As of June 1, 1999
Health Fitness Corporation
0000 Xxxx 00xx Xxxxxx, Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Re: Sale of Assets of Health Fitness Corporation
Ladies and Gentlemen:
Ableco Finance LLC, The Long Horizons Overseas Fund, Ltd., Styx
Partners, L.P. and Styx International, Ltd., as direct or indirect assignees of
Xxxxxxxxx X.X.X. (individually and collectively, "Lender") and Health Fitness
Corporation ("Borrower") have entered into certain financing arrangements as set
forth in the Loan and Security Agreement, dated February 17, 1998 by and among
Lender, Borrower and Health Fitness Rehab, Inc., The Preferred Companies, Inc.,
Health Fitness Rehab of Iowa, Inc., Xxxxx & Associates Physical Therapy Services
Corp., Medlink Corporation, Medlink Services, Inc., Fitness Centers of America,
Sports & Orthopedic Physical Therapy, Inc., Midlands Physical Therapy, Inc. and
International Fitness Club Network, Inc. (collectively, "Guarantors"), as
amended pursuant to Amendment No. 1 to Loan and Security Agreement, dated
February 28, 1998, by and among Lender, Borrower and Guarantors, Amendment No. 2
to Loan and Security Agreement, dated June 4, 1998, by and among Lender,
Borrower and Guarantors, Amendment No. 3 to Loan and Security Agreement, dated
June 26, 1998, by and among Xxxxxx, Xxxxxxxx and Guarantors, Amendment No. 4 to
Loan and Security Agreement, dated September 10, 1998, by and among Lender,
Xxxxxxxx and Guarantors, Amendment No. 5 to Loan and Security Agreement, dated
November 2, 1998, by and among Xxxxxx, Borrower and Guarantors, Amendment No. 6
to Loan and Security Agreement, dated January 8, 1999, by and among Xxxxxx,
Xxxxxxxx and Guarantors ("Amendment No. 6"), Amendment No. 7 to Loan and
Security Agreement, dated February 26, 1999, by and among Lender, Borrower and
Guarantors, Amendment No. 8 to Loan and Security Agreement, dated as of March
12, 1999, by and among Xxxxxx, Xxxxxxxx and Guarantors, Consent and Amendment
No. 9 to Loan and Security Agreement, dated as of May 10, 1999, by and among
Xxxxxx, Borrower and Guarantors and Consent and Amendment No. 10 to Loan and
Security Agreement, dated May 24, 1999, by and among Lender, Borrower and
Guarantors (and together with all supplements thereto and as the same may
hereafter be further amended, modified, supplemented, extended, renewed,
restated or replaced, the "Loan Agreement") and other agreements, documents and
instruments referred to therein or at any time executed and/or delivered in
connection therewith or related thereto, including this letter agreement (all of
the foregoing, together with the Loan Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, being collectively referred to herein as the "Financing Agreements").
Borrower and Xxxxxx Fitness Services, Inc. ("Purchaser") have entered
into an agreement pursuant to which Borrower has agreed to sell substantially
all of Borrower's assets used specifically and directly by or in Borrower's
ProSource division located at 0000 - 00xx Xxxxxx Xxxx, Xx. Xxxxx Xxxx, Xxxxxxxxx
00000 (collectively, the "Sale Assets") as set forth in the Asset Purchase
Agreement, dated as of May 25, 1999, between Borrower and Purchaser, as amended
by an Amendment to Purchase Agreement, dated May 28, 1999, a Second Amendment to
Purchase Agreement, dated July 1, 1999 and a Letter of Clarification between
Purchaser and Borrower (collectively, the "Sale Contract Amendment"), between
Borrower and Purchaser (as amended by the Sale Contract Amendment, the "Sale
Contract").
Borrower and Guarantors have requested that Lender amend Amendment No.
10 to Loan and Security Agreement, dated May 24, 1999, by and among Xxxxxx,
Borrower and Guarantors (as amended hereby, "Amendment No. 10") and the other
Financing Agreements in certain respects and Lender is willing to make such
amendments, subject to the terms and conditions set forth herein.
In consideration of the foregoing, and other good and valuable
consideration, the parties hereto agree as follows:
1. Application of Sale Proceeds. Xxxxxx has received $20,000 from
Borrower on June 1, 1999 as the proceeds of the consideration paid by Purchaser
pursuant to the Sale Contract Amendment, which Xxxxxx has applied to the
Obligations. Notwithstanding anything to the contrary contained in Amendment No.
10, on the date of the consummation of the sale of the Sale Assets to Purchaser
pursuant to the Sale Contract, Lender shall receive from Borrower, in cash or
other immediately available funds, not less than an additional $60,000 as the
unpaid proceeds from the sale of the Sale Assets pursuant to the Sale Contract
for application to Obligations in such order and manner as Lender shall
determine.
2. Reduction in Borrowing Base.
(a) Section 1.8(a)(i) of the Loan Agreement is hereby deleted in
its entirety and the following substituted therefor:
"(i) $4,830,000, as reduced: (A) on Monday of each week,
commencing Monday, May 31, 1999, by an amount equal to
twenty-five (25%) percent of the amounts received by Borrower or
any Guarantor during the seven (7) day period immediately
preceding each such Monday in payment or otherwise in respect of
Accounts of Borrower, Health Fitness Rehab of Iowa, Inc., Xxxxx &
Associates Physical Therapy Corp., Sports & Orthopedic Therapy,
Inc. or Midlands Physical Therapy, Inc. arising out of or
resulting from the rehabilitation and therapy business of
Borrower, Health Fitness Rehab of Iowa, Inc., Xxxxx & Associates
Physical Therapy Corp., Sports & Orthopedic Therapy, Inc. and
Midlands Physical Therapy, Inc. (sold to HealthSouth Corporation
pursuant to the Agreement to Purchase Assets, dated on or before
May 15, 1999 among Borrower, Health Fitness Rehab of Iowa, Inc.,
Xxxxx & Associates Physical Therapy Corp., Sports & Orthopedic
Therapy, Inc., Midlands Physical Therapy, Inc. and HEALTHSOUTH
Corporation); (B) on the twenty-first day of each month,
commencing on July 21, 1999, by an amount equal to twenty-five
(25%) percent of the amounts received by Borrower or any
Guarantor during the four week period immediately preceding such
date in payment or otherwise in respect of Accounts of Borrower
arising out of or resulting from the business of the "ProSource"
division of Borrower (sold to Xxxxxx Fitness Services, Inc.
pursuant to the Asset Purchase Agreement dated as of May 25, 1999
between Borrower and Xxxxxx Fitness Services, Inc.); (C) on
Monday of each week, commencing on Monday, June 7, 1999, by an
amount equal to forty (40%) percent of the amounts received by
Borrower or any Guarantor during the seven (7) day period
immediately preceding such Monday in payment or otherwise in
respect of (I) the sale of Inventory of the "ProSource" division
of Borrower prior to the date of the consummation of the sale of
the "ProSource" division to Xxxxxx Fitness Services, Inc.
(including, without limitation, proceeds in respect of Accounts
arising from any sale of such Inventory) and (II) the sale of
equipment of Xxxxxx Fitness Services, Inc. to customers of
Borrower's ProSource division pursuant to the terms of Section
2(c) of the Amendment to Purchase Agreement, dated May 28, 1999,
between Borrower and Xxxxxx Fitness Services, Inc.; (D) upon the
consummation of the sale of the "ProSource" division to Xxxxxx
Fitness Services, Inc. pursuant to the Asset Purchase Agreement,
dated as of May 25, 1999, between Borrower and Xxxxxx Fitness
Services, Inc., as amended by the Amendment to Purchase
Agreement, dated May 28, 1999, between Borrower and Xxxxxx
Fitness Services, Inc., the Second Amendment to Purchase
Agreement, dated July 1, 1999, between Borrower and Xxxxxx
Fitness Services, Inc. and a Clarification Letter between
Borrower and Xxxxxx Fitness Services, Inc. (as amended, the
"ProSource Purchase Agreement"), by an amount equal to $60,000;
and (E) on or before the date that is seven (7) days after the
date of the consummation of the sale of the "ProSource" division
to Xxxxxx Fitness Services, Inc. pursuant to the ProSource
Purchase Agreement, by an amount equal to $10,000 minus the
amount described in Section 1.8(a)(i)(C) hereof, or"
(b) Section 3(a) of Amendment No. 6 is hereby amended by deleting
the proviso thereto in its entirety, and substituting the following therefor:
"provided, that, the aggregate amount of Loans up to the
amount of the Borrowing Base plus the Supplemental Loans
outstanding at any time shall not exceed the amount equal to
$4,830,000, as reduced by the amounts and on the dates set forth
in Section 1.8(a)(i) of the Loan Agreement."
3. Collateral Assignment of Notes. Exhibit A to the Collateral
Assignment of Notes, dated February 17, 1998, between Borrower and Lender is
hereby amended to delete the references therein to the three (3) promissory
notes of Purchaser payable to the order of Borrower, two in the principal amount
of $40,000 and one in the principal amount of $25,000, and to include the two
(2) promissory notes issued by Purchaser dated July 1, 1999, payable to the
order of Borrower, one (1) in the principal amount of $75,000 and one (1) in the
principal amount of $20,000, issued pursuant to the Sale Contract as in effect
of the date hereof, which promissory notes shall be included in the Collateral.
4. Effectiveness of Consent. Notwithstanding anything to the contrary
set forth in Amendment No. 10, the consent of Lender to the sale by Borrower of
the Sale Assets in accordance with the terms of the Sale Contract set forth in
Section 2 of Amendment No. 10 shall terminate on July 1, 1999 and shall be
subject to the consummation of such sale on or before July 1, 1999. All
references in Amendment No. 10 to "the date hereof" or "May 28, 1999" in respect
of the date of the consummation of the sale of the Sale Assets shall be deemed
to refer to the actual date of the consummation of the sale of the Sale Assets
in accordance with the terms of the Sale Contract as in effect on the date of
this Agreement, provided that the date of the consummation of the sale of the
Sale Assets occurs on or before July 1, 1999.
5. Effect of this Agreement. Except for the amendments expressly
provided herein, no other changes or modifications to the Financing Agreements
are intended or implied and in all other respects the Financing Agreements are
hereby specifically ratified, restated and confirmed by all parties hereto as of
the date hereof. To the extent of conflict between the terms of this Agreement
and the other Financing Agreements, the terms of this Agreement shall control.
Any acknowledgment or consent contained herein shall not be construed to
constitute a consent to any other or further action by Borrower or any Guarantor
or to entitle Borrower or any Guarantor to any other consent.
6. Further Assurances. The parties hereto shall execute and deliver
such additional documents and take such additional action as may be necessary or
proper to effectuate the provisions and purposes of this Agreement.
7. Governing Law. The rights and obligations hereunder of each of the
parties hereto shall be governed by and interpreted and determined in accordance
with the internal laws of the State of New York (without giving effect to
principles of conflicts of law or choice of law).
8. Counterparts. This Agreement may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Agreement, it shall not be necessary
to produce or account for more than one counterpart hereof signed by each of the
parties hereto.
Very truly yours,
ABLECO FINANCE, for itself
and as agent
By:
Title:
AGREED:
HEALTH FITNESS CORPORATION
HEALTH FITNESS REHAB, INC.
XXXXX & ASSOCIATES PHYSICAL
THERAPY SERVICES CORP.
THE PREFERRED COMPANIES, INC.
MEDLINK CORPORATION
HEALTH FITNESS REHAB OF IOWA, INC.
MEDLINK SERVICES, INC.
FITNESS CENTERS OF AMERICA
SPORTS & ORTHOPEDIC PHYSICAL THERAPY, INC.
INTERNATIONAL FITNESS CLUB NETWORK, INC.
MIDLANDS PHYSICAL THERAPY, INC.
By:
Title:
