three (3) Fiscal Quarter of each Fiscal Year and
within ninety (90) days after the last Fiscal Quarter of each Fiscal
Year, a copy of an unaudited financial report of the Borrower and the
Subsidiaries as of the end of such period and for the Fiscal Quarter
then ended containing, on a consolidated basis, a balance sheet and
statements of income, retained earnings, and cash flow, in each case
setting forth in comparative form the figures for the corresponding
Fiscal Quarter of the preceding Fiscal Year, all in reasonable detail
certified by the chief financial officer of the Borrower to have been
prepared in accordance with GAAP and to fairly present (subject to
year-end audit adjustments) the financial condition and results of
operations of the Borrower and the Subsidiaries, on a consolidated
basis, at the date and for the periods indicated therein;
(c) Compliance Certificate. Within forty-five (45) days
after the end of each Fiscal Quarter, or with respect to the last
Fiscal Quarter of each Fiscal Year, within ninety (90) days of the end
of such Fiscal Quarter, a Compliance Certificate;
(d) Annual Projections. As soon as available and in any
event within forty-five (45) days after the beginning of each Fiscal
Year, the Borrower will deliver its consolidated forecasted profit and
loss statement for the current Fiscal Year set forth on a Fiscal
Quarter by Fiscal Quarter basis consistent with Borrower's historical
financial statements, together with appropriate supporting details, a
statement of underlying assumption and a proforma projection of the
Borrower's compliance with the financial covenants in this Agreement
for the same period;
CREDIT AGREEMENT - PAGE 34
<PAGE> 42
(e) Management Letters. Promptly upon receipt thereof, a
copy of any management letter or written report submitted to the
Borrower or any Subsidiary by independent certified public accountants
with respect to the business, condition (financial or otherwise),
operations, prospects, or properties of the Borrower or any
Subsidiary;
(f) Notice of Litigation. Promptly after the
commencement thereof, notice of all actions, suits, and proceedings
before any Governmental Authority or arbitrator affecting the Borrower
or any Subsidiary which, if determined adversely to the Borrower or
such Subsidiary, could reasonably be expected to have a Material
Adverse Effect;
(g) Notice of Default. As soon as possible and in any
event within five (5) Business Days after an officer of the Borrower
has knowledge of the occurrence of each Default, a written notice
setting forth the details of such Default and the action that the
Borrower has taken and proposes to take with respect thereto;
(h) ERISA Reports. If requested by the Agent, promptly
after the filing or receipt thereof, copies of all reports, including
annual reports, and notices which the Borrower or any Subsidiary files
with or receives from the PBGC or the U.S. Department of Labor under
ERISA; and as soon as possible and in any event within five (5)
Business Days after the Borrower or any Subsidiary knows or has reason
to know that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or that the PBGC or the Borrower or
any Subsidiary has instituted or will institute proceedings under
Title IV of ERISA to terminate any Plan, a certificate of the chief
financial officer of the Borrower setting forth the details as to such
Reportable Event or Prohibited Transaction or Plan termination and the
action that the Borrower proposes to take with respect thereto;
(i) Reports to Other Creditors. Promptly after the
furnishing thereof, copies of any statement or report furnished to any
other party pursuant to the terms of any indenture, loan, or credit or
similar agreement and not otherwise required to be furnished to the
Agent and the Banks pursuant to any other clause of this Section;
(j) Notice of Material Adverse Effect. As soon as
possible and in any event within five (5) Business Days after an
officer of the Borrower has knowledge of the occurrence thereof,
written notice of any matter that could reasonably be expected to have
a Material Adverse Effect;
(k) Proxy Statements, Etc. As soon as available, one
copy of each financial statement, report, notice or proxy statement
sent by the Borrower or any Subsidiary to its stockholders generally
and one copy of each regular, periodic, or special report,
registration statement, or prospectus filed by the Borrower or any
Subsidiary with any securities exchange or the Securities and Exchange
Commission or any successor agency; and
CREDIT AGREEMENT - PAGE 35
<PAGE> 43
(l) General Information. Promptly, such other
information concerning the Borrower or any Subsidiary as the Agent or
any Bank may from time to time reasonably request.
Section 9.2 Maintenance of Existence; Conduct of Business. The
Borrower will, and will cause each Subsidiary to, preserve and maintain (i) its
existence (except as permitted by Section 10.3) and (ii) all of its privileges,
licenses, permits, franchises, qualifications, and rights that are necessary or
desirable in the ordinary conduct of its business. The Borrower will, and will
cause each Subsidiary to, conduct its business in an orderly and efficient
manner in accordance with good business practices.
Section 9.3 Maintenance of Properties. The Borrower will, and
will cause each Subsidiary to, maintain, keep, and preserve all of its material
properties necessary in the conduct of its business in good working order and
condition (exclusive of ordinary wear, tear and casualty).
Section 9.4 Taxes and Claims. The Borrower will, and will cause
each Subsidiary to, pay or discharge at or before maturity or before becoming
delinquent (a) all taxes, levies, assessments, and governmental charges imposed
on it or its income or profits or any of its property, and (b) all valid and
lawful claims for labor, material, and supplies, which, if unpaid, might become
a Lien upon any of its property; provided, however, that neither the Borrower
nor any Subsidiary shall be required to pay or discharge any tax, levy,
assessment, or governmental charge which is being contested in good faith by
appropriate proceedings diligently pursued, and for which adequate reserves
have been established.
Section 9.5 Insurance. The Borrower will, and will cause each
Subsidiary to, maintain insurance with financially sound and reputable
insurance companies in such amounts and covering such risks as are usually
carried by corporations engaged in similar businesses and owning similar
properties in the same general areas in which the Borrower and the Subsidiaries
operate, provided that in any event the Borrower will maintain and cause each
Subsidiary to maintain workmen's compensation insurance (or alternate
comparable coverage as required by law), property insurance, comprehensive
general liability insurance and professional liability insurance reasonably
satisfactory to the Agent. Each general liability insurance policy shall name
the Agent as additional insured, each insurance policy covering Collateral
shall name the Agent as loss payee and shall provide that such policy will not
be canceled or materially changed without fifteen (15) days prior written
notice to the Agent.
Section 9.6 Inspection Rights. Upon two (2) Business Day's prior
notice and from time to time during normal business hours, the Borrower will,
and will cause each Subsidiary to, permit representatives of the Agent to
examine, copy, and make extracts from its books and records, to visit and
inspect its properties, and to discuss its business, operations, and financial
condition with its officers, employees, and independent certified public
accountants. When a Default exists, the prior notice described in the first
sentence of this Section 9.6 shall not be required. The representatives of any
Bank may accompany the Agent during any examination, visit, inspection or
discussions under this Section 9.6.
CREDIT AGREEMENT - PAGE 36
<PAGE> 44
Section 9.7 Keeping Books and Records. The Borrower will, and
will cause each Subsidiary to, maintain proper books of record and account in
which full, true, and correct entries in conformity with GAAP shall be made of
all dealings and transactions in relation to its business and activities.
Section 9.8 Compliance with Laws. The Borrower will, and will
cause each Subsidiary to, comply in all material respects with all applicable
laws (including, without limitation, all Environmental Laws and ERISA), rules,
regulations, orders, and decrees of any Governmental Authority or arbitrator.
Section 9.9 Compliance with Agreements. The Borrower will, and
will cause each Subsidiary to, comply in all material respects with all
agreements, contracts, and instruments binding on it or affecting its
properties or business.
Section 9.10 Further Assurances and Collateral Matters.
(a) Further Assurance and Exceptions to Perfection. The Borrower
will, and will cause each Subsidiary to, execute and deliver such further
documentation and take such further action as may be requested by the Agent to
carry out the provisions and purposes of the Loan Documents and to create,
preserve, and perfect the Liens of the Agent for the benefit of itself and the
Banks in the Collateral provided that prior to the occurrence of a Default,
neither Borrower nor any Subsidiary shall be required to:
(i) execute or have filed any UCC Financing
Statement fixture filings or, except as set forth below in
this subsection (a), execute or have filed any UCC Financing
Statement necessary to perfect the Agent's Lien on property at
a location identified pursuant to the Borrower Security
Agreement or the Subsidiary Security Agreement as a "Contract
Location" (herein a "Contract Location");
(ii) execute or deliver any waivers,
subordinations or acknowledgments from any third parties who
have possession or control of any Collateral;
(iii) except as required by Section 7.1(g), obtain
any landlord or mortgagee waivers or subordinations;
(iv) deliver any certificates of title evidencing
equipment of Borrower or a Subsidiary with the Agent's Lien
noted thereon; or
(v) grant the Agent control over any deposit,
security or commodity account.
If a Default occurs, then Borrower shall, and shall cause each Subsidiary to,
take such action as the Agent may request to perfect and protect the Liens of
the Agent in all the Collateral, including any or all of the actions described
in clauses (i) through (v) of this Section 9.10(a). Notwithstanding the
foregoing, if prior to the occurrence of a Default, the book value of the
equipment (excluding vehicles) and fixtures located at a Contract Location
exceeds Twenty
CREDIT AGREEMENT - PAGE 37
<PAGE> 45
Thousand Dollars ($20,000.00), then the Borrower shall, or cause the applicable
Subsidiary to, take all actions as the Agent may request to perfect and protect
the Liens of the Agent in the equipment and fixtures held at such Contract
Location. Borrower shall promptly notify the Agent if the book value of the
equipment (excluding vehicles) and fixtures located at a Contract Location
exceeds Twenty Thousand Dollars ($20,000.00).
(b) Subsidiary Pledge. Upon the creation or acquisition of any
Subsidiary or if a Default occurs and the Agent requests with respect to AHG
Partnership, the Borrower shall cause such Subsidiary to execute and deliver a
Subsidiary Joinder Agreement and such other documentation as the Agent may
request to cause such Subsidiary to evidence, perfect, or otherwise implement
the guaranty and security for repayment of the Obligations contemplated by a
Guaranty, the Subsidiary Security Agreement and, if applicable, a Subsidiary
Pledge Agreement.
(c) Borrower Pledge of Subsidiary Stock. If any Subsidiary is
created or acquired after the Closing Date, the Borrower shall execute and
deliver to the Agent an amendment to the Borrower Pledge Agreement describing
as collateral thereunder the stock of or other ownership interests in the new
Subsidiary and the Borrower shall deliver the certificates representing such
stock or other interests to the Agent together with undated stock or other
powers duly executed in blank.
Section 9.11 ERISA. The Borrower will, and will cause each
Subsidiary to, comply with all minimum funding requirements and all other
requirements of ERISA, if applicable, so as not to give rise to any liability
which will have a Material Adverse Effect.
ARTICLE 10
Negative Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder, the
Borrower will perform and observe the following negative covenants:
Section 10.1 Debt. The Borrower will not, and will not permit any
Subsidiary to, incur, create, assume, or permit to exist any Debt, except:
(a) Debt to the Agent and Banks pursuant to the Loan
Documents and existing Debt described on Schedule 10.1 (but excluding
after the Closing Date the Previous Senior Debt);
(b) Intercompany Debt owed by a Subsidiary to Borrower;
provided that (i) the obligations of each obligor of such Debt must be
subordinated in right of payment to any liability such obligor may
have for the Obligations from and after such time as any portion of
the Obligations shall become due and payable (whether at stated
maturity, by acceleration or otherwise, (ii) such Debt must be
incurred in the ordinary course of
CREDIT AGREEMENT - PAGE 38
<PAGE> 46
business and on terms customary for intercompany borrowings among
Borrower and the Subsidiary or must be made on such other terms and
provisions as the Agent may reasonably require, and (iii) the Borrower
shall have granted the Agent a Lien on its right, title and interest
in and to such Debt and all Liens securing the payment thereof;
(c) Debt not to exceed Five Hundred Thousand Dollars
($500,000) in the aggregate at any time outstanding secured by
purchase money Liens permitted by Section 10.2;
(d) Debt constituting obligations to reimburse worker's
compensation insurance companies for claims paid by such companies on
Borrower's or a Subsidiary' behalf in accordance with the policies
issued to Borrower and the Subsidiaries;
(e) Guarantees by Borrower of (i) trade accounts payable
owed by a Subsidiary and arising in the ordinary course of business,
(ii) Debt of a Subsidiary or (iii) operating leases of a Subsidiary
entered into in the ordinary course of business; provided that: (A)
the Debt guaranteed is otherwise permitted hereunder; and (B) no
Default exists or would result from such Guarantee;
(f) Guaranties incurred in the ordinary course of
business with respect to surety and appeal bonds, performance and
return-of-money bonds, and other similar obligations not exceeding at
any time outstanding Five Hundred Thousand Dollars ($500,000) in
aggregate liability;
(g) Debt arising in connection with interest rate swap,
cap, collar or similar agreements entered into in the ordinary course
of business to fix or limit Borrower's or any Subsidiary's interest
expense;
(h) Debt of any Person (or any of such Person's
subsidiaries) existing at the time such Person becomes a Subsidiary
(or is merged into or consolidated with the Borrower or any of the
Subsidiaries), but only to the extent that such Debt was not incurred
in connection with, as a result of or in contemplation of such Person
becoming a Subsidiary (or being merged into or consolidated with the
Borrower or any Subsidiary); provided, however, that (i) in no event
shall the aggregate amount of such Debt outstanding at any time exceed
Five Hundred Thousand Dollars ($500,000) and (ii) immediately after
such acquired Person becomes a Subsidiary (or is merged into or
consolidated with the Borrower or any Subsidiary), no Default exists;
and
(i) Debts, other than the Debts specifically described in
clauses (a) through (h) of this Section 10.1, which in the aggregate
do not exceed One Hundred Thousand Dollars ($100,000) at any time
outstanding.
Section 10.2 Limitation on Liens and Restrictions on Subsidiaries.
The Borrower will not, and will not permit any Subsidiary to, incur, create,
assume, or permit to exist any Lien upon any of its property, assets, or
revenues, whether now owned or hereafter acquired, except the
CREDIT AGREEMENT - PAGE 39
<PAGE> 47
following, none of which shall encumber the Collateral other than those Liens
described in clauses (a), (b), (d), (e), (g) and (h):
(a) Existing Liens disclosed on Schedule 10.2 hereto,
provided any Liens securing the Previous Senior Debt will not be
permitted after the Closing Date unless they have been assigned to the
Agent as contemplated hereby;
(b) Liens in favor of the Agent for the benefit of itself
and the Banks pursuant to the Loan Documents;
(c) Encumbrances consisting of minor easements, zoning
restrictions, or other restrictions on the use of real property that
do not (individually or in the aggregate) materially affect the value
of the assets encumbered thereby or materially impair the ability of
the Borrower or the Subsidiaries to use such assets in their
respective businesses, and none of which is violated in any material
respect by existing or proposed structures or land use;
(d) Liens (other than Liens relating to Environmental
Liabilities or ERISA) for taxes, assessments, or other governmental
charges that are not delinquent or which are being contested in good
faith and for which adequate reserves have been established;
(e) Liens of mechanics, materialmen, warehousemen,
carriers, landlords, or other similar statutory Liens securing
obligations that are not yet due and are incurred in the ordinary
course of business or which are being contested in good faith and for
which adequate reserves have been established;
(f) Liens resulting from good faith deposits to secure
payments of workmen's compensation or other social security programs
or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, and contracts (other than for payment of
Debt);
(g) Liens for purchase money obligations and Capital
Lease Obligations; provided that: (i) the Debt secured by any such
Lien is permitted under Section 10.1; and (ii) any such Lien encumbers
only the asset so purchased;
(h) Liens related to any attachment or judgment not
constituting an Event of Default;
(i) Liens arising from filing UCC financing statements
regarding leases permitted by this Agreement; and
(j) Liens on fixed assets of a Person existing at the
time such Person becomes a Subsidiary (or such Person is merged into
or consolidated with the Borrower or any Subsidiary) in accordance
with the provisions of Section 10.3 hereof; provided, however, that
such Liens (i) only secure the Debt permitted by subsection 10.1(h)
above, (ii) were in existence prior to such acquired Person becoming a
Subsidiary (or prior to the
CREDIT AGREEMENT - PAGE 40
<PAGE> 48
contemplation of such merger or consolidation), (iii) do not cover any
property other than the property of such acquired Person which is
subject to such Liens prior to such acquired Person becoming a
Subsidiary (or prior to the contemplation of such merger or
consolidation) and (iv) do not cover any accounts receivables,
inventory or general intangibles.
Neither the Borrower nor any Subsidiary shall enter into or assume any
agreement (other than the Loan Documents) prohibiting the creation or
assumption of any Lien upon its properties or assets, whether now owned or
hereafter acquired; provided that, in connection with the creation of purchase
money Liens, the Borrower or the Subsidiary may agree that it will not permit
any other Liens to encumber the asset subject to such purchase money Lien.
Except as provided herein, the Borrower will not and will not permit any
Subsidiaries directly or indirectly to create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Subsidiary to: (1) pay dividends or make any other
distribution on any of such Subsidiary's capital stock (or other equity
interests) owned by the Borrower or any Subsidiary; (2) subject to
subordination provisions, pay any Debt owed to the Borrower or any other
Subsidiary; (3) make loans or advances to the Borrower or any other Subsidiary;
or (4) transfer any of its property or assets to the Borrower or any other
Subsidiary.
Section 10.3 Mergers, Etc. The Borrower will not, and will not
permit any Subsidiary to, become a party to a merger or consolidation, or
purchase or otherwise acquire all or a substantial part of the business or
assets of any Person or any shares or other evidence of beneficial ownership of
any Person, or wind-up, dissolve, or liquidate itself; provided that, (i) the
Borrower and the Subsidiaries may acquire assets or shares or other evidence of
beneficial ownership of a Person in accordance with the restrictions set forth
in subsection 10.5; (ii) if no Default exists or would result, any Subsidiary
may merge into or consolidate with Borrower, any other Subsidiary or a Target
if the surviving Person is or becomes a wholly owned Subsidiary directly owned
by Borrower, assumes the obligations of the applicable Subsidiary under the
Loan Documents and is solvent as contemplated under Section 8.20 hereunder
after giving effect to such merger or consolidation, and (iii) the Borrower or
any wholly owned Subsidiary directly owned by Borrower (the "Acquiring
Company") may acquire all or substantially all of the assets of any Subsidiary
(a "Transferring Subsidiary") if the Acquiring Company assumes all the
Transferring Subsidiary's liabilities (including without limitation, all
liabilities of the Transferring Subsidiary under the Loan Documents to which it
is a party) and, following such assignment and assumption, such Transferring
Subsidiary may wind up, dissolve and liquidate.
Section 10.4 Restrictions on Dividends and other Distributions.
The Borrower will not and will not permit any Subsidiary to directly or
indirectly declare, order, pay, make or set apart any sum for (a) any dividend
or other distribution, direct or indirect, on account of any shares of any
class of stock (or other equity interest) of the Borrower or any Subsidiary now
or hereafter outstanding; (b) any redemption, conversion, exchange, retirement,
sinking fund or similar payment, purchase or other acquisition for value,
direct or indirect, of any shares of any class of stock (or other equity
interest) of the Borrower or any Subsidiary now or hereafter outstanding; or
(c) any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options, or other rights to acquire shares of any class of stock (or
other equity interest) of the Borrower or any Subsidiary now or hereafter
outstanding; except that (i) Subsidiaries (other than
CREDIT AGREEMENT - PAGE 41
<PAGE> 49
Borrower) may make, declare and pay dividends and make other distributions with
respect to their capital stock (or other equity interest) to Borrower or the
other Subsidiaries, (ii) the Borrower may redeem or repurchase shares of its
stock issued to employees and directors in connection with the exercise by such
Person of stock options granted to such Person under the Borrower's stock
option plans; provided that no Default exists or would result therefrom and the
Dollar amount of such repurchases in any individual case shall not exceed an
amount equal to the exercise price pay by such Person to exercise the option in
question plus all United States federal withholding taxes arising as a result
of such exercise, and (iii) this Section 10.4 shall not prohibit the
transactions permitted by clauses (a), (j) or (m) of Section 10.5.
Section 10.5 Investments. The Borrower will not, and will not
permit any Subsidiary to, make or permit to remain outstanding any advance,
loan, other extension of credit, or capital contribution to or investment in
any Person, or purchase or own any stock, bonds, notes, debentures, or other
securities of any Person, or be or become a joint venturer with or partner of
any Person, except:
(a) Borrower or any wholly owned Subsidiary directly
owned by Borrower may acquire shares, other equity securities or other
evidence of beneficial ownership of a Person or, for purposes of
Section 10.3, all or substantially all of a Persons's assets or the
assets of a division or branch of such Person, if, with respect to
each such acquisition:
(i) Default. No Default exists or would result
therefrom;
(ii) Bank Approval. If the Purchase Price for the
acquisition is greater than Ten Million Dollars ($10,000,000)
or if the after giving effect to such acquisition, the
aggregate Purchase Price of all Permitted Acquisitions that
have occurred during the twelve (12) month period then most
recently ending (excluding however, acquisitions consummated
prior to November 30, 1997) is greater than Twenty Million
Dollars ($20,000,000), Borrower shall have obtained the prior
written consent of the Required Banks. As used above, the
phrase "Purchase Price" means, as of any date of determination
and with respect to a proposed acquisition, the purchase price
to be paid for the Target or its assets, including all cash
consideration paid (whether classified as purchase price,
noncompete, consulting or postclosing performance based
payments or otherwise) or to be paid (based on the estimated
amount thereof), the value of all other assets to be
transferred by the purchaser in connection with such
acquisition to the seller (but specifically excluding any
stock of Borrower issued to the seller which shall not be part
of the Purchase Price for purposes of this clause (ii)) all
valued in accordance with the applicable purchase agreement
and the outstanding principal amount of all Debt of the Target
or the seller assumed or acquired in connection with such
acquisition.
(iii) Delivery and Notice Requirements. Borrower
shall provide the Agent fifteen (15) days prior to the
consummation of the acquisition the following: (A) notice of
the acquisition, (B) the most recent financial statements of
the Target that Borrower has available, (C) such other
documentation and information relating
CREDIT AGREEMENT - PAGE 42
<PAGE> 50
to the Target and the acquisition as the Agent may reasonably
request, and (D) evidence certified by the chief executive or
chief financial officer of Borrower that Borrower shall be in
compliance with the covenants contained in Article 11 on a pro
forma basis for the four (4) Fiscal Quarter period then most
recently ending (assuming (1) the consummation of the
acquisition in question; (2) that the incurrence or assumption
of any Debt in connection therewith occurred on the first day
of such period; (3) to the extent such Debt bears interest at
a floating rate, the rate in effect for the entire period of
calculation was the rate in effect at the time of calculation;
and (4) any sale of Subsidiaries or lines of business which
occurred during such period occurred on the first day of such
period). Within sixty (60) days of such acquisition the
obligations under subsections 9.10(b) and (c) shall be
fulfilled.
(iv) Diligence. Borrower has completed due
diligence on the Target or the assets to be acquired;
(v) U.S. Acquisitions. The Target is organized
under the laws of a state in the United States of America and
is involved in the same general type of business activities as
the Subsidiaries; and
(vi) Structure. If the proposed acquisition is an
acquisition of the stock of a Target, the acquisition will be
structured so that the Target will become a wholly owned
Subsidiary directly owned by Borrower. If the proposed
acquisition is an acquisition of assets, the acquisition will
be structured so that Borrower or a whole owned Subsidiary
directly owned by Borrower shall acquire the assets; and
(b) readily marketable direct obligations of the United
States of America or any agency thereof with maturities of one year or
less from the date of acquisition;
(c) fully insured certificates of deposit with maturities
of one year or less from the date of acquisition issued by any
commercial bank operating in the United States of America having
capital and surplus in excess of $250,000,000;
(d) commercial paper or bonds of a domestic issuer if at
the time of purchase such paper or bonds are rated in one of the two
highest rating categories of Standard and Poor's Corporation or
Moody's Investors Service, Inc.;
(e) current trade and customer accounts receivable for
services rendered in the ordinary course of business;
(f) shares of any mutual fund registered under the
Investment Company Act of 1940, as amended, which invests solely in
investment of the type described in clauses (b) through (d) of this
Section 10.5;
(g) loans to physicians; provided that (i) at the time of
such loan no Default shall exist or result therefrom; (ii) the
aggregate amount of such loans made by Borrower
CREDIT AGREEMENT - PAGE 43
<PAGE> 51
and the Subsidiaries and outstanding at any one time shall not exceed
Two Hundred Fifty Thousand Dollars ($250,000), calculated net of any
bad debt reserves;
(h) advances to employees for business expenses incurred
in the ordinary course of business including, without limitation,
loans in connection with employee relocations and changes in the
Borrower's and the Subsidiaries' payroll payment dates;
(i) existing investments described on Schedule 10.5
hereto;
(j) the purchase by Horizon Mental Health Management,
Inc. of shares of capital stock of Florida Professional Psychological
Services, Inc. not owned by Horizon Mental Health Management, Inc. on
the Closing Date;
(k) loans, advances and other extensions of credit to
Subsidiaries made in accordance with the restrictions set forth in
subsection 10.1 (b); provided that, at the time any such loan, advance
or other extension of credit is made, no Default exists or would
result therefrom;
(l) Guarantees permitted by Section 10.1; and
(m) if no Default exists, Borrower and the Subsidiaries
may make additional capital contributions to and or investments in or
purchase any stocks, bonds, or other equity securities authorized to
be issued under Section 10.6 of a wholly owned Subsidiary or a newly
created Person organized by Borrower or a Subsidiary that, immediately
after such investment or purchase, will be a wholly owned Subsidiary
if the obligations under Section 9.10 shall be fulfilled and the
aggregate amount of such contributions and investments made under the
permissions of this clause (m) does not exceed One Hundred Thousand
Dollars ($100,000) during the entire term of this Agreement.
Section 10.6 Limitation on Issuance of Capital Stock. Except as
permitted by Section 10.4 and except for issuances, sales, assignments or other
disposition to Borrower, or to a Subsidiary which is the parent of the issuer,
the Borrower will not permit any Subsidiary to, at any time issue, sell,
assign, or otherwise dispose of (a) any of its capital stock (or other equity
interests), (b) any securities exchangeable for or convertible into or carrying
any rights to acquire any of its capital stock (or other equity interests), or
(c) any option, warrant, or other right to acquire any of its capital stock (or
other equity interests).
Section 10.7 Transactions With Affiliates. The Borrower will not,
and will not permit any Subsidiary to, enter into any transaction, including,
without limitation, the purchase, sale, or exchange of property or the
rendering of any service, with any Affiliate of the Borrower or such
Subsidiary, except in the ordinary course of and pursuant to the reasonable
requirements of the Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary than
would be obtained in a comparable arms-length transaction with a Person not an
Affiliate of the Borrower or such Subsidiary.
CREDIT AGREEMENT - PAGE 44
<PAGE> 52
Section 10.8 Disposition of Assets. The Borrower will not, and
will not permit any Subsidiary to, sell, lease, assign, transfer, or otherwise
dispose of any of its assets, except (a) dispositions of inventory in the
ordinary course of business; (b) dispositions of unnecessary, obsolete or worn
out equipment; (c) the sale, discount or transfer of delinquent notes or
accounts receivable in the ordinary course of business for purposes of
collection in accordance with past practices; and (d) if no Default exists or
would result therefrom, other dispositions of assets if the aggregate book
value of the assets disposed of does not exceed Three Hundred Thousand Dollars
($300,000) in the aggregate during any twelve (12) month period and the
obligations under Subsection 5.4(a)(ii) are fulfilled.
Section 10.9 Lines of Business. The Borrower will not, and will
not permit any Subsidiary to, engage in any line or lines of business activity
other than the businesses in which they are engaged on the date hereof and any
businesses which are similar or related to those currently engaged in by the
Borrower and the Subsidiaries.
Section 10.10 Sale and Leaseback. The Borrower will not, and will
not permit any Subsidiary to, enter into any arrangement with any Person
pursuant to which it leases from such Person real or personal property that has
been or is to be sold or transferred, directly or indirectly, by it to such
Person.
Section 10.11 Prepayment of Debt. Borrower will not, and will not
permit any Subsidiary to prepay or optionally redeem any Debt other than the
Obligations.
ARTICLE 11
Financial Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder, the
Borrower will perform and observe the following financial covenants:
Section 11.1 Consolidated Net Worth. The Borrower will at all
times maintain a Consolidated Net Worth in an amount not less than the sum of
(a) Thirty-Two Million Dollars ($32,000,000); plus (b) fifty percent (50%) of
the Borrower's net income determined on a consolidated basis in accordance with
GAAP for each Fiscal Quarter to have completely elapsed since August 31, 1997;
plus (c) one hundred percent (100%) of the net cash proceeds of any sale of
equity securities or other contributions to the capital of the Borrower
received by Borrower since August 31, 1997, calculated without duplication. If
Borrower's consolidated net income for a Fiscal Quarter is zero or less, no
adjustment to the requisite level of Consolidated Net Worth shall be made.
"Consolidated Net Worth" means, at any particular time, all amounts which, in
conformity with GAAP, would be included as stockholders' equity on a
consolidated balance sheet of the Borrower and the Subsidiaries.
CREDIT AGREEMENT - PAGE 45
<PAGE> 53
Section 11.2 Indebtedness to Capitalization. The Borrower will
not at any time permit the ratio of Indebtedness to Capitalization to exceed
.50 to 1.00. As used in this Section 11.2, the following terms have the
following meanings:
"Capitalization" for means, at any particular time, the sum of
Consolidated Net Worth (as defined in Section 11.1) plus Indebtedness.
"Indebtedness" means, at the time of determination, the sum of
the following determined for Borrower and the Subsidiaries on a
consolidated basis (without duplication): (a) all obligations for
borrowed money; (b) all obligations of such Person evidenced by bonds,
notes, debentures, or other similar instruments; (c) all Capital Lease
Obligations; and (d) the outstanding principal amount of the loans
extended to North Central Development Company which are secured by a
Lien on the facility located at 1500 Water Ridge, Lewisville, Texas
leased by the Borrower.
Section 11.3 Fixed Charge Coverage. As of the end of each Fiscal
Quarter, the Borrower shall not permit the ratio of Cash Flow for the four (4)
Fiscal Quarters then ending to Fixed Charges as of such Fiscal Quarter end to
be less than 1.2 to 1.00. For purposes of this Section 11.3 the following terms
shall have the following meanings:
"Cash Flow" means, for any period, the total of the following
for the Borrower and the Subsidiaries calculated on a consolidated
basis without duplication for such period: (A) EBITDA of Borrower;
minus (B) any provision for (or plus any benefit from) cash income or
franchise taxes included in determine Consolidated Net Income.
"Consolidated Net Income" means, for any period and any Person
(a "Subject Person"), such Subject Person's consolidated net income
(or loss) determined in conformity with GAAP, but excluding:
(a) any extraordinary gains or losses or
nonrecurring revenue or expense;
(b) any gains or losses realized upon the sale or
other disposition of any capital stock or debt security of any
Person;
(c) any gains or losses in respect of the
write-up of any asset at greater than original cost or
write-down at less than original cost;
(d) any gains or losses realized upon the sale or
other disposition of property, plant, equipment or intangible
assets of the Subject Person or any of its subsidiaries which
is not sold or otherwise disposed of in the ordinary course of
business;
CREDIT AGREEMENT - PAGE 46
<PAGE> 54
(e) any gains or losses from the disposal of a
discontinued business;
(f) any net gains or losses arising from the
extinguishment of any debt of the Subject Person or its
subsidiaries;
(g) any restoration to income of any contingency
reserve relating to any long term assets or long term
liability, except to the extent that provision for such
reserve was made out of income accrued during such period;
(h) the cumulative effect of any change in an
accounting principle on income of prior periods;
(i) any deferred credit representing the excess
of equity in any acquired company or assets at the date of
acquisition over the cost of the investment in such company or
asset;
(j) the income from any sale of assets in which
the book value of such assets prior to their sale had been the
book value inherited by the Subject Person from a transfer of
such assets;
(k) the income (or loss) of any Person (other
than a subsidiary) in which the Subject Person or a subsidiary
has an ownership interest; provided, however, that (i)
Consolidated Net Income shall include amounts in respect of
the income of such Person when actually received in cash by
the Subject Person or such subsidiary in the form of dividends
or similar distributions and (ii) Consolidated Net Income
shall be reduced by the aggregate amount of all investments,
regardless of the form thereof, made by the Subject Person or
any of its subsidiaries in such Person for the purpose of
funding any deficit or loss of such Person;
(l) the income of any subsidiaries to the extent
the payment of such income in the form of a distribution or
repayment of any Debt to the Subject Person or a Subsidiary is
not permitted, whether on account of any restriction in
by-laws, articles of incorporation or similar governing
document, any agreement or any law, statute, judgment, decree
or governmental order, rule or regulation applicable to such
Subsidiary;
(m) any reduction in or addition to income tax
expense resulting from an increase or decrease in a deferred
income tax asset due to the anticipation of future income tax
benefits;
(n) any reduction in or addition to income tax
expense due to the change in a statutory tax rate resulting in
an increase or decrease in a deferred income tax asset or in a
deferred income tax liability;
CREDIT AGREEMENT - PAGE 47
<PAGE> 55
(o) any gains or losses attributable to returned
surplus assets of any pension- benefit plan or any pension
credit attributable to the excess of (i) the return on
pension-plan assets over (ii) the pension obligation's service
cost and interest cost;
(p) the income or loss of any Person acquired by
the Subject Person or a subsidiary for any period prior to the
date of such acquisition; and
(q) the income from any sale of assets in which
the accounting basis of such assets had been the book value of
any Person acquired by the Subject Person or a subsidiary
prior to the date such Person became a subsidiary or was
merged into or consolidated with the Subject Person or a
subsidiary.
"EBITDA" means, for any period and any Person, the total of
the following each calculated without duplication on a consolidated
basis for such period: (a) Consolidated Net Income; plus (b) any
provision for (or less any benefit from) income or franchise taxes
included in determining Consolidated Net Income; plus (c) interest
expense (including the interest portion of Capital Lease Obligations)
deducted in determining Consolidated Net Income; plus (d) amortization
and depreciation expense deducted in determining Consolidated Net
Income plus (e) the merger related expenses incurred in the Fiscal
Quarter of the Borrower ending August 31, 1997 in the amount of Three
Million Five Hundred Twenty-Seven Thousand Six Hundred Seventy-One
Dollars ($3,527,671) but only to the extent deducted in determining
Consolidated Net Income for the period in question.
"Fixed Charges" means, as of any date of determination, the
total of the following for the Borrower and the Subsidiaries
calculated on a consolidated basis without duplication but excluding
any of the forgoing of any Prior Target for any period prior to the
date of such acquisition: (a) cash interest expense (including the
interest portion of Capital Lease Obligations) for the four (4) Fiscal
Quarter period then ending; plus (b) the current maturities of the
Borrower's and the Subsidiaries' long term debt as reflected in the
consolidated balance sheet of the Borrower as of the date of
determination (excluding, however, to the extent included, the
outstanding balance of the Revolving Loans and, if calculated at any
time prior to the Fiscal Quarter ending November 30, 1999, any current
maturities of the Term Loans); plus (c) Capital Expenditures made
during the four (4) Fiscal Quarter period then ending; plus (d), if
calculated at any time prior to the Fiscal Quarter ending November 30,
1999, an amount equal, as of the end of a Fiscal Quarter, to the
product obtained by multiplying by four (4) the quotient obtained by
dividing the principal balance of the Term Loans outstanding as of
such Fiscal Quarter end by twenty (20).
"Prior Target" means all Targets acquired or whose assets have
been acquired in a transaction permitted by subsection 10.5(a).
CREDIT AGREEMENT - PAGE 48
<PAGE> 56
Section 11.4 Indebtedness to Adjusted EBITDA. As of the last day
of each Fiscal Quarter, the Borrower shall not permit the ratio of Indebtedness
outstanding as of such day to the Adjusted EBITDA for the four (4) Fiscal
Quarters then ended to exceed 2.50 to 1.00. As used in this Section 11.4,
"Adjusted EBITDA" means, for any period (the "Subject Period"), the total of
the following calculated without duplication for such period: (a) Borrower's
EBITDA (as defined in Section 11.3); plus (b), on a pro forma basis, the pro
forma EBITDA of each Prior Target or, as applicable, the EBITDA of a Prior
Target attributable to the assets acquired from such Prior Target, for any
portion of such Subject Period occurring prior to the date of the acquisition
of such Prior Target or the related assets but only to the extent such EBITDA
for such Prior Target can be established in a manner satisfactory to the Agent
based on financial statements of the Prior Target prepared in accordance with
GAAP.
ARTICLE 12
Default
Section 12.1 Events of Default. Each of the following shall be
deemed an "Event of Default":
(a) The Borrower shall fail to pay when due any
principal, interest, fees or other Obligations payable under any Loan
Document or any part thereof.
(b) Any representation, warranty, or certification made
or deemed made by the Borrower or any Obligated Party (or any of their
respective officers) in any Loan Document or in any certificate,
report, notice, or financial statement furnished at any time in
connection with any Loan Document shall be false, misleading, or
erroneous in any material respect when made or deemed to have been
made.
(c) Borrower or any Obligated Party shall fail to
perform, observe or comply with (i) any covenant, agreement, or term
contained in clause (i) of Section 9.2, Sections 9.5 or 9.6, Article
10 or Article 11 of this Agreement or (ii) any covenant, agreement, or
term contained in any Loan Document relating to the creation,
perfection or protection of the Liens required to be granted to secure
the obligation of any Obligated Party under the Loan Documents.
(d) The Borrower or any Obligated Party shall fail to
perform, observe, or comply with any covenant, agreement, or term
contained in any Loan Document (other than covenants to pay the
Obligations and the covenants described in subsection 12.1(c)) and
such failure shall continue for a period of twenty (20) days after the
earlier of (i) the date the Agent or any Bank provides the Borrower
with notice thereof or (ii) the date the Borrower should have, with
the exercise of reasonable diligence, notified the Agent thereof in
accordance with subsection 9.1(g).
(e) The Borrower, any Obligated Party or any other
Subsidiary shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian,
CREDIT AGREEMENT - PAGE 49
<PAGE> 57
trustee, examiner, liquidator, or the like of itself or of all or a
substantial part of its property, (ii) make a general assignment for
the benefit of its creditors, (iii) commence a voluntary case under
the United States Bankruptcy Code (as now or hereafter in effect, the
"Bankruptcy Code"), (iv) institute any proceeding or file a petition
seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, liquidation, dissolution, winding-up, or
composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the Bankruptcy
Code, (vi) admit in writing its inability to, or be generally unable
to pay its debts as such debts become due, or (vii) take any corporate
action for the purpose of effecting any of the foregoing.
(f) A proceeding or case shall be commenced, without the
application, approval, or consent of the Borrower, any Obligated Party
or any other Subsidiary, in any court of competent jurisdiction,
seeking (i) its reorganization, liquidation, dissolution, arrangement,
or winding-up, or the composition or readjustment of its debts, (ii)
the appointment of a receiver, custodian, trustee, examiner,
liquidator, or the like of the Borrower, any such Obligated Party or
any such other Subsidiary or of all or any substantial part of its
property, or (iii) similar relief in respect of the Borrower, any such
Obligated Party or any such other Subsidiary under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect,
for a period of thirty (30) or more days, or an order for relief
against the Borrower, any Obligated Party or any other Subsidiary
shall be entered in an involuntary case under the Bankruptcy Code.
(g) The Borrower, any Obligated Party or any other
Subsidiary shall fail to discharge within a period of thirty (30) days
after the commencement thereof any attachment, sequestration,
forfeiture, or similar proceeding or proceedings involving an
aggregate amount in excess of One Hundred Thousand Dollars ($100,000)
against any of its assets or properties.
(h) A final judgment or judgments for the payment of
money in excess of One Hundred Thousand Dollars ($100,000) in the
aggregate shall be rendered by a court or courts against the Borrower,
any Subsidiaries, or any Obligated Party and the same shall not be
discharged (or provision shall not be made for such discharge), or a
stay of execution thereof shall not be procured, within thirty (30)
days from the date of entry thereof, and the Borrower or the relevant
Subsidiary or Obligated Party shall not, within said period of thirty
(30) days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal.
(i) The Borrower, any Obligated Party or any other
Subsidiary shall fail to pay when due any principal of or interest on
any Debt if the aggregate principal amount of the affected Debt equals
or exceeds One Hundred Thousand Dollars ($100,000) (other than the
Obligations), or the maturity of any such Debt shall have been
accelerated, or any such
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<PAGE> 58
Debt shall have been required to be prepaid prior to the stated
maturity thereof or any event shall have occurred with respect to any
Debt in the aggregate principal amount equal to or in excess of One
Hundred Thousand Dollars ($100,000) that permits (or, with the giving
of notice or lapse of time or both, would permit) any holder or
holders of such Debt or any Person acting on behalf of such holder or
holders to accelerate the maturity thereof or require any such
prepayment.
(j) This Agreement shall cease to be in full force and
effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by the
Borrower, any Obligated Party or any other Subsidiary or the Borrower
or any Obligated Party shall deny that it has any further liability or
obligation under any of the Loan Documents, or any lien or security
interest created by the Loan Documents shall for any reason (other
than the negligence of the Agent or the release thereof in accordance
with the Loan Documents) cease to be a valid, first priority perfected
security interest in and lien upon any of the Collateral purported to
be covered thereby.
(k) Any of the following events shall occur or exist with
respect to the Borrower or any ERISA Affiliate: (i) any Prohibited
Transaction involving any Plan; (ii) any Reportable Event with respect
to any Plan; (iii) the filing under Section 4041 of ERISA of a notice
of intent to terminate any Plan or the termination of any Plan; (iv)
any event or circumstance that might constitute grounds entitling the
PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any
Plan, or the institution by the PBGC of any such proceedings; or (v)
complete or partial withdrawal under Section 4201 or 4204 of ERISA
from a Multiemployer Plan or the reorganization, insolvency, or
termination of any Multiemployer Plan; and in each case above, such
event or condition, together with all other events or conditions, if
any, have subjected or could in the reasonable opinion of Required
Banks subject the Borrower to any tax, penalty, or other liability to
a Plan, a Multiemployer Plan, the PBGC, or otherwise (or any
combination thereof) which in the aggregate exceed or could reasonably
be expected to exceed One Hundred Thousand Dollars ($100,000).
(l) Ninety (90) days shall have elapsed after the
Management Change Date and James Ken Newman and James W. McAtee shall
not have been replaced in their respective capacities as officers of
the Borrower with individuals possessing substantially the same
qualifications as the qualifications of the officer replaced. As used
in this clause (l), the term "Management Change Date" means the first
date when both Ken Newman and James W. McAtee (i) cease to hold the
titles and responsibilities of Chief Executive Officer and Chief
Financial Officer of the Borrower, respectively or (ii) otherwise
fails to be active in the management of the day to day operations of
the Borrower.
(m) Any Person or group (as defined in Section 13(d)(3)
or 14(d)(2) of the Exchange Act) shall become the direct or indirect
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of
more than 20% of the total voting power of all classes of capital
stock then outstanding of the Borrower entitled (without regard to the
occurrence of any contingency) to vote in elections of directors of
the Borrower.
CREDIT AGREEMENT - PAGE 51
<PAGE> 59
Section 12.2 Remedies. If any Event of Default shall occur and be
continuing, the Agent may (and if directed by Required Banks, shall) do any one
or more of the following:
(a) Acceleration. By notice to the Borrower, declare all
outstanding principal of and accrued and unpaid interest on the Notes
and all other amounts payable by the Borrower under the Loan Documents
immediately due and payable, and the same shall thereupon become
immediately due and payable, without further notice, demand,
presentment, notice of dishonor, notice of acceleration, notice of
intent to accelerate, protest, or other formalities of any kind, all
of which are hereby expressly waived by the Borrower.
(b) Termination of Commitments. Terminate the
Commitments without notice to the Borrower.
(c) Judgment. Reduce any claim to judgment.
(d) Foreclosure. Foreclose or otherwise enforce any Lien
granted to the Agent for the benefit of itself and the Banks to secure
payment and performance of the Obligations in accordance with the
terms of the Loan Documents.
(e) Rights. Exercise any and all rights and remedies
afforded by the laws of the State of Texas or any other jurisdiction,
by any of the Loan Documents, by equity, or otherwise.
Provided, however, that upon the occurrence of an Event of Default under
subsection 12.1(e) or (f), the Commitments of all of the Banks shall
automatically terminate, and the outstanding principal of and accrued and
unpaid interest on the Notes and all other amounts payable by the Borrower
under the Loan Documents shall thereupon become immediately due and payable
without notice, demand, presentment, notice of dishonor, notice of
acceleration, notice of intent to accelerate, protest, or other formalities of
any kind, all of which are hereby expressly waived by the Borrower.
Section 12.3 Performance by the Agent. If the Borrower shall fail
to perform any covenant or agreement in accordance with the terms of the Loan
Documents, the Agent may, at the direction of Required Banks, perform or
attempt to perform such covenant or agreement on behalf of the Borrower. In
such event, the Borrower shall, at the request of the Agent, promptly pay any
amount expended by the Agent or the Banks in connection with such performance
or attempted performance to the Agent at the Principal Office, together with
interest thereon at the applicable Default Rate from and including the date of
such expenditure to but excluding the date such expenditure is paid in full.
Notwithstanding the foregoing, it is expressly agreed that neither the Agent
nor any Bank shall have any liability or responsibility for the performance of
any obligation of the Borrower under any Loan Document.
Section 12.4 Setoff. If an Event of Default shall have occurred
and be continuing, each Bank is hereby authorized at any time and from time to
time, without notice to the Borrower (any such notice being hereby expressly
waived by the Borrower), to set off and apply any and all
CREDIT AGREEMENT - PAGE 52
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deposits (general, time, demand, provisional, or final) at any time held and
other indebtedness at any time owing by such Bank to or for the credit or the
account of the Borrower against any and all of the Obligations, irrespective of
whether or not the Agent or such Bank shall have made any demand under such
Loan Documents and although such Obligations may be unmatured. Each Bank
agrees promptly to notify the Borrower (with a copy to the Agent) after any
such setoff and application; provided, that the failure to give such notice
shall not affect the validity of such setoff and application. The rights and
remedies of each Bank hereunder are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which such Bank may
have.
Section 12.5 Continuance of Default. For purposes of all Loan
Documents, a Default shall be deemed to have continued and exist until the
Agent shall have actually received evidence satisfactory to the Agent that such
Default shall have been remedied.
ARTICLE 13
The Agent
Section 13.1 Appointment, Powers and Immunities. Each Bank hereby
appoints and authorizes Texas Commerce to act as its agent hereunder and under
the other Loan Documents with such powers as are specifically delegated to the
Agent by the terms of the Loan Documents, together with such other powers as
are reasonably incidental thereto. Neither the Agent nor any of its
Affiliates, officers, directors, employees, attorneys, or agents shall be
liable for any action taken or omitted to be taken by any of them hereunder or
otherwise in connection with any Loan Document or any of the other Loan
Documents except for its or their own gross negligence or willful misconduct.
Without limiting the generality of the preceding sentence, the Agent (i) may
treat the payee of any Note as the holder thereof until it receives written
notice of the assignment or transfer thereof signed by such payee and in form
satisfactory to the Agent; (ii) shall have no duties or responsibilities except
those expressly set forth in the Loan Documents, and shall not by reason of any
Loan Document be a trustee or fiduciary for any Bank; (iii) shall not be
required to initiate any litigation or collection proceedings under any Loan
Document except to the extent requested by Required Banks; (iv) shall not be
responsible to the Banks for any recitals, statements, representations, or
warranties contained in any Loan Document, or any certificate or other
documentation referred to or provided for in, or received by any of them under,
any Loan Document, or for the value, validity, effectiveness, enforceability,
or sufficiency of any Loan Document or any other documentation referred to or
provided for therein or for any failure by any Person to perform any of its
obligations thereunder; (v) may consult with legal counsel (including counsel
for the Borrower), independent public accountants, and other experts selected
by it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants, or
experts; and (vi) shall incur no liability under or in respect of any Loan
Document by acting upon any notice, consent, certificate, or other instrument
or writing believed by it to be genuine and signed or sent by the proper party
or parties. As to any matters not expressly provided for by any Loan Document,
the Agent shall in all cases be fully protected in acting, or in refraining
from acting, hereunder in accordance with instructions signed by Required
Banks, and such instructions of Required Banks and any action taken or failure
to act
CREDIT AGREEMENT - PAGE 53
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pursuant thereto shall be binding on all of the Banks; provided, however, that
the Agent shall not be required to take any action which exposes it to personal
liability or which is contrary to any Loan Document or applicable law.
Section 13.2 Rights of Agent as a Bank. With respect to its
Commitment, the Loans made by it and the Note issued to it, Texas Commerce (and
any successor acting as the Agent) in its capacity as a Bank hereunder shall
have the same rights and powers hereunder as any other Bank and may exercise
the same as though it were not acting as the Agent, and the term "Bank" or
"Banks" shall, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent and its Affiliates may (without having to
account therefor to any Bank) accept deposits from, lend money to (as disclosed
pursuant to Section 13.9 or otherwise), act as trustee under indentures of,
provide merchant banking services to, and generally engage in any kind of
banking, trust, or other business with the Borrower, any Obligated Party or any
other Subsidiary, and any other Person who may do business with or own
securities of the Borrower, any Obligated Party or any other Subsidiary, all as
if it were not acting as the Agent and without any duty to account therefor to
the Banks.
Section 13.3 Defaults. The Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default (other than the non-payment
of principal of or interest on the Loans or of commitment fees) unless the
Agent has received notice from a Bank or the Borrower specifying such Default
and stating that such notice is a "Notice of Default." In the event that the
Agent receives such a notice of the occurrence of a Default, the Agent shall
give prompt notice thereof to the Banks (and shall give each Bank prompt notice
of each such non-payment). The Agent shall (subject to Section 13.1) take such
action with respect to such Default as shall be directed by Required Banks,
provided that unless and until the Agent shall have received such directions,
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall deem advisable and
in the best interest of the Banks.
Section 13.4 Indemnification. THE BANKS HEREBY AGREE TO INDEMNIFY
THE AGENT FROM AND HOLD THE AGENT HARMLESS AGAINST (TO THE EXTENT NOT
REIMBURSED UNDER SECTIONS 14.1 AND 14.2, BUT WITHOUT LIMITING THE OBLIGATIONS
OF THE BORROWER UNDER SECTIONS 14.1 AND 14.2), RATABLY IN ACCORDANCE WITH THEIR
RESPECTIVE COMMITMENT PERCENTAGES, ANY AND ALL LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS,
EXPENSES (INCLUDING ATTORNEYS' FEES AND EXPENSES), AND DISBURSEMENTS OF ANY
KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED
AGAINST THE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY THE AGENT UNDER OR IN
RESPECT OF ANY OF THE LOAN DOCUMENTS; PROVIDED, THAT NO BANK SHALL BE LIABLE
FOR ANY PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY THE AGENT'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT IS
THE EXPRESS INTENTION OF THE BANKS THAT THE AGENT SHALL BE INDEMNIFIED
HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
CREDIT AGREEMENT - PAGE 54
<PAGE> 62
DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES AND EXPENSES),
AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE AGENT. WITHOUT
LIMITING ANY OTHER PROVISION OF THIS SECTION, EACH BANK AGREES TO REIMBURSE THE
AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF
THE COMMITMENTS PERCENTAGES) OF ANY AND ALL OUT-OF-POCKET EXPENSES (INCLUDING
ATTORNEYS' FEES AND EXPENSES) INCURRED BY THE AGENT IN CONNECTION WITH THE
PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT, OR
ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF,
OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN
DOCUMENTS, TO THE EXTENT THAT THE AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY
THE BORROWER.
Section 13.5 Independent Credit Decisions. Each Bank agrees that
it has independently and without reliance on the Agent or any other Bank, and
based on such documentation and information as it has deemed appropriate, made
its own credit analysis of the Borrower and decision to enter into any Loan
Document and that it will, independently and without reliance upon the Agent or
any other Bank, and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under any Loan Document. Except as otherwise
specifically set forth herein, the Agent shall not be required to keep itself
informed as to the performance or observance by the Borrower or any Obligated
Party of any Loan Document or to inspect the properties or books of the
Borrower or any Obligated Party. Except for notices, reports, and other
documents and information expressly required to be furnished to the Banks by
the Agent hereunder or under the other Loan Documents, the Agent shall not have
any duty or responsibility to provide any Bank with any credit or other
financial information concerning the affairs, financial condition, or business
of the Borrower or any Obligated Party (or any of their Affiliates) which may
come into the possession of the Agent or any of its Affiliates.
Section 13.6 Several Commitments. The Commitments and other
obligations of the Banks under any Loan Document are several. The default by
any Bank in making a Loan in accordance with its Commitment shall not relieve
the other Banks of their obligations under any Loan Document. In the event of
any default by any Bank in making any Loan, each nondefaulting bank shall be
obligated to make its Loan but shall not be obligated to advance the amount
which the defaulting Bank was required to advance hereunder. No Bank shall be
responsible for any act or omission of any other Bank.
Section 13.7 Successor Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Banks and the Borrower, and the Agent may
be removed at any time by Required Banks if it has breached its obligations
under the Loan Documents. Upon any such resignation or removal, Required Banks
will have the right to appoint a successor Agent with the Borrower's consent,
which shall not be unreasonably withheld. If no successor Agent shall have
been so appointed by Required Banks and shall have accepted such appointment
within thirty (30) days after the retiring Agent's giving of notice of
resignation or the Required Banks' removal of the retiring Agent, then
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the retiring Agent may, on behalf of the Banks, appoint a successor Agent,
which shall be a commercial bank organized under the laws of the United States
of America or any State thereof and having combined capital and surplus of at
least One Hundred Million Dollars ($100,000,000). Upon the acceptance of its
appointment as successor Agent, such successor Agent shall thereupon succeed to
and become vested with all rights, powers, privileges, immunities, contractual
obligations, and duties of the resigning or removed Agent, and the resigning or
removed Agent shall be discharged from its duties and obligations under the
Loan Documents. After any Agent's resignation or removal as Agent, the
provisions of this Article 13 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was the
Agent.
Section 13.8 Agent Fee. The Borrower agrees to pay to the Agent,
on each anniversary of the Closing Date, the administrative fee set forth in
the letter dated October 8, 1997 from Chase Securities, Inc. and Texas Commerce
to the Borrower.
Section 13.9 Intercreditor Provisions. The Banks acknowledge that
the Obligated Parties are indebted to Texas Commerce pursuant to the
Guarantees described on Schedule 10.1 and have granted Liens to Texas Commerce
to secure obligations arising in connection therewith as reflected on Schedule
10.2 (such Liens granted pursuant to the documents described in item 2 on
Schedule 10.2 herein the "Lease Liens" and the property in which the Lease
Liens has been granted which is specifically described on Annex A to Schedule
10.2, herein the "Lease Collateral"). In order to induce the Banks to enter
into this Agreement, Texas Commerce subordinates the Lease Liens and makes them
junior, second and inferior to the security interest of the Agent held for the
benefit of the Banks under the Loan Documents in the Lease Collateral. The
foregoing subordination shall not impair the rights Texas Commerce has as a
Bank hereunder.
ARTICLE 14
Miscellaneous
Section 14.1 Expenses. The Borrower hereby agrees to pay on
demand: (a) all costs and expenses of the Agent arising in connection with the
preparation, negotiation, execution, and delivery of the Loan Documents
executed and delivered on the Closing Date, including, without limitation, the
reasonable fees and expenses of legal counsel for the Agent; (b) all costs and
expenses of the Agent arising in connection with (i) the preparation,
negotiation, execution, and delivery of any of the Loan Documents executed and
delivered after the Closing Date and any and all amendments or other
modifications to the Loan Documents and (ii) the syndication of the Loans,
including in all instances, without limitation, the fees and expenses of legal
counsel for the Agent; (b) all costs and expenses of the Agent and the Banks in
connection with any Default and the enforcement of any Loan Document,
including, without limitation, the fees and expenses of legal counsel for the
Agent and each of the Banks (including the allocated costs of in house
counsel); (c) all transfer, stamp, documentary, or other similar taxes,
assessments, or charges levied by any Governmental Authority in respect of any
Loan Document; (d) all costs, expenses, assessments, and other charges incurred
in connection with any filing, registration, recording, or perfection of any
security interest or Lien contemplated by any Loan Document; and (f) all other
costs and expenses incurred by the Agent in connection with any Loan Document,
including,
CREDIT AGREEMENT - PAGE 56
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without limitation, all costs, expenses, and other charges incurred in
connection with obtaining any audit or appraisal in respect of the Collateral.
Section 14.2 Indemnification. THE BORROWER SHALL INDEMNIFY THE
AGENT AND EACH BANK AND EACH AFFILIATE (INCLUDING WITHOUT LIMITATION, CHASE
SECURITIES, INC.) THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL
LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS,
COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES AND EXPENSES) TO WHICH ANY OF
THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO
(A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR
ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS
CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY THE BORROWER OR ANY
OBLIGATED PARTY OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT
CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED
RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON,
ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF THE BORROWER OR
ANY SUBSIDIARY, OR (E) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR
OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING; PROVIDED THAT THE PERSON
ENTITLED TO BE INDEMNIFIED UNDER THIS SECTION SHALL NOT BE INDEMNIFIED FROM OR
HELD HARMLESS AGAINST ANY LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, DISBURSEMENTS, COSTS, OR EXPENSES ARISING OUT OF OR RESULTING FROM
ITS GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR BREACH OF ITS OBLIGATIONS UNDER THE
LOAN DOCUMENTS. WITHOUT LIMITING ANY PROVISION OF ANY LOAN DOCUMENT, IT IS THE
EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED
UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND
ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS,
COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES AND EXPENSES) ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON.
Section 14.3 Limitation of Liability. None of the Agent, any
Bank, or any Affiliate, officer, director, employee, attorney, or agent thereof
shall have any liability with respect to, and the Borrower and, by the
execution of the Loan Documents to which it is a party each Obligated Party,
hereby waives, releases, and agrees not to sue any of them upon, any claim for
any special, indirect, incidental, consequential, or punitive damages suffered
or incurred by the Borrower or any Obligated Party in connection with, arising
out of, or in any way related to any of the Loan Documents, or any of the
transactions contemplated by any of the Loan Documents.
Section 14.4 No Duty. All attorneys, accountants, appraisers, and
other professional Persons and consultants retained by the Agent or any Bank
shall have the right to act exclusively in the interest of the Agent and the
Banks and shall have no duty of disclosure, duty of loyalty,
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duty of care, or other duty or obligation of any type or nature whatsoever to
the Borrower or any of the Borrower's shareholders or any other Person.
Section 14.5 No Fiduciary Relationship. The relationship between
the Borrower and the Obligated Parties on the one hand and the Agent and each
Bank on the other is solely that of debtor and creditor, and neither the Agent
nor any Bank has any fiduciary or other special relationship with the Borrower
or any Obligated Parties, and no term or condition of any of the Loan Documents
shall be construed so as to deem the relationship between the Borrower and the
Obligated Parties on the one hand and the Agent and each Bank on the other and
any Bank to be other than that of debtor and creditor.
Section 14.6 Equitable Relief. The Borrower recognizes that in the
event the Borrower or any Obligated Party fails to pay, perform, observe, or
discharge any or all of the obligations under the Loan Documents, any remedy at
law may prove to be inadequate relief to the Agent and the Banks. The Borrower
therefore agrees that the Agent and the Banks, if the Agent or the Required
Banks so request, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
Section 14.7 No Waiver; Cumulative Remedies. No failure on the
part of the Agent or any Bank to exercise and no delay in exercising, and no
course of dealing with respect to, any right, power, or privilege under any
Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power, or privilege under any Loan Document
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege. The rights and remedies provided for in the Loan
Documents are cumulative and not exclusive of any rights and remedies provided
by law.
Section 14.8 Successors and Assigns.
(a) Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors and assigns. The Borrower may not assign or transfer any
of its rights or obligations hereunder without the prior written
consent of the Agent and all of the Banks.
(b) Participations. Any Bank may sell participations to
one or more banks or other institutions in or to all or a portion of
its rights and obligations under the Loan Documents (including,
without limitation, all or a portion of its Commitments and the Loans
owing to it); provided, however, that (i) such Bank's obligations
under the Loan Documents (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Bank shall remain
solely responsible to the Borrower for the performance of such
obligations, (iii) such Bank shall remain the holder of its Notes and
owner of its participation or other interests for all purposes of any
Loan Document, (iv) the Borrower shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and
obligations under the Loan Documents, and (v) such Bank shall not sell
a participation that conveys to the participant the right to vote or
give or withhold consents under any Loan Document, other than the
right to vote upon or consent to (1) any increase of such Bank's
Commitments, (2) any reduction of the principal amount of, or interest
to be paid on, the Loans or other Obligations of such Bank, (3) any
reduction of any
CREDIT AGREEMENT - PAGE 58
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commitment fee, or other amount payable to such Bank under any Loan
Document, (4) any postponement of any date for the payment of any
amount payable in respect of the Loans or other Obligations of such
Bank, or (5) the release of Borrower, any Obligated Party or any
Collateral.
(c) Assignments. The Borrower and each of the Banks
agree that any Bank (the "Assigning Bank") may at any time assign to
an Eligible Assignee all, or a proportionate part of all, of its
rights and obligations under the Loan Documents (including, without
limitation, its Commitments and Loans) (each an "Assignee"); provided,
however, that (i) each such assignment shall be of a consistent, and
not a varying, percentage of all of the assigning Bank's rights and
obligations under the Loan Documents, (ii) except in the case of an
assignment of all of a Bank's rights and obligations under the Loan
Documents, the amount of the Commitments of the assigning Bank being
assigned or if any Commitment has terminated or otherwise been
fulfilled, the outstanding principal amount of the related Loans,
pursuant to each assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall in no
event be less than Five Million Dollars ($5,000,000), (iii) the
parties to each such assignment shall execute and deliver to the Agent
for its acceptance and recording in the Register (as defined below),
an Assignment and Acceptance, together with the Notes subject to such
assignment, and a processing and recordation fee of Three Thousand
Dollars ($3,000) payable by the assignor or assignee (and not the
Borrower); provided that such fee shall not be payable to Agent if the
Assigning Bank is making an assignment to one of its Affiliates; and
(iv) the Borrower and the Agent must consent to such assignment, which
consent shall not be unreasonably withheld, with such consents to be
evidenced by the Borrower's and the Agent's execution of the
Assignment and Acceptance; provided that Borrower's consent will not
be necessary if the Assigning Bank is making an assignment to one of
its Affiliates. Upon such execution, delivery, acceptance, and
recording, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five
(5) Business Days after the execution thereof, or, if so specified in
such Assignment and Acceptance, the date of acceptance thereof by the
Agent, (x) the assignee thereunder shall be a party hereto as a "Bank"
and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the
rights and obligations of a Bank hereunder and under the Loan
Documents, and (y) the Bank that is an assignor thereunder shall, to
the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Loan Documents (and, in
the case of an Assignment and Acceptance covering all or the remaining
portion of a Bank's rights and obligations under the Loan Documents,
such Bank shall cease to be a party thereto). The Agent shall
maintain at its Principal Office a copy of each Assignment and
Acceptance delivered to and accepted by it and a register for the
recordation of the names and addresses of the Banks and the
Commitments of, and principal amount of the Loans owing to each Bank
from time to time (the "Register"). The entries in the Register shall
be conclusive and binding for all purposes, absent manifest error, and
the Borrower, the Agent, and the Banks may treat each Person whose
name is recorded in the Register as a Bank hereunder for all purposes
under the Loan Documents. The Register shall be available for
inspection by the Borrower or any Bank at any reasonable time and from
time to time upon reasonable prior notice. Upon its receipt of an
Assignment and Acceptance
CREDIT AGREEMENT - PAGE 59
<PAGE> 67
executed by an Assigning Bank and Assignee representing that it is an
Eligible Assignee, together with any Notes subject to such assignment,
the Agent shall, if such Assignment and Acceptance has been completed
and is in substantially the form of Exhibit "I" hereto, (i) accept
such Assignment and Acceptance, (ii) record the information contained
therein in the Register, and (iii) give prompt written notice thereof
to the Borrower. Within five (5) Business Days after its receipt of
such notice the Borrower, at its expense, shall execute and deliver to
the Agent in exchange for the surrendered Notes new Notes to the order
of such Eligible Assignee in an amount equal to the Commitments or
Loans assumed by it pursuant to such Assignment and Acceptance and, if
the assigning Bank has retained Commitments or Loans, Notes to the
order of the assigning Bank in an amount equal to the Commitments and
Loans retained by it hereunder (each such promissory note shall
constitute a "Note" for purposes of the Loan Documents). Such new
Notes shall be in an aggregate principal amount of the surrendered
Notes, shall be dated the effective date of such Assignment and
Acceptance, and shall otherwise be in substantially the form of the
applicable Exhibit hereto.
(d) Information. Any Bank may, in connection with any
assignment or participation or proposed assignment or participation
pursuant to this Section, disclose to the assignee or participant or
proposed assignee or participant, any information relating to the
Borrower or its Subsidiaries furnished to such Bank by or on behalf of
the Borrower or its Subsidiaries.
(e) Pledge to Federal Reserve. Notwithstanding anything
in this Section 14.8 to the contrary, any Bank may, in the ordinary
course of its business, pledge its Notes to any United States Federal
Reserve Bank to secure advances made by such Federal Reserve Bank to
such Bank.
Section 14.9 Survival. All representations and warranties made in
any Loan Document or in any document, statement, or certificate furnished in
connection with any Loan Document shall survive the execution and delivery of
the Loan Documents and no investigation by the Agent or any Bank or any closing
shall affect the representations and warranties or the right of the Agent or
any Bank to rely upon them. Without prejudice to the survival of any other
obligation of the Borrower hereunder, the obligations of the Borrower under
Article 6 and Sections 14.1 and 14.2 shall survive repayment of the Notes and
termination of the Commitments.
Section 14.10 Entire Agreement. THIS AGREEMENT, THE NOTES, AND THE
OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT
AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF (PROVIDED THAT THE INDEMNITY, EXPENSE
REIMBURSEMENT AND FEE PROVISIONS OF THE COMMITMENT LETTER DATED OCTOBER 8,
1997, FROM CHASE SECURITIES, INC. AND TEXAS COMMERCE TO THE BORROWER ARE NOT
REPLACED BY THE LOAN DOCUMENTS) AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
AMONG THE PARTIES HERETO.
CREDIT AGREEMENT - PAGE 60
<PAGE> 68
Section 14.11 Amendments. No amendment or waiver of any provision
of any Loan Document to which the Borrower is a party, nor any consent to any
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be agreed or consented to by Required Banks and the Borrower, and
each such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given; provided, that no amendment,
waiver, or consent shall, unless in writing and signed by all of the Banks and
the Borrower, do any of the following: (a) increase Commitments of the Banks;
(b) reduce the principal of, or interest on, the Notes, or any fees or other
amounts payable hereunder; (c) postpone any date fixed for any payment of
principal of, or interest on, the Notes, or any fees or other amounts payable
hereunder; (d) waive or amend any of the conditions specified in Article 7; (e)
change the percentage of the Commitments or of the aggregate unpaid principal
amount of the Notes or the number of Banks which shall be required for the
Banks or any of them to take any action under any Loan Document; (f) change any
provision contained in this Section 14.11; or (g) release any Collateral or
release the Borrower or any Obligated Party from liability. Notwithstanding
anything to the contrary contained in this Section, no amendment waiver, or
consent shall be made with respect to Article 13 hereof without the prior
written consent of the Agent.
Section 14.12 Maximum Interest Rate.
(a) No interest rate specified in any Loan Document shall
at any time exceed the Maximum Rate. If at any time the interest rate
(the "Contract Rate") for any Obligation shall exceed the Maximum
Rate, thereby causing the interest accruing on such Obligation to be
limited to the Maximum Rate, then any subsequent reduction in the
Contract Rate for such Obligation shall not reduce the rate of
interest on such Obligation below the Maximum Rate until the aggregate
amount of interest accrued on such Obligation equals the aggregate
amount of interest which would have accrued on such Obligation if the
Contract Rate for such Obligation had at all times been in effect.
(b) No provision of any Loan Document shall require the
payment or the collection of interest in excess of the maximum amount
permitted by applicable law. If any excess of interest in such
respect is hereby provided for, or shall be adjudicated to be so
provided, in any Loan Document or otherwise in connection with this
loan transaction, the provisions of this Section shall govern and
prevail and neither the Borrower nor the sureties, guarantors,
successors, or assigns of the Borrower shall be obligated to pay the
excess amount of such interest or any other excess sum paid for the
use, forbearance, or detention of sums loaned pursuant hereto. In the
event any Bank ever receives, collects, or applies as interest any
such sum, such amount which would be in excess of the maximum amount
permitted by applicable law shall be applied as a payment and
reduction of the principal of the Obligations, and, if the principal
of the Obligations has been paid in full, any remaining excess shall
forthwith be paid to the Borrower. In determining whether or not the
interest paid or payable exceeds the Maximum Rate, the Borrower and
each Bank shall, to the extent permitted by applicable law, (a)
characterize any non-principal payment as an expense, fee, or premium
rather than as interest, (b) exclude voluntary prepayments and the
effects thereof, and (c) amortize, prorate, allocate, and spread in
equal or unequal parts the total amount of interest throughout the
entire contemplated term of the Obligations so that interest for the
entire term does not exceed the Maximum Rate.
CREDIT AGREEMENT - PAGE 61
<PAGE> 69
Section 14.13 Notices. All notices and other communications
provided for in any Loan Document to which the Borrower or any Obligated Party
is a party shall be given or made in writing and telecopied, mailed by
certified mail return receipt requested, or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof and, if to an Obligated Party, at the address for notices for the
Borrower, or, as to any party, at such other address as shall be designated by
such party in a notice to each other party given in accordance with this
Section. Except as otherwise provided in any Loan Document, all such
communications shall be deemed to have been duly given when transmitted by
telecopy, subject to telephone confirmation of receipt, or when personally
delivered or, in the case of a mailed notice, three (3) Business Days after
being duly deposited in the mails, in each case given or addressed as
aforesaid; provided, however, notices to the Agent pursuant to Section 5.3
shall not be effective until received by the Agent.
Section 14.14 Governing Law; Venue of Service of Process. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Texas and the applicable laws of the United States of America. ANY
ACTION OR PROCEEDING AGAINST BORROWER UNDER OR IN CONNECTION WITH ANY LOAN
DOCUMENT MAY BE BROUGHT IN ANY STATE COURT LOCATED IN DALLAS, TEXAS OR ANY
FEDERAL COURT IN THE NORTHERN DISTRICT OF TEXAS. BORROWER HEREBY IRREVOCABLY
(a) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (b) WAIVES ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.
BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED OR
DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14.13 OF THIS
AGREEMENT. NOTHING IN THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL AFFECT
THE RIGHT OF THE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE AGENT OR ANY BANK TO BRING ANY
ACTION OR PROCEEDING AGAINST BORROWER OR WITH RESPECT TO ANY OF ITS PROPERTY IN
COURTS IN OTHER JURISDICTION. ANY ACTION OR PROCEEDING BY BORROWER AGAINST THE
AGENT OR ANY BANK SHALL BE BROUGHT ONLY IN A COURT LOCATED IN DALLAS, TEXAS.
Section 14.15 Counterparts. This Agreement may be executed in one
or more counterparts and on telecopy counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
agreement.
Section 14.16 Severability. Any provision of any Loan Document
held by a court of competent jurisdiction to be invalid or unenforceable shall
not impair or invalidate the remainder of any Loan Document and the effect
thereof shall be confined to the provision held to be invalid or illegal.
CREDIT AGREEMENT - PAGE 62
<PAGE> 70
Section 14.17 Headings. The headings, captions, and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 14.18 Non-Application of Chapter 346 of The Finance Code of
Texas. The provisions of Chapter 346 of The Finance Code of Texas are
specifically declared by the parties hereto not to be applicable to any Loan
Documents or to the transactions contemplated thereby.
Section 14.19 Construction. The Borrower, each Obligated Party (by
its execution of the Loan Documents to which its is a party), the Agent, and
each Bank acknowledges that each of them has had the benefit of legal counsel
of its own choice and has been afforded an opportunity to review the Loan
Documents with its legal counsel and that the Loan Documents shall be construed
as if jointly drafted by the parties thereto.
Section 14.20 Independence of Covenants. All covenants under the
Loan Documents shall be given independent effect so that if a particular action
or condition is not permitted by any of such covenants, the fact that it would
be permitted by an exception to, or be otherwise within the limitations of,
another covenant shall not avoid the occurrence of a Default if such action is
taken or such condition exists.
Section 14.21 Waiver of Jury Trial. TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF
OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREBY OR THE ACTIONS OF THE AGENT OR ANY BANK IN THE NEGOTIATION,
ADMINISTRATION, OR ENFORCEMENT THEREOF.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORROWER:
HORIZON HEALTH CORPORATION
By: /s/ JAMES W. McATEE
------------------------------------
James W. McAtee, Executive Vice
President and Secretary
Address for Notices:
1500 Water Ridge
Lewisville, Texas 75057
Fax No.: (972) 420-8282
Telephone No.: (972) 420-8200
Attention: Chief Financial Officer
CREDIT AGREEMENT - PAGE 63
<PAGE> 71
AGENT:
Revolving Commitment: TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, individually as a Bank and
as the Agent
$3,000,000
By: /s/ JORGE L. CALDERON
-----------------------------------
Term Commitment: Jorge L. Calderon, Vice President
$12,000,000
- ----------------------------- Address for Notices:
1111 Fannin, 9th Floor, MS46
Houston, Texas 77002
$15,000,000 Total Telephone No.: 713 750-2784
Facsimile: No.: 713 750-3810
Attention: Loan Syndication Services
re: Horizon Health Corporation
With a copy to:
P.O. Box 660197
12875 Josey Lane
Farmers Branch, Texas 77266
Fax No.: (972) 888-7837
Telephone No.: (972) 888-7829
Attention: Jorge L. Calderon
Lending Office for Base Rate
Accounts and Eurodollar Accounts:
1111 Fannin
Houston, Texas 77002
CREDIT AGREEMENT - PAGE 64
<PAGE> 72
Revolving Commitment: Banks:
$2,000,000 BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
Term Commitment:
$8,000,000
- ----------------------------- By: /s/ J. GREGORY SEIBLY
-----------------------------------
Name: J. Gregory Seibly
Title: Vice President
$10,000,000 Total
Address for Notices:
555 South Flower Street, 11th Floor
Los Angeles, California 90071
Telephone: 213/228-2953
Facsimile: 213/228-2756
Attn: J. Gregory Seibly
Lending Office for Base Rate
Accounts and Eurodollar Accounts:
555 South Flower Street, 11th Floor
Los Angeles, California 90071
CREDIT AGREEMENT - PAGE 65
<PAGE> 73
Revolving Commitment:
$2,000,000 COMERICA BANK-TEXAS
Term Commitment:
By: /s/ DAVID E. GEESLIN
-----------------------------------
$8,000,000 David E. Geeslin
Vice President
$10,000,000 Total Address for Notices:
Comerica Bank
1601 Elm Street, 2nd Floor
Dallas, Texas 75201
Telephone: 214/965-8982
Facsimile: 214/965-8980
Attn: David E. Geeslin
Lending Office for Base Rate
Accounts and Eurodollar Accounts:
Comerica Bank
1601 Elm Street, 2nd Floor
Dallas, Texas 75201
CREDIT AGREEMENT - PAGE 66
<PAGE> 74
Revolving Commitment: COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
$1,500,000 NEDERLAND," NEW YORK BRANCH
Term Commitment:
By: /s/ DANA W. HEMENWAY
-----------------------------------
$6,000,000 Name: Dana W. Hemenway
Title: Vice President
$7,500,000 Total By: /s/ W. JEFFREY VOLLACK
-----------------------------------
Name: W. Jeffrey Vollack
Title: Senior Vice President
Address for Notices:
245 Park Avenue
New York, New York 10167
Telex No.: 424-377
Telephone No.: (212) 916-7928
Facsimile No.: (212) 818-0233
Attention: Corporate Services
With a copy to:
Rabobank Nederland
13355 Noel Road
One Galleria Tower
Dallas, Texas 75240
Telephone No.: (214) 419-6322
Facsimile No.: (214) 419-6315
Attention: J. David Thomas
Lending office for Base Rate
Accounts and Eurodollar Accounts:
245 Park Avenue
New York, New York 10167
CREDIT AGREEMENT - PAGE 67
<PAGE> 75
Revolving Commitment: BANQUE PARIBAS, HOUSTON AGENCY
$1,500,000
By: /s/ GLENN E. MEALEY
-----------------------------------
Term Commitment: Name: Glenn E. Mealey
Title: Director
$6,000,000
By: /s/ TIMOTHY A. DONNON
-----------------------------------
$7,500,000 Total Name: Timothy A. Donnon
Title: Managing Director
Address for Notices:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telephone No.: (713) 659-3832
Facsimile No.: (713) 659-4811
Attn: Roger May
Lending Office for Base Rate
Accounts and Eurodollar Accounts:
1200 Smith Street, Suite 3100
Houston, Texas 77002
CREDIT AGREEMENT - PAGE 68
<PAGE> 76
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<S> <C>
"A" Revolving Note
"B" Term Note
"C" Guaranty
"D" Borrower Security Agreement
"E" Borrower Pledge Agreement
"F" Subsidiary Security Agreement
"G" Subsidiary Pledge Agreement
"H" Subsidiary Joinder Agreement
"I" Assignment and Acceptance
"J" Compliance Certificate
"K" Collateral Assignment
</TABLE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Schedule Description of Schedule
-------- -----------------------
<S> <C>
1.1(a) Previous Senior Debt
8.14 List of Subsidiaries
10.1 Debt
10.2 Existing Liens
10.5 Existing Investments
</TABLE>
CREDIT AGREEMENT - PAGE 69
<PAGE> 1
EXHIBIT 10.3
FIRST AMENDMENT TO LETTER LOAN AGREEMENT
AND NOTE MODIFICATION AGREEMENT
THIS FIRST AMENDMENT TO LETTER LOAN AGREEMENT AND NOTE MODIFICATION
AGREEMENT (the "Amendment"), dated as of December 9, 1997, is between NORTH
CENTRAL DEVELOPMENT COMPANY, a Texas corporation ("Borrower"), HORIZON HEALTH
CORPORATION, a Delaware corporation (formerly known as Horizon Mental Health
Management, Inc. and hereinafter the "Parent"), HORIZON MENTAL HEALTH
MANAGEMENT, INC., a Texas corporation ("Management"), MENTAL HEALTH OUTCOMES,
INC., a Delaware corporation ("Outcomes"), HHG COLORADO, INC., a Colorado
corporation ("Colorado"), HHMC PARTNERS, INC., a Delaware corporation
("Partners"), GERIATRIC MEDICAL CARE, INC., a Tennessee corporation
("Geriatric"), SPECIALTY REHAB MANAGEMENT, INC., a Delaware corporation
("Specialty"), ACORN BEHAVIORAL HEALTHCARE MANAGEMENT CORPORATION, a
Pennsylvania corporation ("Acorn"), FLORIDA PROFESSIONAL PSYCHOLOGICAL
SERVICES, INC., a Florida corporation ("FPPS") and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, in its individual capacity ("Bank").
RECITALS:
A. Borrower, Parent, Management, Outcomes and Bank have entered
into that certain Letter Loan Agreement (the "Agreement") dated as of December
20, 1995.
B. Pursuant to the Agreement, Parent, Management, Outcomes,
Colorado and Partners each executed a separate Guaranty Agreement (the
"Guaranties") dated as December 20, 1995 which guaranteed to Bank the payment
and performance of Term Note B (as defined in the Agreement).
C. Pursuant to the Agreement, Parent, Management, Outcomes,
Colorado and Partners each executed a separate Security Agreement (the
"Security Agreements") dated as December 20, 1995 which granted to Bank a
security interest in certain of its assets to secure the payment and
performance of Term Note B (as defined in the Agreement).
D. Borrower, Bank and the other parties hereto now desire to
amend the Agreement and the Notes (as such term is defined in the Agreement) as
herein set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
FIRST AMENDMENT TO LETTER LOAN AGREEMENT AND NOTE MODIFICATION AGREEMENT-Page 1
<PAGE> 2
ARTICLE 1
Definitions
Section 1.1 Definitions. Capitalized terms used in this
Amendment, to the extent not otherwise defined herein, shall have the same
meanings as in the Agreement, as amended hereby.
ARTICLE 2
Amendments to Agreement
Section 2.1 Amendment to the Definition of "Parent". The term
"Parent", as defined in the initial paragraph of the Agreement is amended in
its entirety to mean: "Horizon Health Corporation, a Delaware corporation
formerly known as Horizon Mental Health Management, Inc."
Section 2.2 Amendment to Definition of "Guarantor". The term
"Guarantor" as defined in the initial paragraph to the Agreement is amended in
its entirety to mean: "Parent, Management, Colorado, Outcomes, Geriatric
Medical Care, Inc., Specialty Rehab Management, Inc., Acorn Behavioral
Healthcare Management Corporation, Florida Professional Psychological Services,
Inc. and any other person who becomes a party to this Agreement, the Guaranty
Agreement (as defined in Section 3.01(a)(iv)) and the Security Agreements (as
defined in Section 3.01(a)(vi)) in accordance with Section 6.25 of this
Agreement."
Section 2.3 Deletions from Section 6. Sections 6.02 through
6.11, 6.13 through 6.15, 6.18, 6.23, 6.24, 6.27, 6.28, 6.31 and 6.33 through
6.37 are deleted in their entirety.
Section 2.4 Amendment to Section 6.01. Section 6.01 is amended in
its entirety to read as follows:
6.01 Incorporation of Covenants from Credit Agreement.
Parent shall and shall cause each Subsidiary to, comply with each of
the covenants contained in Articles 9 (excluding, however, for
purposes of this Agreement, the covenants contained in Sections 9.6
and 9.10), 10 and 11 (the "Covenants") of that certain Credit
Agreement dated as of December 9, 1997, by and among Parent, Texas
Commerce Bank National Association, as agent, and each of the other
banks and lending institutions named therein, as such credit agreement
exists on December 9, 1997 without giving effect to any amendment or
other modification thereto unless amended or otherwise modified with
the agreement of the Bank and whether or not at any time the Credit
Agreement remains in effect as a valid, binding and enforceable
agreement (in such form, the "Credit Agreement"); provided, that for
the purposes of this Agreement (a) any reference in the Covenants to
"Loan Documents" (excluding the reference to Loan Documents contained
in Subsections 10.1(a) and 10.2(b) of the Credit Agreement) shall mean
the Loan Documents as defined herein;
FIRST AMENDMENT TO LETTER LOAN AGREEMENT AND NOTE MODIFICATION AGREEMENT-Page 2
<PAGE> 3
(b) any reference to an "Event of Default" in the Covenants shall mean
an Event of Default as defined herein; (c) any reference to a Default
in the Covenants shall mean the occurrence of an event that with the
giving of notice or passage of time or both would be an Event of
Default hereunder; (d) any reference to Agent or the Banks in the
Covenants shall mean the Bank hereunder; (e) any reference to
"Borrower" in the Covenants shall mean Parent; (f) any reference to
the "Collateral" in the Covenants shall mean the Guarantor Collateral;
and (g) any reference to the "Obligations" in the Covenants shall mean
the "Obligations" as defined in the Guaranty Agreement. As modified
by the foregoing proviso, the Covenants and the definitions in the
Credit Agreement of terms utilized therein are incorporated herein by
reference.
Section 2.5 Amendment to Section 6.25. Section 6.25 is hereby
amended to read in its entirety as follows:
6.25 Subsidiaries of Parent. Parent will cause any and all
of its Subsidiaries, other than AHG Partnership (as defined in the
Credit Agreement) formed or created after the date hereof to guaranty
all present and future indebtedness and other obligations of Borrower
to Bank under the Term Loan B and pledge certain of its assets to Bank
to secure its guaranty obligations, both pursuant to the execution and
delivery of a Subsidiary Joinder Agreement substantially the form as
Exhibit A attached to the Guaranty Agreement. As used herein in the
term "Subsidiary" means any corporation (or other entity) of which at
least a majority of the outstanding shares of stock (or other
ownership interests) having by the terms thereof ordinary voting power
to elect a majority of the board of directors (or similar governing
body) of such corporation (or other entity) (irrespective of whether
or not at the time stock (or other ownership interests) of any other
class or classes of such corporation (or other entity) shall have or
might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned or controlled by the
Parent or one or more of the Subsidiaries or by the Parent and one or
more of the Subsidiaries.
Section 2.6 Amendment to Section 6.12. The reference to "first
priority" contained in the ninth line of Section 6.12 is hereby deleted.
Section 2.7 Amendment to Section 6.21. The reference to "and first
priority" contained in the fifth line of Section 6.21 is hereby deleted.
Section 2.8 Amendment to Section 8.01(b). The last clause in
Section 8.01(b) of the Agreement beginning "; notwithstanding" is amended in
its entirety to read as follows:
; notwithstanding the foregoing, there shall be no such five
day cure period for any of the covenants contained in Sections 5.01,
5.02, 5.07, 5.08, 5.09, 5.10, 5.13, 5.14, 5.15, 5.17, 5.20, 5.31 and
6.01 (but only with respect to Section 6.01 to the extent it relates
to the violation of the following covenants in the Credit
FIRST AMENDMENT TO LETTER LOAN AGREEMENT AND NOTE MODIFICATION AGREEMENT-Page 3
<PAGE> 4
Agreement as they have been incorporated herein, 9.1, 10.2, 10.3,
10.4, 9.6 and 9.8);
Section 2.9 Amendment to Section 8.01 (p). Section 8.01 (p) is
hereby amended to read in its entirety as follows:
(p) Credit Agreement. A Default (as defined in the
Credit Agreement) or an Event of Default (as defined in the Credit
Agreement) occurs under the Credit Agreement whether or not the Credit
Agreement at the time remains in effect as a valid, binding and
enforceable agreement and such Default or Event of Default continues
to exist after any and all applicable notices, grace periods and
opportunities to cure, if any, have been given;
Section 2.10 Amendment to references to Parent, Management and
Outcomes.
(a) Each reference to "Parent, Management and Outcomes"
in the Agreement is amended to read as follows: "Parent and the other
Guarantors".
(b) Each reference to "Parent, Management and/or
Outcomes" in the Agreement is amended to read as follows: "Parent
and/or any of the other Guarantors".
(c) Each reference to "Parent, Management, Outcomes" in
the Agreement is amended to read "Parent, any other Guarantor".
In furtherance of the foregoing, Colorado, Partners, Geriatric,
Specialty, Acorn and FPPS each hereby assumes all the obligations of a
"Guarantor" under the Agreement and agrees that it is bound as a Guarantor
under the terms of the Agreement as if it had been an original signatory
thereto.
Section 2.11 Amendment to Exhibit "E" to the Agreement. Exhibit
"E" to the Agreement is amended to read in its entirety as set forth in Exhibit
"E" hereto.
Section 2.12 Amendment to Exhibit "G" to the Agreement. Exhibit
"G" to the Agreement is amended to read in its entirety as set forth in Exhibit
"G" hereto.
ARTICLE 3
Modification to the Notes
Section 3.1 Amendment to the Definitions Utilized in the Notes.
Section 1 of each of the Notes is modified as follows:
(a) the definitions of the term "Applicable Libor Margin"
is amended in its entirety to read as follows:
FIRST AMENDMENT TO LETTER LOAN AGREEMENT AND NOTE MODIFICATION AGREEMENT-Page 4
<PAGE> 5
"Applicable Libor Margin" means the "Eurodollar Rate Margin"
as such term is defined in that certain Credit Agreement dated as of
December 9, 1997 among Horizon Health Corporation, Texas Commerce Bank
National Association, as agent and each of the other banks and lending
institutions named therein, as such credit agreement exists on
December 9, 1997 without giving effect to any amendment or other
modification thereto unless amended or otherwise modified with the
agreement of Payee and whether or not at any time such credit
agreement remains in effect as a valid, binding and enforceable
agreement (in such form, herein the "Credit Agreement").
(b) the definition of the following term is hereby added
to Section 1 of each Note:
"Base Margin" means the "Base Margin" as such term is defined
in the Credit Agreement.
Section 3.2 Amendment to Section 3. Clause (i) of Clause (a) of
the first sentence in Section 3 of each Note is amended in its entirety to read
as follows:
(i) the sum of the Floating Base Rate in effect
from day to day plus the Base Margin or
ARTICLE 4
Conditions Precedent
Section 4.1 Conditions. The effectiveness of this Amendment is
subject to the satisfaction of the following conditions precedent:
(a) Bank shall have received all of the following, each
dated (unless otherwise indicated) the date of this Amendment, in form
and substance satisfactory to Bank:
(i) Opinion of Counsel. A favorable opinion of
Strasburger & Price, L.L.P., legal counsel to each Guarantor,
as to such matters relating to this Amendment as Bank may
reasonably request;
(ii) Guaranty Agreement and Security Agreement. A
Guaranty Agreement and a Security Agreement executed by each
Guarantor; and
(iii) Additional Information. Such additional
documents, instruments and information as Bank or its legal
counsel, Jenkens & Gilchrist, a Professional Corporation, may
request; and
FIRST AMENDMENT TO LETTER LOAN AGREEMENT AND NOTE MODIFICATION AGREEMENT-Page 5
<PAGE> 6
(b) The representations and warranties contained herein
and in all other Loan Documents, as amended hereby, shall be true and
correct as of the date hereof as if made on the date hereof;
(c) No Event of Default shall have occurred and be
continuing and no event or condition shall have occurred that with the
giving of notice or lapse of time or both would be an Event of
Default; and
(d) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents,
instruments, and other legal matters incident thereto shall be
satisfactory to Bank and its legal counsel, Jenkens & Gilchrist, a
Professional Corporation.
ARTICLE 5
Ratifications, Representations and Warranties
Section 5.1 Ratifications. The terms and provisions set forth in
this Amendment shall modify and supersede all inconsistent terms and provisions
set forth in the Agreement and the Notes and except as expressly modified and
superseded by this Amendment, the terms and provisions of the Agreement and the
Notes and the other Loan Document are ratified and confirmed and shall continue
in full force and effect. Borrower, each Guarantor and Bank agree that the
Agreement and the Notes, as amended hereby, and the other Loan Documents shall
continue to be legal, valid, binding and enforceable in accordance with their
respective terms.
Section 5.2 Representations and Warranties. Each of Borrower and
each Guarantor hereby represents and warrants to Bank that (i) the execution,
delivery and performance of this Amendment and any and all other Loan Documents
executed and/or delivered by it in connection herewith have been authorized by
all requisite corporate action on its part and will not violate its articles of
incorporation or bylaws, (ii) the representations and warranties contained in
the Agreement, as amended hereby, and any other Loan Document to which it is a
party are true and correct on and as of the date hereof as though made on and
as of the date hereof, except to the extent such representations and warranties
relate specifically to an earlier date, (iii) no Event of Default has occurred
and is continuing and no event or condition has occurred that with the giving
of notice or lapse of time or both would be an Event of Default and (iv)
Borrower and each Guarantor is in full compliance with all covenants and
agreements contained in the Agreement as amended hereby and the other Loan
Documents.
FIRST AMENDMENT TO LETTER LOAN AGREEMENT AND NOTE MODIFICATION AGREEMENT-Page 6
<PAGE> 7
ARTICLE 6
Miscellaneous
Section 6.1 Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other Loan
Document including any Loan Document furnished in connection with this
Amendment shall survive the execution and delivery of this Amendment and the
other Loan Documents, and no investigation by Bank or any closing shall affect
the representations and warranties or the right of Bank to rely upon them.
Section 6.2 Reference to Agreement. Each of the Loan Documents,
including the Agreement and any and all other agreements, documents, or
instruments now or hereafter executed and delivered pursuant to the terms
hereof or pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference in such Loan Documents to the Agreement or the
Notes shall mean a reference to the Agreement or the Notes, as applicable, as
amended hereby.
Section 6.3 Expenses of Bank. As provided in the Agreement, each
Guarantor, jointly and severally, agrees to pay on demand all costs and
expenses incurred by Bank in connection with the preparation, negotiation, and
execution of this Amendment and the other Loan Documents executed pursuant
hereto.
Section 6.4 Severability. Any provision of this Amendment held by
a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Amendment and the effect thereof
shall be confined to the provision so held to be invalid or unenforceable.
Section 6.5 Applicable Law. This Amendment and all other Loan
Documents executed pursuant hereto shall be deemed to have been made and to be
performable in Dallas, Dallas County, Texas and shall be governed by and
construed in accordance with the laws of the State of Texas.
Section 6.6 Successors and Assigns. This Amendment is binding upon
and shall inure to the benefit of Bank, Borrower and each of the Guarantors and
their respective successors and assigns, except neither Borrower nor any
Guarantor may assign or transfer any of its rights or obligations hereunder
without the prior written consent of Bank.
Section 6.7 Counterparts. This Amendment may be executed in one or
more counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the
same instrument.
Section 6.8 Effect of Waiver. No consent or waiver, express or
implied, by Bank to or for any breach of or deviation from any covenant,
condition or duty by Borrower or any Guarantor shall be deemed a consent or
waiver to or of any other breach of the same or any other covenant, condition
or duty.
Section 6.9 Headings. The headings, captions, and arrangements
used in this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
FIRST AMENDMENT TO LETTER LOAN AGREEMENT AND NOTE MODIFICATION AGREEMENT-Page 7
<PAGE> 8
Section 6.10 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH
THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY
NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
ORAL AGREEMENTS AMONG THE PARTIES HERETO.
Executed as of the date first written above.
BORROWER:
--------
NORTH CENTRAL DEVELOPMENT
COMPANY
By: /s/ JOHN T. AMEND
-------------------------------------------------
John T. Amend
President
BANK:
----
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/ JORGE CALDERON
-------------------------------------------------
Jorge Calderon
Vice President
FIRST AMENDMENT TO LETTER LOAN AGREEMENT AND NOTE MODIFICATION AGREEMENT-Page 8
<PAGE> 9
GUARANTORS:
-----------
HORIZON HEALTH CORPORATION
HORIZON MENTAL HEALTH
MANAGEMENT, INC.
MENTAL HEALTH OUTCOMES, INC.
HHMC PARTNERS, INC.
HHG COLORADO, INC.
GERIATRIC MEDICAL CARE, INC.
SPECIALTY REHAB MANAGEMENT, INC.
ACORN BEHAVIORAL HEALTHCARE
MANAGEMENT CORPORATION
FLORIDA PROFESSIONAL PSYCHOLOGICAL
SERVICES, INC.
By: /s/ JAMES W. McATEE
--------------------------------------
James W. McAtee
Executive Vice President and
Secretary of each Guarantor
FIRST AMENDMENT TO LETTER LOAN AGREEMENT AND NOTE MODIFICATION AGREEMENT-Page 9
<PAGE> 1
EXHIBIT 11.1
HORIZON HEALTH CORPORATION
COMPUTATIONS OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
-------------------
1996 1997
------- -------
SIMPLE
<S> <C> <C>
Net income $2,383 $2,524
Average outstanding shares (2) 6,876 6,980
------ ------
Simple net income per share $ 0.35 $ 0.36
====== ======
PRIMARY
Net income $2,383 $2,524
Average outstanding shares (2) 6,876 6,980
Common stock equivalents assuming
exercise of stock options (2) 1,151 781
------ ------
Shares for primary 8,027 7,761
====== ======
Primary net income per share (1) $ 0.30 $ 0.33
====== ======
FULLY DILUTED
Net income $2,383 $2,524
Average outstanding shares (2) 6,876 6,980
Common stock equivalents assuming
exercise of stock options (2) 1,151 781
------ ------
Shares for fully diluted 8,027 7,761
------ ------
Fully diluted net income per share (1) $ 0.30 $ 0.33
====== ======
</TABLE>
(1) The calculations for primary and fully diluted net income per share are
submitted in accordance with Regulation S-K Item 601(b)(11).
(2) The Board of Directors of the Company approved a three-for-two stock
split effected in the form of a 50% stock dividend, pursuant to which
one additional share of Common Stock of the Company was issued on
January 31, 1997 for every two shares of Common Stock held by
stockholders of record at the close of business on January 22, 1997.
Upon effecting the stock split/dividend, the stock options and their
related exercise prices were adjusted proportionately. Such stock
split/dividend has been reflected herein.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THREE
MONTHS ENDED NOVEMBER 30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH YEAR TO DATE 10-Q FILING FOR THE THREE MONTHS
ENDED NOVEMBER 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 1,757,868
<SECURITIES> 0
<RECEIVABLES> 18,695,924
<ALLOWANCES> 1,800,494
<INVENTORY> 0
<CURRENT-ASSETS> 21,025,135
<PP&E> 4,326,061
<DEPRECIATION> 2,393,171
<TOTAL-ASSETS> 61,578,525
<CURRENT-LIABILITIES> 14,476,890
<BONDS> 0
0
0
<COMMON> 70,263
<OTHER-SE> 34,433,828
<TOTAL-LIABILITY-AND-EQUITY> 61,578,525
<SALES> 0
<TOTAL-REVENUES> 29,322,412
<CGS> 0
<TOTAL-COSTS> 24,774,066
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 355,027
<INTEREST-EXPENSE> 61,555
<INCOME-PRETAX> 4,237,377
<INCOME-TAX> 1,707,194
<INCOME-CONTINUING> 2,523,995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,523,995
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>