Exhibit 10.1

 

CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT

 

THIS CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
(the ”Amendment”), dated effective as of November 14, 2005 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, N.A. (formerly
known as JPMorgan Chase Bank, who was 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 Third Amended and Restated Credit
Agreement dated as of June 10, 2005 (as the same may be further amended or
otherwise modified, herein the “Agreement”).

 

B. On August 1, 2005, HHC River Park, Inc. and PsychManagement Group, LLC joined
the Agreement as Obligated Parties.

 

C. On or about August 19, 2005, Employee Assistance Programs International, LLC,
Florida Psychiatric Associates, LLC, Horizon Behavioral Services of Florida,
LLC, and Occupational Health Consultants of America, Inc. merged with and into
Horizon Behavioral Services, Inc.

 

D. The Borrower and the other Obligated Parties have advised the Agent and the
Banks that the Borrower desires to purchase certain of the assets of Focus
Healthcare, LLC, Lighthouse Care Centers, LLC, and related entities through
existing Obligated Parties or Subsidiaries of the Parent who will become
Obligated Parties (the “Focus Acquisition”). The total consideration to be paid
by the Obligated Parties in connection with the Focus Acquisition shall not
exceed $100,000,000.

 

E. On September 14, 2005, Parent formed a new Subsidiary, HHC Services, LLC, a
Texas limited liability company (“HHC Services”), to acquire an ownership
interest in an aircraft. On September 30, 2005, HHC Services entered into that
Purchase & Interim Lease Agreement with CitationShares Sales, Inc. pursuant to
which HHC Services acquired an ownership interest in an aircraft. In accordance
with the Agreement, the Borrower and the other Obligated Parties have requested
that the Required Banks consent to:

 

1) HHC Services executing and delivering a Subsidiary Joinder Agreement and
granting the Agent a Lien on certain of its assets on or before December 15,
2005 which is later than the deadline specified for such joinder in
Section 8.10(b) of the Agreement;

 

2) HHC Services not pledging its ownership interest in any aircraft, now owned
or hereafter acquired, which HHC Services does not wholly-own, as required by
Section 8.10(b) of the Agreement and the Subsidiary Security Agreement; and

 

3) Parent pledging its membership interest in HHC Services on or before
December 15, 2005 which is later than the deadline specified for such pledge in
Section 8.10(c) of the Agreement.

 

The specifically described provisions of the Agreement described in this
paragraph, are herein referred to as the “Applicable Covenants.”

 

CONSENT AND FIRST AMENDMENT TO

THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 1

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F. The Parent and the Borrower have requested that the Agent and the Banks amend
certain provisions of the Agreement and consent to the departure from the
Applicable Covenants. 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.

 

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 proper alphabetical
order, thereto:

 

“Focus Acquisition” means the purchase of certain assets of Focus Healthcare,
LLC, Lighthouse Care Centers, LLC, and related entities through existing
Obligated Parties or Subsidiaries of the Parent who will become Obligated
Parties pursuant to Section 8.10(b) for an aggregate purchase price not to
exceed $100,000,000.

 

Section 2.2. Amendment to Section 3.2 – Determinations of Margins and Fees. The
table set forth in Section 3.2 of the Agreement is amended in its entirety to
read as follows:

 

Indebtedness to Adjusted

EBITDA Ratio

  Eurodollar Rate        
Margin           Base        
Margin           Commitment Fee        
Rate         Less than 1.25 to 1.00   1.25%     .25%   .200% Greater than or
equal to 1.25 to 1.00 but less than 1.75 to 1.00   1.50%     .50%   .250%
Greater than or equal to 1.75 to 1.00 but less than 2.25 to 1.00   1.75%  
  .75%   .300% Greater than or equal to 2.25 but less than 2.75 to 1.00   2.00%
  1.00%   .375% Greater than or equal to 2.75 to 1.00 but less than 3.00 to 1.00
  2.25%   1.25%   .500% Greater than or equal to 3.00 to 1.00   2.50%   1.50%  
.500%

 

Section 2.3. Amendment to Section 9.1 – Debt. Clause (h) of Section 9.1 of the
Agreement is amended in its entirety to read as follows:

 

(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
Parent or any of the Subsidiaries), but only to the extent that such Debt was
not incurred in

 

CONSENT AND FIRST AMENDMENT TO

THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 2

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connection with, as a result of or in contemplation of such Person becoming a
Subsidiary (or being merged into or consolidated with Parent or any Subsidiary);
provided, however, that (i) in no event shall the aggregate amount of such Debt
outstanding at any time that is Capital Lease Obligations exceed Ten Million
Dollars ($10,000,000); (ii) in no event shall the aggregate amount of such Debt
outstanding at any time that is not (A) Capital Lease Obligations or (B) Debt
assumed in connection with the Focus Acquisition exceed Five Million Dollars
($5,000,000); and (iii) immediately after such acquired Person becomes a
Subsidiary (or is merged into or consolidated with Parent or any Subsidiary), no
Default exists;

 

Section 2.4. Amendment to Section 9.5 – Investments. Subclauses (ii) and
(iii) of Section 9.5(a) of the Agreement are amended in their respective
entireties to read as follows:

 

(ii) Indebtedness to Adjusted EBITDA. The ratio of Indebtedness outstanding as
of the date of determination (which shall not be more than thirty (30) days
prior to the acquisition date) to Adjusted EBITDA (as defined in Section 10.3)
for the most recent four (4) Fiscal Quarter period then ended as of such date is
less than the lesser of (A) the Indebtedness to Adjusted EBITDA Ratio then in
effect under Section 10.3 reduced by 0.25 and (B) an Indebtedness to Adjusted
EBITDA Ratio of 3.00 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;

 

(iii) Purchase Price. The ratio of Indebtedness outstanding as of the date of
determination (which shall not be more than thirty (30) days prior to the
acquisition date) to Adjusted EBITDA (as defined in Section 10.3) for the most
recent four (4) Fiscal Quarter period then ended as of such date 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 is: (A) less than or equal
to 2.00 to 1.00; or (B) is more than 2.00 to 1.00 but less than the Indebtedness
to Adjusted EBITDA Ratio then in effect under Section 10.3 reduced by 0.25, and
(1) the Required Banks shall have provided their prior approval, (2) the
proposed acquisition is the Focus Acquisition, or (3) after giving effect to
such acquisition, the aggregate of the Purchase Prices for all Permitted
Acquisitions (other than the Focus Acquisition) that have occurred during the
then current Fiscal Year (including the Purchase Price for the acquisition in
question) is less than Twenty-Five Million Dollars ($25,000,000) (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 (iii)) 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);

 

CONSENT AND FIRST AMENDMENT TO

THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 3

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Section 2.5. Amendment to Section 10.2 – Fixed Charge Coverage. Clause (s) of
the definition of “Consolidated Net Income” contained in Section 10.2 of the
Agreement is amended in its entirety to read as follows:

 

(s) the one time loss related to the reorganization of certain employees,
locations and services of Employee Assistance Programs International, LLC in an
amount not to exceed $5,700,000;

 

Section 2.6. Amendment to Section 10.3 – Indebtedness to Adjusted EBITDA. The
first sentence of Section 10.3 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 Adjusted EBITDA for the four
(4) Fiscal Quarter period then ended to exceed: (a) 3.00 to 1.00 for the Fiscal
Quarter ended November 30, 2005; (b) 3.50 to 1.00 for the Fiscal Quarter ended
February 28, 2006; (c) 3.25 to 1.00 for the Fiscal Quarter ended May 31, 2006;
and (d) 3.00 to 1.00 for the Fiscal Quarter ended August 31, 2006 and all Fiscal
Quarters thereafter.

 

Section 2.7. 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.

 

ARTICLE III.

 

Consent

 

Section 3.1. Consent. Subject to the satisfaction of the conditions precedent
described in Article IV hereof, each of the undersigned Banks consent to the
Obligated Parties’ departure from the Applicable Covenants as specifically
described above for purposes described herein and agree that such departure will
not result in an Event of Default under the Agreement.

 

Section 3.2. Limitations on Consent. The consent set forth herein shall not be
deemed a consent to the departure from or waiver of (a) the Applicable Covenants
for any purpose other than as described herein, (b) any other covenant or
condition in any Loan Document or (c) any Event of Default that otherwise may
arise as a result of the formation of HHC Services and its acquisition of
aircraft. The failure to comply with the Applicable Covenants for any other
purpose at any other time shall constitute an Event of Default.

 

Section 3.3. Joinder of HHC Services; Pledge by Parent. To induce the Banks to
agree to the terms of Section 3.1, the Parent, on or before December 15, 2005,
shall (a) cause HHC Services to execute and deliver a Subsidiary Joinder
Agreement and such other documentation as the Agent may request to evidence,
perfect, or otherwise implement the guaranty and security for repayment of the
Obligations contemplated by a Guaranty and the Subsidiary Security Agreement;
provided, however, in accordance with the terms hereof, HHC Services will not be
required to pledge its ownership interest in any aircraft, now owned or
hereafter acquired, that is not wholly-owned by HHC Services, and (b) execute
and deliver to Agent an amendment to the Parent’s Pledge Agreement describing as
collateral thereunder the membership interests in HHC Services.

 

ARTICLE IV.

 

Conditions Precedent

 

Section 4.1. Conditions. The effectiveness of Article II and Article III of this
Amendment is subject to the satisfaction of the following conditions precedent:

 

CONSENT AND FIRST AMENDMENT TO

THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 4

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(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. This Amendment duly executed by the Borrower, the other Obligated
Parties and the Required Banks; 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 V.

 

Miscellaneous

 

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 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 5.2. 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 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:

 

CONSENT AND FIRST AMENDMENT TO

THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 5

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(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 5.3. 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 5.4. 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 5.5. 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 5.6. 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 5.7. 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 5.8. 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 5.9. 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 5.10. 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.

 

CONSENT AND FIRST AMENDMENT TO

THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 6

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Section 5.11. Headings. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.

 

Section 5.12. ENTIRE AGREEMENT. THIS AMENDMENT EMBODIES THE FINAL, ENTIRE
AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES 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.

 

Section 5.13. Required Banks. The Agreement and the Consent Letter may be
modified as provided in this Amendment with the agreement of the Required Banks
which means Banks having fifty—one percent (51%) or more of the sum of the total
Revolving Commitments (such percentage applicable to a Bank, herein such Bank’s
“Required Bank Percentage”). For purposes of determining the effectiveness of
this Amendment, each Bank’s Required Bank Percentage is set forth on
Schedule 5.13 hereto.

 

Executed as of the date first written above.

 

PARENT AND BORROWER:

HORIZON HEALTH CORPORATION

HORIZON MENTAL HEALTH MANAGEMENT, INC.

By:  

/s/ David K. Meyercord

Name:  

David K. Meyercord

    Authorized Officer for both Parent and Borrower

 

AGENT AND BANKS:

JPMORGAN CHASE BANK, N.A. (formerly known as JPMorgan Chase Bank, who was
formerly 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/ Denise Parks

Name:  

Denise Parks

Title:  

Senior Vice President

 

CONSENT AND FIRST AMENDMENT TO

THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 7

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BANK OF AMERICA, NATIONAL ASSOCIATION By:   /s/ Daniel Penkar Name:   Daniel
Penkar Title:   Senior Vice President

 

 

WELLS FARGO BANK, N.A. (formerly Wells Fargo Bank Texas, National Association)
By:  

/s/ Linda G. Davis

Name:  

Linda G. Davis

Title:  

Vice President

 

 

KEYBANK NATIONAL ASSOCIATION

By:  

/s/ Joanne Beamanti

Name:  

Joanne Beamanti

Title:  

Senior Vice President

 

 

WACHOVIA BANK, NATIONAL ASSOCIATION

By:  

/s/ Gideon Oosthuizen

Name:  

Gideon Oosthuizen

Title:  

Vice President

 

 

AMEGY BANK, N.A.

By:  

/s/ Lisa Armstrong

Name:  

Lisa Armstrong

Title:  

Vice President

 

CONSENT AND FIRST AMENDMENT TO

THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 8

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OBLIGATED PARTY CONSENT

 

Each Obligated Party (i) consents and agrees to this First Amendment to Third
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.

HORIZON HEALTH PHYSICAL REHABILITATION SERVICES, INC. (formerly Specialty Rehab
Management, Inc.)

HHMC PARTNERS, INC.

HORIZON BEHAVIORAL SERVICES, INC.

(successor in interest by merger to Horizon Behavioral Services IPA, Inc.,
Horizon Behavioral Services of New Jersey, Inc., Horizon Behavioral Services of
New York, Inc., Horizon Behavioral Services of California, Inc., Employee
Assistance Programs International, LLC, Florida Psychiatric Associates, LLC,
Horizon Behavioral Services of Florida, LLC, and Occupational Health Consultants
of America, Inc.)

HMHM OF TENNESSEE, INC.

EMPLOYEE ASSISTANCE SERVICES, INC.

HHC INDIANA, INC.

HHC OHIO, INC.

HHC POPLAR SPRINGS, INC.

HHC RIVER PARK, INC.

PSYCHMANAGEMENT GROUP, INC.

By:  

/s/ David K. Meyercord

Name:  

     David K. Meyercord

   

Authorized Officer for each Obligated Party

 

 

 

 

 

CONSENT AND FIRST AMENDMENT TO

THIRD AMENDED AND RESTATED CREDIT AGREEMENT, Page 9

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EXHIBIT A

TO

HORIZON HEALTH CORPORATION

FIRST AMENDMENT TO THIRD 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, N.A.

     P.O. Box 660197

     Dallas, Texas 75266-0197

     Fax No.: (972) 888-7837

     Telephone No.: (972) 888-7802

     Attention: Brian McDougal

 

Ladies and Gentlemen:

 

This Compliance Certificate (the “Certificate”) is being delivered pursuant to
Section 8.1(c) of that certain Third Amended and Restated Credit Agreement (as
amended, the “Agreement”) dated as of June 10, 2005, 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, N.A., 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 8.1 – 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 8.10(d) – Restricted Group Members

                           

EBITDA for the Restricted Group Members for the most recently completed four
Fiscal Quarter period not to exceed 12.5% of line 9(f) (such percentage may
increase to 15% or 20% depending on the Borrower’s election to amend
Section 10.3):

   $                                      

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

   $                       Yes      No       

4.      SECTION 9.1 – Debt

             

(a)    Purchase money not to exceed:

   $ 5,000,000      Yes      No       

Actual Outstanding:

   $                                      

 

COMPLIANCE CERTIFICATE, Page 1

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(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:

                         

Capital Lease Obligations

   $ 10,000,000                   

Actual Outstanding:

   $                       Yes      No     

Other Debt:

   $ 5,000,000                   

Actual Outstanding:

   $                       Yes      No     

(d)    Debt owing from Restricted Group Members plus Investments in Restricted
Group Members may not exceed 20% of line 8(f)

   $                                    

Actual Outstanding:

   $                       Yes      No     

(e)    Other Debt not to exceed:

   $ 5,000,000                   

Actual Outstanding:

   $                       Yes      No     

5.      SECTION 9.5 – 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 Insights in addition to the Purchase
Price paid for Insights not to exceed:

   $ 1,000,000                   

Actual Aggregate Amount:

   $                       Yes      No     

(c)    Aggregate amount of initial capital contribution made to Friends LP not
to exceed without being included in line 4(d)

   $ 17,500,000                   

Actual Aggregate Amount:

   $                       Yes      No     

6.      SECTION 9.8 – Asset Dispositions

                         

(a)    Aggregate book value of assets disposed during current Fiscal Year not to
exceed:

   $ 2,500,000                   

(b)    Total book value of asset dispositions not otherwise permitted for the
current Fiscal Year:

   $                       Yes      No     

7.      SECTION 9.11 – Prepayment of Debt

                         

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

   $ 2,500,000                   

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

   $                       Yes      No     

8.      SECTION 10.1 – Consolidated Net Worth

                         

(a)    Base Consolidated Net Worth

   $                                    

(b)    Cumulative positive Net Income since 2/28/05 Fiscal Quarter end

   $                                    

 

COMPLIANCE CERTIFICATE, Page 2

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(c)    50% of 8(b)

   $                                    

(d)    Aggregate amount of net cash proceeds or other Capital Contribution to
Parent since 2/28/05

   $                                    

(e)    Required Consolidated Net Worth:

8(a) plus 9(c) plus 8(d)

   $                                    

(f)     Actual Consolidated Net Worth

   $                       Yes      No     

9.      Section 10.2 – 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:

(9(a) plus 9(b) minus 9(c) plus 9(d) plus 9(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)     Cash Flow

(10(g)  plus 9(h) minus 9(g) minus 9(i))

   $                                    

(k)    Fixed Charges

                         

(i)     Cash interest expense for last four Fiscal Quarters

   $                                    

(ii)    as of each date of determination, the current maturities of long term
debt reflected on Parent’s consolidated balance sheet

   $                                    

(iii)  4/5 of the outstanding Loans (excluded beginning August 31, 2009 and each
Fiscal Quarter thereafter)

   $                                    

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

   $                                    

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

   $                                    

(vi)   Payments made with respect to deferred purchase price and performance
obligations for last four Fiscal Quarters

   $                                    

(vi)   Sum of 9(k)(i)+(ii)-(iii)+(iv)+(v)+(vi)

   $                                    

(l)     Actual Fixed Charge Coverage (9(j) : 9(k)(vi))=

                 :1.00                   

(m)   Minimum Fixed Charge Coverage

     1.25:1.00      Yes      No     

10.    SECTION 10.3 – Indebtedness to Adjusted EBITDA

                         

(a)    Debt for borrowed money

   $                                    

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

   $                                    

(c)    Capital Lease Obligations

   $                                    

(d)    Reimbursement obligations for letters of credit

   $                                    

 

COMPLIANCE CERTIFICATE, Page 3

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(e)    Amount payable with respect to all deferred purchase price and
performance obligations

   $                                  

(f)     Sum of 10(a) through 10(e)

   $                                  

(g)    Actual EBITDA (from 9(f))

   $                                  

(h)    Prior Period/Prior Target EBITDA; provided that, 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;

   $                                  

(i)     Adjusted EBITDA (10(g) plus 10(h))

   $                                  

(j)     10(f) : 10(i)

                 :1.00                 

(k)    Maximum Indebtedness to Adjusted EBITDA allowed by Credit Agreement (see
table below; ratio may decrease to 2.75:1.00 or 2.50:1:00 depending on the
Borrower’s election under Section 8.10(d)):

          Yes      No                               

    Fiscal Quarter ended November 30, 2005

   3.00 to 1.00                 

    Fiscal Quarter ended February 28, 2006

   3.50 to 1.00                 

    Fiscal Quarter ended May 31, 2006

   3.25 to 1.00                 

    Fiscal Quarter ended August 31, 2006 and thereafter

   3.00 to 1.00                 

11.    SECTION 10.4 – 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 employee assistance services
and managed care

             $                                  

(c)    Total Managed Care Gross Revenue (11(a) plus (11(b))

             $                                  

(d)    Total Gross Revenue during such 12 month period

             $                                  

(e)    25% of 11(d)

             $                                  

(f)     Maximum Permitted Gross Revenue from Managed Care Contracts

              
  11(c) >
11(e)    Yes      No     

 

COMPLIANCE CERTIFICATE, Page 4

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13.    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.

14.    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.

15.    CREATION OF SUBSIDIARIES.

Since the delivery of the last Compliance Certificate, the Obligated Parties
have created the following Subsidiaries each of which has been designated as an
Acquisition Subsidiary, a Restricted Group Member or both.

 

16.    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:

 

 

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Name:

 

 

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Title:

 

 

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COMPLIANCE CERTIFICATE, Page 5

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Schedule 1

to

Compliance Certificate

 

Parent Consolidated Net Income

for period                              to                             

 

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

   $                              

(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;

                                    

(m)   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;

                                    

(n)    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;

                                    

(o)    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;

                                    

 

Schedule 1 to Compliance Certificate, Page 1

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(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;

                               

(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;

                                                                 

(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;

                                                                 

(r)     One–time loss relating to reorganization of certain employees, locations
and services of Employee Assistance Programs International, LLC in an amount not
to exceed $5,700,000; and

                               

(s)    any non-cash expense attributable to the expensing of stock option
programs of such Person; provided, however, that Consolidated Net Income shall
be reduced by the aggregate amount of cash payments made by such Person during
any period for the purpose of funding any such expense.

                               

TOTAL:

   $                          

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Schedule 1 to Compliance Certificate, Page 2

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SCHEDULE 5.13

TO

HORIZON HEALTH CORPORATION

CONSENT AND FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT

AGREEMENT

 

Required Banks

 

Bank  

Required Bank    

Percentage    

 

Banks Agreeing to Consent        

and First Amendment (insert        

    % from prior column if Bank        

signs Amendment then total        

% in this column)        

1.      JPMorgan Chase Bank, N.A.

    20.00%    

2.      Bank of America, National Association

    20.00%    

3.      Wells Fargo Bank, N.A.

    20.00%    

4.      KeyBank National Association

    20.00%    

5.      Wachovia Bank, National Association

    12.00%    

6.      Amegy Bank, National Association

      8.00%    

Total

  100.00%    

 

Schedule 4.13, Solo Page