SECOND AMENDMENT AND WAIVER
TO
CREDIT AGREEMENT
This SECOND AMENDMENT AND WAIVER TO CREDIT AGREEMENT is made and
entered into effective as of the 31st day of March, 1999 (this "AMENDMENT")
among, APPLE ORTHODONTIX, INC., a Delaware corporation (the "COMPANY"), the
Subsidiaries of the Company listed on the signature pages hereto as Guarantors
(together with each other person who subsequently becomes a Guarantor,
collectively the "Guarantors"), the banks and other financial institutions
listed on the signature pages hereto under the caption "Banks" (together with
each other person who becomes a Bank, collectively the "BANKS") and CHASE BANK
OF TEXAS, NATIONAL ASSOCIATION, f/k/a Texas Commerce Bank National Association
("TCB"), individually as a Bank "CHASE", and as agent for the other Banks (in
such capacity, together with any other Person who becomes the agent, the
"AGENT").
WHEREAS, the Company, the Guarantors, and TCB, both as a Bank and an
Agent, entered into that certain Credit Agreement dated as of July 28, 1997 (as
amended by that First Amendment to Credit Agreement dated May 21, 1998 and as
further amended or restated from time to time, the "CREDIT AGREEMENT"), which
Credit Agreement provides for a revolving credit facility pursuant to which TCB
and the Banks named therein committed to make loans of up to $25,000,000.00 upon
the terms and conditions as provided therein.
WHEREAS, TCB has changed its name to Chase, and Chase holds all
rights and obligations of TCB in, to and under the Credit Agreement.
WHEREAS, the Company has requested the Banks and the Agent to amend
the Credit Agreement to waive certain terms thereof and to modify other terms
and conditions thereof.
WHEREAS, said parties have agreed to do so to the extent reflected
in this Amendment, provided the Company and the Guarantors ratify and confirm
all of their obligations under the Credit Agreement and the Loan Documents, as
well as agree to make certain other amendments as set forth herein.
WHEREAS, the Company, the Guarantors, the Banks, and the Agent wish
to execute this document to evidence their agreement in regard thereto.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements herein
expressed, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto now agree as follows:
1. DEFINED TERMS. All capitalized terms used in this Amendment and
not otherwise defined herein shall have the meanings ascribed to such terms in
the Credit Agreement.
2. AMENDMENT TO SECTION 1.01. (a) Section 1.01 of the Credit
Agreement is hereby amended by deleting and restating the following
definitions to read as follow:
(i) "'COLLATERAL' means all Collateral described in any of the Security
Documents and shall include substantially all of the assets of the
Company and each of its Subsidiaries, real and personal, tangible
and intangible."
(ii) "'DEFAULT RATE' means the lesser of (i) the Highest Lawful Rate and
(ii) the Alternate Base Rate plus 3%."
(iii) "'DESIGNATED PAYMENT DATE' means the last Business Day of each
month."
(iv) "'EBITDA' means, for any period, the consolidated pre-tax income for
such period, plus the aggregate amount which was deducted for such
period in determining such consolidated, pre-tax income in respect
of interest expense (including amortization of debt discount,
imputed interest and capitalized interest), plus depreciation and
amortization, excluding any income attributable to any minority
interest in any Person or any Foreign Subsidiaries of the Company
(other than Foreign Subsidiaries organized under the laws of Canada
or one of its provinces, which Canadian Subsidiaries' EBITDA shall
be included in EBITDA), unless remitted to the Company or any of its
Subsidiaries that is not a Foreign Subsidiary.
(v) "MARGIN" means with respect to any Advance, the percentage
determined in accordance with the following table as a function of
the Funded Indebtedness to EBITDA ratio:
FUNDED INDEBTEDNESS/ ALTERNATE BASE LIBOR RATE
EBITDA RATIO RATE MARGIN MARGIN
> 3.50 1.50% 3.00%
>=3.00 but < 3.50 1.25% 2.75%
>= 2.50 but < 3.00 1.00% 2.50%
>= 2.00 but < 2.50 0.75% 2.25%
>= 1.50 but < 2.00 0.50% 2.00%
>= 1.00 but < 1.50 0.25% 1.75%
< 1.00 0.00% 1.50%
If sufficient information does not exist to calculate the
Margin, the Alternate Base Rate Margin shall be 1.50% and the LIBOR
Rate Margin shall be 3.00%.
(vi) "'MATURITY DATE' means May 31, 2001, or such earlier date determined
in accordance with ARTICLE IX hereof."
(vii) "'SECURITY DOCUMENTS' means all security agreements, pledge
agreements, mortgages, deeds of trust, guaranty agreements, and
similar items, and UCC financing statements giving notice thereof,
executed by the Company and its Subsidiaries in favor of the Agent
for the benefit of the Banks and covering substantially all of the
assets of said Persons."
(b) Section 1.01 is hereby further amended by adding the following
definition thereto in appropriate alphabetical order:
"'PRACTICE RECEIVABLE REPORT' has the meaning provided in SECTION
6.01(A)."
3. AMENDMENT TO SECTION 2.11. Section 2.11(a) is hereby amended by
deleting the reference to "one, two, three or six month" interest periods
contained therein and replacing same with a reference to "one month" interest
periods.
4. ADDITION OF SECTION 5.17. A new Section 5.17 is hereby added to
the Credit Agreement to read as follows:
"Section 5.17 GRANTING OF LIENS ON COLLATERAL. On or before May 15,
1999, the Company will, and will cause each of its Subsidiaries to take
such steps, to provide such information and execute such documents as the
Agent shall reasonably request to grant to the Agent, for the benefit of
the Banks, a first and prior lien and security interest in substantially
all of the assets of the Company and each of its Subsidiaries, real and
personal, tangible and intangible."
5. AMENDMENT TO SECTION 6.01. Section 6.01 of the Credit Agreement
is hereby amended by deleting subsection (a) thereof and replacing it with the
following:
"(a) As soon as available, and in any event within thirty (30) days
after the end of each month and forty-five (45) days after the close of
each quarter of each fiscal year, the unaudited consolidated balance sheet
of the Company and its Subsidiaries as of the end of such period and the
related consolidated statements of income and cash flow for such period,
and its practice receivable report, containing a listing of accounts
receivable by Practice (the "PRACTICE RECEIVABLE REPORT"), setting forth,
in each case, comparative consolidated figures for the related periods in
the prior fiscal year, all of which shall be certified by the chief
financial officer or chief executive officer of the Company as fairly
presenting in all material respects, the financial position of the Company
and its Subsidiaries as of the end of such period and the results of their
operations for the period then ended in accordance with GAAP, subject to
changes resulting from normal year-end audit adjustments and inclusion of
abbreviated footnotes; provided, however, that delivery
of the Quarterly Report on Form 10-Q of the Company for such quarter
period filed with the Securities and Exchange Commission shall be deemed
to satisfy the requirements of this SECTION 6.01(A) with regard to the
delivery of said Financials."
6. AMENDMENT TO SECTION 7.03 Section 7.03 of the Credit Agreement is
hereby amended by adding the following provisions to the end of subsection (e)
thereof:
"provided, no additional new Indebtedness of more than $200,000.00
may be included from the date of the Second Amendment and thereafter."
7. AMENDMENT TO SECTION 7.04 Section 7.04 of the Credit Agreement is
hereby amended by redesignating subsection (d) as subsection (e) thereto and
adding a new subsection (d) thereto that reads as follows:
"(d) liens in favor of the Agent for the benefit of the Banks."
8. AMENDMENT TO SECTION 7.05 Section 7.05 of the Credit Agreement is
hereby amended by:
(i) deleting the reference to $750,000.00 in subsection (c) thereof
and replacing it with $50,000.00;
(ii) deleting subparagraph (d) thereof in its entirety and replacing
it with the following:
"(d) Investments in all or substantially all of the stock,
warrants, stock appreciation rights, other securities and/or other
assets of physician practice management entities in the field of
dentistry or assets of practicing orthodontists or dentists, (i) in
which, in the case of a Subsidiary, the Company directly or
indirectly owns a majority of the voting equity in such Person or is
the surviving entity, (ii) acquired at a time when no Default or
Event of Default exists hereunder and (iii) for which (y) the cash
and assumed Indebtedness consideration paid does not exceed
$500,000.00 in any one year and (z) total consideration paid,
including cash, notes, debt owed by the entity acquired (whether or
not assumed by the Company) and the value of stock given to any
selling entity for any one such Investment which does not exceed
$1,000,000.00 in any one year."
; and
(iii) deleting subsection (g) thereof in its entirety and replacing
it with the following:
"(g) short term advances to Practicing Orthodontists or
Practices in the form of: (i) Uncollected Service Fees (as such term
is defined in the Practice Receivable Report) of not more than
$3,000,000.00 outstanding at any one time, and (ii) Cash Advances in
Excess of Cash Profit and Sweep Deficit Account balances (as such
terms are defined in the Practice receivable Report) of not more
than $4,000,000.00, collectively, outstanding at any one time."
9. AMENDMENT TO SECTION 7.10. Section 7.10 is hereby deleted in its
entirety and the following substituted therefor:
"Section 7.10 MINIMUM NET WORTH. The Company will not permit its
Consolidated Net Worth to be less than the greater of: (a) $29,000,000 or
(b) 90% of the actual net worth as of the December 31, 1998, plus, in all
cases: (i) 100% of the net proceeds resulting from the issuance of any
capital stock by the Company or any Subsidiary subsequent to the Execution
Date at any time during the term hereof and (ii) 75% of the consolidated
after tax income of the Company and its Subsidiaries (to be adjusted each
quarter) for each fiscal year during the term hereof (including any
Subsidiaries acquired subsequent hereto)."
10. AMENDMENT TO SECTION 7.11. Section 7.11 is hereby deleted in its
entirety and the following substituted therefor:
"SECTION 7.11 FUNDED INDEBTEDNESS TO EBITDA RATIO. The Company will
not permit the ratio of (i) its total Funded Indebtedness to (ii) EBITDA,
calculated for the preceding four (4) fiscal quarters on a rolling four
(4) quarter basis, PLUS, (A) during the four (4) fiscal quarters ending on
the last day of June, September and December of 1998 and March of 1999,
the special, non-recurring charges incurred during the quarter ending June
30, 1998 resulting from severance costs associated with management
changes, costs of terminated acquisitions and related items, up to a
maximum of $3,745,000, and (B) during the fourth fiscal quarter of 1998
and the first three fiscal quarters of 1999, the special non-recurring
charges, including adjustments, of up to $18,811,000 taken during the
fourth fiscal quarter of 1998, to be greater than that shown on the
following chart:
QUARTER ENDING RATIO
March 31, 1999 3.1 to 1.0
June 30, 1999 3.4 to 1.0
September 30, 1999 3.75 to 1.0
December 31, 1999 3.75 to 1.0
March 31, 2000 and thereafter 3.0 to 1.0"
11. AMENDMENT TO SECTION 7.12. Section 7.12 is hereby deleted in its
entirety and the following substituted therefor:
"SECTION 7.12 FIXED CHARGE COVERAGE RATIO. The Company will not
permit the ratio of (a) EBITDA calculated for the preceding four (4)
quarters on a rolling four (4) quarter basis PLUS (A) during the four (4)
fiscal quarters ending on the last day of June, September and December of
1998 and March of 1999, the special, non-recurring charges incurred during
the quarter ending June 30, 1998 resulting from severance costs associated
with management changes, costs of terminated acquisitions and related
items, up to a maximum of $3,745,000, and (B) during the fourth fiscal
quarter of 1998 and the first three fiscal quarters of 1999, the special
non-recurring charges, including adjustments, of up to $18,811,000 taken
during the fourth fiscal quarter of 1998, LESS (C) taxes actually paid
during the four (4) most recent quarters, to (b) the sum of: (i) the
current portion of long-term debt for the upcoming four (4) fiscal
quarters, PLUS (ii) interest expense, PLUS (iii) cash Consolidated Capital
Expenditures up to a maximum of $2,000,000.00, both items (ii) and (iii)
calculated for the preceding four (4) quarters on a rolling four (4)
quarter basis, to be less than 2.0 to 1.0 at any time during the term
hereof."
12. AMENDMENT TO SECTION 7.13 Section 7.13 of the Credit Agreement
is hereby amended by deleting the reference to $10,000,000 contained therein and
replacing it with $2,000,000.00.
13. AMENDMENT OF SECTION 7.16. Section 7.16 is hereby amended by
deleting subsection (a) thereof in its entirety.
14. ADDITION OF SECTION 7.17. A new Section 7.17 is hereby added to
the Credit Agreement to read as follows:
"Section 7.17 MINIMUM QUARTERLY EBITDA. The Company shall not permit
EBITDA to be less than the amounts shown on the following chart for the
periods indicated:
Each Quarter Ending March 31 1,520,000
Each Six Month Period Ending June 30 3,045,000
Each Nine Month Period Ending September 30 4,815,000
Each Year Ending December 31 6,510,000"
15. WAIVER OF CERTAIN DEFAULTS OR EVENTS OF DEFAULT. The following
provisions of the Credit Agreement, to the extent they resulted in a Default or
an Event of Default thereunder or under any of the Loan Documents, are hereby
waived for the period indicated:
(i) Sections 7.05(g), 7.10, 7.11 and 7.12 for the period ending
December 31, 1999.
(ii) Section 7.16 (a) for all periods from the Effective Date
through the date of the Second Amendment.
(iii) Any Default or Event of Default arising from a calculation of
EBITDA that included the results of any Subsidiary located in Canada, for
all periods from the Effective Date through the date of the Second
Amendment.
16. RATIFICATION. The Company and each Guarantor hereby ratify all
of their obligations under the Credit Agreement and the Loan Documents, and
agree and acknowledge that the Credit Agreement (including the Guaranty
contained therein) and each of the Loan Documents shall continue in full force
and effect as amended and modified by this Amendment. Nothing in this Amendment
extinguishes, novates or releases any right, claim, lien, security interest or
entitlement of any of the Banks created by or contained in any of such documents
nor is the Company released from any covenant, warranty or obligation created by
or contained therein except as expressly provided herein.
17. REPRESENTATIONS AND WARRANTIES. The Company hereby represents
and warrants to the Banks that (a) this Amendment has been duly executed and
delivered on behalf of the Company, (b) this Amendment constitutes a valid and
legally binding agreement enforceable against the Company in accordance with its
terms, (c) the representations and warranties contained in the Credit Agreement
and the Loan Documents are true and correct on as of the date hereof in all
material respects as though made as of the date hereof except as heretofore
otherwise disclosed in writing to the Agent (other than those of such
representations and warranties which by their express terms speak to a date on
or before the date hereof), (d) no Default exists under the Credit Agreement or
any of the Loan Documents and (e) the execution, delivery and performance of
this Amendment has been duly authorized by the Company. The Company will, upon
request by the Agent, provide satisfactory evidence of items (a) and (e) above.
18. MULTIPLE COUNTERPARTS. This Amendment may be signed in any
number of counterparts, each of which may be delivered in original or facsimile
form, and each shall be construed as an original, but all of which together
shall constitute one and the same instrument.
19. CONDITIONS TO EFFECTIVENESS. This Amendment shall be effective
upon (i) the execution hereof by all parties and delivery of signed copies to
the Agent, and (ii) receipt by the Agent, for the pro rata benefit of the Banks
of an amendment fee equal to .5% of the Total Commitment.
20. CHOICE OF LAW. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT
EXECUTED BY THE PARTIES UNDER, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
OF TEXAS, EXCEPT TO THE EXTENT THAT THE LAWS OF THE UNITED STATES OF AMERICA AND
ANY RULES, REGULATIONS OR ORDERS ISSUED OR PROMULGATED THEREUNDER APPLICABLE TO
THE AFFAIRS AND TRANSACTIONS OF ANY BANK OTHERWISE PREEMPT TEXAS LAW, IN WHICH
EVENT SUCH FEDERAL LAW SHALL CONTROL.
21. ENTIRE AGREEMENT. THIS AMENDMENT AND THE CREDIT AGREEMENT AND
THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
[SIGNATURES BEGIN ON NEXT PAGE]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
COMPANY:
APPLE ORTHODONTIX, INC.
By: /s/ XXXXX X. XXXXXXX
Name: Xxxxx X. Xxxxxxx
Title: Vice President and
Chief Financial Officer
GUARANTORS:
APPLE ORTHODONTIX OF TEXAS, INC.
By: /s/ XXXXX X XXXXXXX
Name: Xxxxx X. Xxxxxxx
Title: Vice President and
Chief Financial Officer
AGENT:
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION
By: /s/ XXXXXXX X. XXXXXXX
Xxxxxxx X. Xxxxxxx
Vice President
BANKS
Amount of Commitment: CHASE BANK OF TEXAS, NATIONAL
$15,000,000.00 ASSOCIATION
By: /s/ XXXXXXX X. XXXXXXX
Xxxxxxx X. Xxxxxxx
Vice President
ADDRESS:
000 Xxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx
DOMESTIC LENDING OFFICE
See above
EURODOLLAR LENDING OFFICE
See above
BANKS
Amount of Commitment: PARIBAS
$10,000,000.00
By: /s/ XXXXX X. XXXXXX
Name: Xxxxx X. Xxxxxx
Title: Managing Director
By: /s/ XXXXXX X. XXXXXXXX
Name: Xxxxxx X. Xxxxxxxx
Title: Vice President
ADDRESS:
0 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
Attention:
DOMESTIC LENDING OFFICE
See above
EURODOLLAR LENDING OFFICE
See above
