Exhibit 10.3

 

SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

 

THIS SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (the
“Amendment”), dated as of April 19, 2004 is among HORIZON HEALTH CORPORATION, a
Delaware Corporation (the “Parent”), HORIZON MENTAL HEALTH MANAGEMENT, INC., a
Texas Corporation (the “Borrower”), each of the banks or other lending
institutions party hereto, and JPMORGAN CHASE BANK (formerly known as The Chase
Manhattan Bank, who was the successor in interest by merger to Chase Bank of
Texas, National Association, formerly known as Texas Commerce Bank National
Association), as the agent (the “Agent”).

 

RECITALS:

 

A. The Parent, the Borrower, the Agent, and certain banks and other lending
institutions have entered into that certain Second Amended and Restated Credit
Agreement dated as of May 23, 2002 (as amended by that certain First Amendment
to Second Amended and Restated Credit Agreement dated as of September 25, 2002,
that certain Second Amendment to Second Amended and Restated Credit Agreement
dated as of October 4, 2002, that certain Third Amendment to Second Amended and
Restated Credit Agreement dated as of April 4, 2003, that certain Fourth
Amendment to Second Amended and Restated Credit Agreement dated as of August 29,
2003, that certain Fifth Amendment to Second Amended and Restated Credit
Agreement dated as of February 10, 2004, and as the same may hereafter be
further amended or otherwise modified, herein the “Agreement”).

 

B. The Parent entered into an Asset Purchase Agreement dated as of March 12,
2004 with Northern Indiana Hospital, LLC (the “NIH Asset Purchase Agreement”).
The Parent assigned its rights and obligations under the NIH Asset Purchase
Agreement to HHC Indiana, Inc. (“HHC Indiana”), a wholly-owned subsidiary of the
Borrower (such assignment, herein the “Parent Assignment”). In connection with
the transactions contemplated by the NIH Asset Purchase Agreement and the Parent
Assignment, HHC Indiana entered into (1) a Subsidiary Joinder Agreement, dated
as of April 1, 2004, joining into the Subsidiary Security Agreement and the
Guaranty as a debtor and a guarantor, respectively, under the Agreement and (2)
a Commercial Mortgage, Absolute Assignment of Rents, Security Agreement and
Financing Statement, dated as of April 1, 2004, granting Agent a lien in the
real property commonly known as 1800 N. Oak Road, Plymouth, IN 46563. The
Borrower entered into a Pledge Amendment, dated as of April 1, 2004, amending
Schedule 1 to the Borrower Pledge Agreement to add 100% of the capital stock of
HHC Indiana thereto.

 

C. The Borrower created a new subsidiary, HHC Poplar Springs, Inc. (“HHC
Poplar”). HHC Poplar has requested that the Agent and the Banks consent to HHC
Poplar’s purchase of Poplar Springs Hospital and certain other assets of PSH
Acquisition Corporation pursuant to an Asset Purchase Agreement between HHC
Poplar and PSH Acquisition Corporation (the “PSH Asset Purchase Agreement”). In
connection with the transactions contemplated by the PSH Asset Purchase
Agreement, (1) HHC Poplar will enter into a Subsidiary Joinder Agreement joining
into the Subsidiary Security Agreement and the Guaranty as a debtor and
guarantor, respectively, under the Agreement, (2) the Borrower will enter into a
Pledge Amendment amending Schedule 1 to the Borrower Pledge Agreement to add
100% of the capital stock of HHC Poplar thereto and (3) HHC Poplar will enter
into a Deed of Trust, Absolute Assignment of Rents, Security Agreement and
Financing Statement granting Agent a lien in real property located in the
Commonwealth of Virginia.

 

D. In connection with HHC Poplar’s acquisition of Poplar Springs Hospital and
certain other assets of PSH Acquisition Corporation, the Parent and the Borrower
have requested that the Agent and the Banks amend certain provisions of the
Agreement. Subject to satisfaction of the conditions set forth herein, the Agent
and the Banks party hereto are willing to amend the Agreement as herein set
forth

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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 effective as of the date
hereof unless otherwise indicated:

 

ARTICLE I.

 

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 II.

 

Amendments

 

Section 2.1. Amendment to Section 1.1 - Definitions. Section 1.1 of the
Agreement is amended to add the following definition, in alphabetical order,
thereto:

 

“HHC Poplar” means HHC Poplar Springs, Inc., a Virginia corporation.

 

Section 2.2. Amendment to Section 8.14 – Subsidiaries. Section 8.14 of the
Agreement is amended in its entirety to read as follows:

 

Section 8.14 Subsidiaries. As of April 19, 2004, Parent 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 Parent’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. All of the outstanding capital stock (or other
equity interests) of the Borrower, each of the Obligated Parties (other than the
Parent) and each of the Restricted Group Members has been pledged to the Agent.
Borrower and all of the Obligated Parties are parties to either the Subsidiary
Security Agreement or the Parent Security Agreement and the Guaranty.

 

Section 2.3. Amendment to Section 10.5 – Bank Approval and Delivery and Notice
Requirements. Clauses (ii) and (iii) of Section 10.5(a) of the Agreement are
amended in their respective entireties to read as set forth in clauses (ii) and
(iii) below:

 

(ii) Bank Approval. Parent shall have obtained the prior written consent of the
Required Banks if: (A) the Purchase Price for the acquisition is greater than
Ten Million Dollars ($10,000,000); (B) after giving effect to such acquisition,
the aggregate Purchase Price of all Permitted Acquisitions that have occurred
during the four (4) consecutive Fiscal Quarters then most recently ending is
greater than Twenty Five Million Dollars ($25,000,000); or (C) the ratio of
Indebtedness outstanding as of the date

 

SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT – Page 2

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of determination (which shall not be more than thirty (30) days prior to the
acquisition date) to Adjusted EBITDA (as defined in Section 11.4) for the most
recent four (4) Fiscal Quarter period then ended as of such date would exceed
2.05 to 1.00, calculated on a pro forma basis as if the acquisition had occurred
as of the first day of such four (4) Fiscal Quarters and including in the ratio
calculation any Debt incurred or assumed in connection therewith as if the
Target were a “Prior Target” for purposes of Calculating Adjusted EBITDA;
provided, however, no such prior written consent of the Required Banks shall be
required in connection with the acquisition by HHC Poplar of Poplar Springs
Hospital and certain other assets of PSH Acquisition Corporation. 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, non-compete, consulting or post-closing 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
Parent 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. Parent shall provide to 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 Parent has available, (C) such other documentation and information
relating to the Target and the acquisition as Agent may reasonably request,
including, without limitation, for the acquisition by HHC Poplar of the Poplar
Springs Hospital and certain other assets of PSH Acquisition Corporation a
certification by HHC Poplar three (3) days prior to the consummation of the
acquisition that there has been no material adverse change in the financial
condition of Poplar Springs Hospital from the financial condition reflected in
the financial statements delivered to Agent in accordance with Section
10.5(a)(iii)(B), and (D) evidence certified by the chief executive or chief
financial officer of Parent that Parent shall be in compliance with the
covenants contained in Article XI 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.

 

Section 2.4. Amendment to Section 11.4 – Indebtedness to Adjusted EBITDA. The
first sentence of Section 11.4 of the Agreement is amended in its entirety to
read as follows:

 

As of the last day of each Fiscal Quarter, Parent shall not permit the ratio of
Indebtedness outstanding as of such day to the Adjusted EBITDA for the four (4)
Fiscal Quarter period then ended to exceed 2.50 to 1.00.

 

Section 2.5. Amendment to Exhibit C – Compliance Certificate. Exhibit C to the
Agreement is amended in its entirety to read as set forth on Exhibit A attached
hereto.

 

SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT – Page 3

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Section 2.6. Amendment to Schedules 8.14 and 8.14A – List of Subsidiaries and
Organizational Chart. Schedules 8.14 and 8.14A to the Agreement are amended in
their respective entireties as set forth on Schedules 8.14 and 8.14A,
respectively, attached hereto.

 

ARTICLE III.

 

Conditions Precedent

 

Section 3.1. Conditions. The effectiveness of Article 2 of this Amendment is
subject to the satisfaction of the following conditions precedent:

 

(a) The Agent shall have received all of the following, each dated (unless
otherwise indicated) the date of this Amendment, in form and substance
satisfactory to the Agent:

 

(i) Amendment Fee. Payment of the amendment fee required by Section 4.6 of this
Amendment; and

 

(ii) Additional Information. Such additional documentation, approvals, opinions,
and information as Agent or its legal counsel Jenkens & Gilchrist, a
Professional Corporation, may request;

 

(b) The representations and warranties contained herein and in all other Loan
Documents, as amended hereby, shall be true and correct in all material respects
as of the date hereof as if made on the date hereof, except for such
representations and warranties limited by their terms to a specific date;

 

(c) No Default shall have occurred and be continuing; and

 

(d) All proceedings taken in connection with the transactions contemplated by
this Amendment and all documentation and other legal matters incident thereto
shall be satisfactory to the Agent and its legal counsel Jenkens & Gilchrist, a
Professional Corporation.

 

ARTICLE IV.

 

Miscellaneous

 

Section 4.1. 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 except as expressly modified and superseded by this Amendment,
the terms and provisions of the Agreement and the other Loan Documents are
ratified and confirmed and shall continue in full force and effect.

 

Section 4.2. Representations and Warranties. Borrower hereby represents and
warrants to the Agent and the Banks as follows: (a) after giving effect to this
Amendment, no Default exists; (b) after giving effect to this Amendment, the
representations and warranties set forth in the Loan Documents are true and
correct in all material respects on and as of the date hereof with the same
effect as though made on and as of such date except with respect to any
representations and warranties limited by their terms to a specific date; and
(c) the execution, delivery, and performance of this Amendment has been duly
authorized by all necessary action on the part of Parent, Borrower, and each
Obligated Party and does not and will not (i) violate any provision of law
applicable to the Borrower, the Parent, or any Obligated Party, the certificate
of incorporation, bylaws, partnership agreement, membership agreement, or other
applicable governing document of the Borrower, the Parent, or any Obligated
Party or any order, judgment, or decree of any court or agency of government
binding upon the Borrower, the Parent, or any

 

SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT – Page 4

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Obligated Party, (ii) conflict with, result in a breach of or constitute (with
due notice of lapse of time or both) a default under any material contractual
obligation of the Borrower, the Parent, or any Obligated Party, (iii) result in
or require the creation or imposition of any material lien upon any of the
assets of the Borrower, the Parent, or any Obligated Party, or (iv) require any
approval or consent of any Person under any material contractual obligation of
the Borrower, the Parent, or any Obligated Party.

 

IN ADDITION, TO INDUCE THE AGENT AND THE BANKS TO AGREE TO THE TERMS OF THIS
AMENDMENT, THE BORROWER, THE PARENT, AND EACH OBLIGATED PARTY (BY ITS EXECUTION
BELOW) REPRESENTS AND WARRANTS THAT AS OF THE DATE OF ITS EXECUTION OF THIS
AMENDMENT THERE ARE NO CLAIMS OR OFFSETS AGAINST OR DEFENSES OR COUNTERCLAIMS TO
ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS AND IN ACCORDANCE THEREWITH IT:

 

(a) WAIVER. WAIVES ANY AND ALL SUCH CLAIMS, OFFSETS, DEFENSES OR COUNTERCLAIMS,
WHETHER KNOWN OR UNKNOWN, ARISING PRIOR TO THE DATE OF ITS EXECUTION OF THIS
AMENDMENT AND

 

(b) RELEASE. RELEASES AND DISCHARGES THE AGENT AND THE BANKS, AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SHAREHOLDERS, AFFILIATES AND
ATTORNEYS (COLLECTIVELY THE “RELEASED PARTIES”) FROM ANY AND ALL OBLIGATIONS,
INDEBTEDNESS, LIABILITIES, CLAIMS, RIGHTS, CAUSES OF ACTION OR DEMANDS
WHATSOEVER, WHETHER KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, IN LAW OR
EQUITY, WHICH THE BORROWER OR ANY OBLIGATED PARTY EVER HAD, NOW HAS, CLAIMS TO
HAVE OR MAY HAVE AGAINST ANY RELEASED PARTY ARISING PRIOR TO THE DATE HEREOF AND
FROM OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREBY.

 

Section 4.3. Survival of Representations and Warranties. All representations and
warranties made in this Amendment shall survive the execution and delivery of
this Amendment, 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.

 

Section 4.4. Reference to Agreement. Each of the Loan Documents, including the
Agreement, are hereby amended so that any reference in such Loan Documents to
the Agreement shall mean a reference to the Agreement as amended hereby.

 

Section 4.5. Expenses of Agent. As provided in the Agreement, the Borrower
agrees to pay on demand all costs and expenses incurred by the Agent in
connection with the preparation, negotiation, and execution of this Amendment,
including without limitation, the costs and fees of the Agent’s legal counsel.

 

Section 4.6. Amendment Fee. The Borrower agrees to pay to each of JPMorgan Chase
Bank, Bank of America, National Association and Wells Fargo Bank Texas, National
Association, on the date hereof, an amendment fee in the amount of $10,000 each,
in consideration for such Banks’ agreement to enter into this Amendment.

 

SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT – Page 5

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Section 4.7. 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 4.8. Applicable Law. This Amendment 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.

 

Section 4.9. Successors and Assigns. This Amendment is binding upon and shall
inure to the benefit of the Agent, each Bank and the Borrower and their
respective successors and assigns, except the Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the Banks.

 

Section 4.10. Counterparts. This Amendment may be executed in one or more
counterparts and on telecopy 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 agreement.

 

Section 4.11. Effect of Waiver. No consent or waiver, express or implied, by the
Agent or any Bank to or for any breach of or deviation from any covenant,
condition or duty by the Borrower or any Obligated Party shall be deemed a
consent or waiver to or of any other breach of the same or any other covenant,
condition or duty.

 

Section 4.12. Headings. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.

 

Section 4.13. ENTIRE AGREEMENT. THIS AMENDMENT EMBODIES 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.

 

PARENT AND BORROWER:

HORIZON HEALTH CORPORATION

HORIZON MENTAL HEALTH MANAGEMENT, INC.

By:

 

/s/ Ronald C. Drabik

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Name:

 

Ronald C. Drabik, CFO

    Authorized Officer for both Parent and Borrower

 

SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT – Page 6

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AGENT AND BANKS: JPMORGAN CHASE BANK (formerly known as The Chase Manhattan
Bank, who was successor-in- interest by merger to the Chase Bank of Texas,
National Association who was formerly known as TEXAS COMMERCE BANK NATIONAL
ASSOCIATION), individually as a Bank, as Agent, and as Issuing Bank

By:

 

/s/ Brian McDougal

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Name:

 

Brian McDougal, Vice President

Title:

 

JPMorgan Chase Bank

BANK OF AMERICA, NATIONAL ASSOCIATION

By:

 

/s/ Daniel H. Penkar

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Daniel H. Penkar, Senior Vice President

WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION

By:

 

/s/ Robert Clouse

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Robert Clouse, Vice President

 

SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT – Page 7

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OBLIGATED PARTY CONSENT

 

Each Obligated Party (i) consents and agrees to this Sixth Amendment to Second
Amended and Restated Credit Agreement; (ii) agrees that the Guaranty, Subsidiary
Security Agreement, and the Subsidiary Pledge Agreement to which it is a party
shall remain in full force and effect and shall continue to be the legal, valid,
and binding obligation of such Obligated Party enforceable against it in
accordance with its terms; (iii) agrees that the “Obligations” as defined in the
Agreement as amended hereby (including, without limitation, all obligations,
indebtedness, and liabilities arising in connection with the Letters of Credit
and the increase in the Revolving Commitments contemplated hereby) are
“Obligations” as defined in the Guaranty; and (iv) agrees that any reference to
the “Borrower” in the Guaranty, Subsidiary Security Agreement or Subsidiary
Pledge Agreement shall mean Horizon Mental Health Management, Inc. as the
“Borrower” hereunder successor by assumption to the obligations of the Parent.

 

OBLIGATED PARTIES: MENTAL HEALTH OUTCOMES, INC. SPECIALTY REHAB MANAGEMENT, INC.
HHMC PARTNERS, INC. HORIZON BEHAVIORAL SERVICES, INC. FLORIDA PSYCHIATRIC
ASSOCIATES, LLC HORIZON BEHAVIORAL SERVICES OF FLORIDA, LLC FPMBH OF TEXAS, INC.
HMHM OF TENNESSEE, INC. OCCUPATIONAL HEALTH CONSULTANTS OF AMERICA, LLC EMPLOYEE
ASSISTANCE SERVICES, INC. HORIZON BEHAVIORAL SERVICES IPA, INC. HORIZON
BEHAVIORAL SERVICES OF NEW JERSEY, INC. HORIZON BEHAVIORAL SERVICES OF NEW YORK,
INC. PROCARE ONE NURSES, LLC EMPLOYEE ASSISTANCE PROGRAMS INTERNATIONAL, LLC HHC
INDIANA, INC.

 

By:

 

/s/ Ronald C. Drabik

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Name:

  Ronald C. Drabik, CFO    

Authorized Officer for each Obligated Party

 

SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT – Page 8

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EXHIBIT A

TO

HORIZON HEALTH CORPORATION

SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

 

Compliance Certificate

 

EXHIBIT A, Cover Page

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COMPLIANCE CERTIFICATE

for the

Fiscal Quarter ending                  ,         

 

To:

 

JPMorgan Chase Bank

   

P.O. Box 660197

   

Dallas, Texas 75266-0197

   

Fax No.: (972) 888-7837

   

Telephone No.: (972) 888-7802

   

Attention: D. Scott Harvey

                  Steve Lewis

 

Ladies and Gentlemen:

 

This Compliance Certificate (the “Certificate”) is being delivered pursuant to
Section 9.1(c) of that certain Second Amended and Restated Credit Agreement (as
amended, the “Agreement”) dated as of May 23, 2002, among the Horizon Health
Corporation (“Parent”), Horizon Mental Health Management, Inc. (“Borrower”), the
banks and lending institutions named therein (the “Banks”) and JPMorgan Chase
Bank, as agent for the Banks (“Agent”). All capitalized terms, unless otherwise
defined herein, shall have the same meanings as in the Agreement. All the
calculations set forth below shall be made pursuant to the terms of the
Agreement.

 

The undersigned, as an authorized financial officer of Parent, and not
individually, does hereby certify to the Agents and the Banks that:

 

1.      DEFAULT.

No Default has occurred and is continuing or if a Default has occurred and is
continuing, I have described on the attached Exhibit A the nature thereof and
the steps taken or proposed to remedy such Default.

2.      SECTION 9.1—Financial Statements and Records

(a)    Annual audited financial statements of Parent and the Subsidiaries on or
before ninety (90) days after the end of each Fiscal Year.

          Yes    No    N/A

(b)    Quarterly unaudited financial statements of Parent and the Subsidiaries
within forty-five (45) days after the end of each Fiscal Quarter

          Yes    No    N/A

(c)    Financial Projections of Parent and Subsidiaries within forty-five (45)
days after the beginning of each Fiscal Year.

          Yes    No    N/A

3.      SECTION 9.10(d) – Insignificant Subsidiaries

                     

EBITDA for the Insignificant Subsidiaries for the most recently completed four
Fiscal Quarter period not to exceed:

   $ 250,000               

Actual EBITDA for the Insignificant Subsidiaries for the most recently completed
four Fiscal Quarter period:

   $                     Yes         No

 

Compliance Certificate, Page 1

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4.      SECTION 9.10(e) – Restricted Subsidiaries

                   

EBITDA for the Restricted Subsidiaries for the most recently completed four
Fiscal Quarter period not to exceed 10% of line 12(f):

   $                               

Actual EBITDA for the Restricted Subsidiaries for the most recently completed
four Fiscal Quarter period:

   $                    Yes         No

5.      SECTION 10.1 – Debt

                   

(a)    Purchase money not to exceed:

   $500,000               

Actual Outstanding:

   $                    Yes    No     

(b)    Guarantees of surety, appeal bonds, etc. not to exceed:

   $1,000,000               

Actual Outstanding:

   $                    Yes    No     

(c)    Aggregate Debt of newly acquired or merged Subsidiaries not to exceed:

   $1,000,000               

Actual Outstanding:

   $                    Yes    No     

(d)    Other Debt not to exceed:

   $250,000               

Actual Outstanding:

   $                    Yes    No     

6.      SECTION 10.4 – Restrictions on Dividends and other Distributions

                   

The total aggregate amount of redemptions or repurchases exercised by employees
and directors in connection with the exercise by such Person of stock options
granted to such Person under Parent’s benefit programs shall not exceed:

                   

During the Fiscal Year ending August 31, 2004

   $2,000,000               

During any Fiscal Year thereafter

   $1,000,000               

Actual Expended:

   $                    Yes    No     

Aggregate amount paid by Parent for repurchases of shares of its stock on the
open market or through privately negotiated transactions during the period from
August 29, 2003 through May 31, 2005 shall not exceed:

   $7,500,000               

Actual Expended:

   $                    Yes    No     

7.      SECTION 10.5 – Investments

                   

(a)    Aggregate amount of loans to physicians employed by a Subsidiary not to
exceed (calculated net of bad debt reserve):

   $500,000               

Actual Outstanding:

   $                    Yes    No     

(b)    Aggregate amount of investments in or contributions to wholly owned
Subsidiaries not to exceed:

   $250,000               

Actual Outstanding:

   $                    Yes    No     

 

Compliance Certificate, Page 2

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(c)    Gross aggregate amount of loans, advances, and investments in or
contributions to Valley Rehabilitation Hospital, LLP not to exceed:

   $ 1,500,000               

Actual Aggregate Amount:

   $                     Yes    No     

(d)    Aggregate amount of investments in HBS CA not to exceed the lesser of
$1,500,000 or the minimum amount for compliance with minimum net worth
requirements under Knox Keene Act:

   $                                

Actual Aggregate Amount:

   $                     Yes         No

(e)    Aggregate amount of investments in Insights in addition to the Purchase
Price paid for Insights not to exceed:

   $ 1,000,000               

Actual Aggregate Amount:

   $                     Yes         No

8.      SECTION 10.8 – Asset Dispositions

                     

(a)    Aggregate book value of assets disposed during any 12-month period not to
exceed:

   $ 500,000               

(b)    Total book value of asset dispositions for 12-month period most recently
ending:

   $                     Yes    No     

9.      SECTION 10.11 – Prepayment of Debt

                     

(a)    Aggregate amount of Debt, other than the Obligations, prepaid or
optionally redeemed during period from the Closing Date to the Termination Date
not to exceed:

   $ 300,000               

(b)    Total amount of Debt, other than the Obligations, prepaid or optionally
redeemed:

   $                     Yes    No     

10.    SECTION 11.1 – Consolidated Net Worth

                     

(a)    Base Consolidated Net Worth

   $ 55,635,045               

(b)    The lesser of (i) $500,000 or (ii) aggregate amount of non-cash losses
attributable to impairment of goodwill and incurred and reported on Parent’s
8/31/02 financial statement for such fiscal year which have resulted from
Parent’s compliance with statement number 142 of FASB

   $                                

(c)    Cumulative positive Net Income since 5/31/03 Fiscal Quarter end

   $                                

(d)    50% of 10(c)

   $                                

(e)    Aggregate amount of net cash proceeds or other Capital Contribution to
Parent since 5/31/03

   $                                

(f)     the lesser of $7,500,000 or the aggregate amount paid by Parent for its
repurchase of shares of its stock on the open market or through privately
negotiated transactions pursuant to clause (iv) of Section 10.4

   $                                

 

Compliance Certificate, Page 3

--------------------------------------------------------------------------------

(g)    Required Consolidated Net Worth: 10(a) minus 10(b) plus 10(d) plus 10(e)
minus 10(f)

   $                           

(h)    Actual Consolidated Net Worth

   $                     Yes    No

11.    SECTION 11.2 - Indebtedness to Capitalization

                

(a)    Debt for borrowed money

   $                           

(b)    Debt evidenced by bonds, notes, etc.

   $                           

(c)    Capital Lease Obligations

   $                           

(d)    Reimbursement obligations for letters of credit

   $                           

(e)    Sum of 11(a) through 11(d)

   $                           

(f)     Actual Consolidated Net Worth (from Section 11.1)

   $                           

(g)    11(e) plus 11(f)

   $                           

(h)    11(f) : 11 (g) =

         :1.00          

(i)     Maximum Indebtedness to Capitalization

     0.50:1.00    Yes    No

12.    Section 11.3 – Fixed Charge Coverage

                

(a)    Parent and the Subsidiaries’ Consolidated Net Income for last four Fiscal
Quarters (from Schedule 1)

   $                           

(b)    Plus provisions for tax

   $                           

(c)    less benefit from tax

   $                           

(d)    Plus interest expense

   $                           

(e)    Plus amortization and depreciation

   $                           

(f)     Parent and the Subsidiaries’ EBITDA: (12(a) plus 12(b) minus 12(c) plus
12(d) plus 12 (e))

   $                           

(g)    provisions for taxes

   $                           

(h)    plus benefit from taxes

   $                           

(i)     minus cash dividends and other distributions made on account of the
Parent’s capital stock

   $                           

(j)     aggregate amount of non-cash losses which have not already been excluded
in determining Consolidated Net Income and which are attributable to impairment
of Parent’s goodwill incurred and reported by Parent on its financial statements
which have resulted from Parent’s compliance with statement number 142 of FASB

   $                           

(k)    Cash Flow (12(f) plus 12(h) minus 12(g) minus 12(i) plus 12(j))

   $                           

 

Compliance Certificate, Page 4

--------------------------------------------------------------------------------

(l)     Fixed Charges

                

(i)     Cash interest expense for last four Fiscal Quarters

   $                           

(ii)    as of each date of determination (A) prior to the Revolving Termination
Date, one-fifth of the outstanding balance of Loans and (B) on and after the
Revolving Termination Date, current maturities of long term debt reflected on
Parent’s consolidated balance sheet, excluding 2/3 of the final principal
installment due on the Termination Date

   $                           

(iii)  Aggregate amount of Capital Expenditures for last four Fiscal Quarters

   $                           

(iv)   Payments made pursuant to Capital Lease Obligations for last four Fiscal
Quarters

   $                           

(v)    Sum of 12(l)(i) through (iv)

   $                           

(m)   Actual Fixed Charge Coverage (12(k) : 12(l)(v))=

             :1.00          

(n)    Minimum Fixed Charge Coverage

     1.20:1.00    Yes    No

13.    SECTION 11.4 – Indebtedness to Adjusted EBITDA

                

(a)    Indebtedness (from 11(e))

   $                           

(b)    Actual EBITDA (from 12(f))

   $                           

(c)    Goodwill Impairment (from 12(j))

   $                           

(d)    Prior Period/Prior Target EBITDA; provided that, (i) the EBITDA for a
Prior Target will not be included unless it can be established in a manner
satisfactory to Agent based on financial statements of the Prior Target prepared
in accordance with GAAP without adjustment for expense or other charges that
will be eliminated after the acquisition; and (ii) if such Prior Target has
become a Restricted Subsidiary, then in calculating its pro forma EBITDA, any
income which could not be distributed to its parent as a result of restrictions
arising under governing documents, agreement, applicable law or otherwise shall
not be included

   $                           

(e)    Adjusted EBITDA (13(b) plus 13(c) plus 13(d))

   $                           

(f)     13(a) : 13(e)

             :1.00          

(g)    Maximum Indebtedness to Adjusted EBITDA allowed by Credit Agreement

     2.50:1.00    Yes    No

14.    SECTION 11.6 – Managed Care Contracts

                

(a)    Gross revenue during the immediately preceding 12 month period from
contracts providing exclusively for managed care

   $                           

(b)    Gross revenue during the immediately preceding 12 month period from the
managed care portions of contracts providing for EAS and managed care

   $                           

(c)    Total Managed Care Gross Revenue (14(a) plus (14(b))

   $                           

 

Compliance Certificate, Page 5

--------------------------------------------------------------------------------

(d)    Total Gross Revenue during such 12 month period

   $                          

(e)    35% of 14(d)

   $                          

(f)     Maximum Permitted Gross Revenue from Managed Care Contracts

     14(c) > 14(e)   Yes    No

15.    ATTACHED SCHEDULES

    

Attached hereto as schedules are the calculations supporting the computation set
forth above in this Certificate. All information contained herein and on the
attached schedules is true and correct.

16.    FINANCIAL STATEMENTS

    

The unaudited financial statements attached hereto were prepared in accordance
with GAAP (excluding footnotes) and fairly present (subject to year end audit
adjustments) the financial conditions and the results of the operations of the
Persons reflected thereon, at the date and for the periods indicated therein.

17.    CONFLICT

    

In the event of any conflict between the definitions or covenants contained in
the Credit Agreement and as they may be interpreted or abbreviated in the
Compliance Certificate, the Credit Agreement shall control.

 

IN WITNESS WHEREOF, the undersigned has executed this Certificate effective this
             day of                 ,             .

 

HORIZON HEALTH CORPORATION

By:

 

 

--------------------------------------------------------------------------------

Name:

 

 

--------------------------------------------------------------------------------

Title:

 

 

--------------------------------------------------------------------------------

 

Compliance Certificate, Page 6

--------------------------------------------------------------------------------

Schedule 1

to

Compliance Certificate

 

Parent Consolidated Net Income

for period                      to                     

 

1.      GAAP for Parent (the “Subject Person”) excluding the following
consolidated net income

   $                      

(a)    extraordinary gains or losses or nonrecurring revenue or expenses

                          

(b)    gains on sale of securities

                          

(c)    losses on sale of securities

                          

(d)    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;

                          

(e)    any gains or losses realized upon the sale or other disposition of
property, plant, equipment or intangible assets which is not sold or otherwise
disposed of in the ordinary course of business;

                          

(f)     any gains or losses from the disposal of a discontinued business;

                          

(g)    any net gains or losses arising from the extinguishment of any debt;

                          

(h)    any restoration to income of any contingency reserve for long term asset
or long term liabilities, except to the extent that provision for such reserve
was made out of income accrued during such period;

                          

(i)     the cumulative effect of any change in an accounting principle on income
of prior periods;

                          

(j)     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;

                          

(k)    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;

                          

(l)     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;

                          

 

Schedule 1 to Compliance Certificate, Page 1

--------------------------------------------------------------------------------

(m)   the income (or loss) of any Restricted Subsidiary; provided, however, that
(i) Consolidated Net Income shall include amounts in respect of the income of
such Restricted Subsidiary when actually received in cash by the Parent 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 Parent or any of its Subsidiaries in such Restricted
Subsidiaries for the purpose of funding any deficit or loss of such Restricted
Subsidiary;

                          

(n)    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;

                          

(o)    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;

                          

(p)    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;

                          

(q)    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;

                          

(r)     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

                          

(s)    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.

           

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

TOTAL:

   $                           

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

Schedule 1 to Compliance Certificate, Page 2

--------------------------------------------------------------------------------

SCHEDULE 8.14

TO

HORIZON HEALTH CORPORATION

SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

 

List of Subsidiaries

 

I. FIRST TIER SUBSIDIARIES

Subsidiary

--------------------------------------------------------------------------------

   Parent

--------------------------------------------------------------------------------

  

%

Ownership

--------------------------------------------------------------------------------

  Type

--------------------------------------------------------------------------------

   Jurisdiction

--------------------------------------------------------------------------------

   Type

--------------------------------------------------------------------------------

   Equity
Authorized

--------------------------------------------------------------------------------

   Equity Issued
and Outstanding

--------------------------------------------------------------------------------

1.      Specialty Rehab Management, Inc.

   Parent    100%   Corporation    Delaware    Common stock
$ .01 par value    10,000    9,494

2.      Horizon Mental Health Management, Inc. (“Borrower”)

   Parent    100%   Corporation    Texas    Common stock
$.01 par value    1,000    1,000

3.      Horizon Behavioral Services, Inc. (“HBS”)

   Parent    100%   Corporation    Delaware    Common stock
$.01 par value    1,000    1,000

4.      ProCare One Nurses, LLC

   Parent    100%   Limited
liability
company    Delaware    Membership
Interest    N/A    N/A SECOND TIER SUBSIDIARIES

5.      HHMC Partners, Inc. (“HHMC”)

   Borrower    100%   Corporation    Delaware    Common stock
$.10 par value    10,000    1,000

6.      Mental Health Outcomes, Inc.

   Borrower    100%   Corporation    Delaware    Common stock
$.01 par value    10,000    1,000

 

Schedule 8.14, Page 1

--------------------------------------------------------------------------------

Subsidiary

--------------------------------------------------------------------------------

   Parent

--------------------------------------------------------------------------------

  

%

Ownership

--------------------------------------------------------------------------------

  Type

--------------------------------------------------------------------------------

   Jurisdiction

--------------------------------------------------------------------------------

   Type

--------------------------------------------------------------------------------

   Equity
Authorized

--------------------------------------------------------------------------------

   Equity Issued
and Outstanding

--------------------------------------------------------------------------------

7.      HMHM of Tennessee, Inc.

   Borrower    100%   Corporation    Tennessee    Common stock
$.01 par value    10,000    1,000

8.      FPMBH of Texas, Inc. (“Texas”)

   HBS    100%   Corporation    Delaware    Common stock
$.01 par value    1,000    1,000

9.      Florida Psychiatric Associates, LLC

   HBS    100%   Limited
liability
company    Florida    Membership
Interest    N/A    N/A

10.    Horizon Behavioral Services of California, Inc.

   HBS    100%   Corporation    California    N/A    10,000    1,000

11.    Occupational Health Consultants of America, LLC (“OHCA”)

   HBS    100%   Limited
liability
company    Tennessee    Membership
Interest    N/A    N/A

12.    Horizon Behavioral Services IPA, Inc.

   HBS    100%   Corporation    New
York    Common stock
$.01 par value    200    100

13.    Horizon Behavioral Services of New Jersey, Inc.

   HBS    100%   Corporation    New
Jersey    Common stock
$.01 par value    10,000    1,000

14.    Horizon Behavioral Services of New York, Inc.

   HBS    100%   Corporation    New
York    Common stock
$.01 par value    200    100

15.    HHC Indiana, Inc.

   Borrower    100%   Corporation    Indiana    Common stock
$1.00 par value    1,000    1,000

 

Schedule 8.14, Page 2

--------------------------------------------------------------------------------

Subsidiary

--------------------------------------------------------------------------------

   Parent

--------------------------------------------------------------------------------

   %
Ownership

--------------------------------------------------------------------------------

  Type

--------------------------------------------------------------------------------

   Jurisdiction

--------------------------------------------------------------------------------

   Type

--------------------------------------------------------------------------------

   Equity
Authorized

--------------------------------------------------------------------------------

   Equity
Issued and
Outstanding

--------------------------------------------------------------------------------

16.    HHC Poplar Springs, Inc.

   Borrower    100%   Corporation    Virginia    Common stock
$1.00 par value    1,000    1,000

17.    Horizon Behavioral Services of Florida, LLC

   HBS    100%   Limited
liability
company    Florida    Membership
Interest    N/A    N/A

18.    Health and Human Resource Center, Inc. d/b/a Integrated Insights

   HBS    100%   Corporation    California    Common stock    10,000    1,000

19.    Employee Assistance Programs International, LLC

   HBS    100%   Limited
liability
company    Colorado    Membership
Interest    N/A    NA II. THIRD TIER SUBSIDIARIES

20.    FPM Behavioral Health Services, Inc.

   Texas    100%   Non-Profit
Corporation    Delaware    Membership
Interest    None    None

21.    AHG Partnership

   HHMC      60%   General
Partnership    Texas    General partner
Interest    N/A    N/A

22.    Employee Assistance Services, Inc.

   OHCA    100%   Corporation    Kentucky    Common
No par value    2,000    100

 

The organizational structure of Parent and the Subsidiaries can be graphically
depicted as reflected on Schedule 8.14A.

 

Schedule 8.14, Page 3

--------------------------------------------------------------------------------

SCHEDULE 8.14A

TO

HORIZON HEALTH CORPORATION

SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

Organizational Chart

As of April 19, 2004

 

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