LOAN MODIFICATION NO. 3
AMONG: Pacific Rehabilitation & Sports
Medicine, Inc. ("Borrower")
AND: Bank of America Oregon (the "Bank")
EFFECTIVE DATE: January , 1996
-----
This Loan Modification No. 3 (the "Modification") is entered into on
the above date by the Borrower and the Bank.
1. BACKGROUND. The Borrower entered into a Business Loan Agreement
(Receivables) with the Bank dated as of December 23, 1994. The parties modified
the Business Loan Agreement pursuant to Loan Modification No. 1, effective as of
April 19, 1995 ("Loan Modification No. 1") and pursuant to Loan Modification No.
2, effective as of June 30, 1995 ("Loan Modification No. 2"). The Business Loan
Agreement, Loan Modification No. 1 and Loan Modification No. 2 shall hereinafter
be referred to collectively as the "Agreement." The Borrower is entering into
this Modification to state the terms and conditions of certain modifications to
the Agreement. Capitalized terms used in this Modification shall, unless
otherwise defined in this Modification, have the meaning given to such terms in
the Agreement.
2. MODIFICATIONS TO THE AGREEMENT.
a. SECTION 1.1. Section 1.1 of the Agreement is deleted and in
its place is inserted the following:
1.1 "Borrowing Base" means:
(a) The lesser of:
(i) Twelve Million Five Hundred Thousand Dollars
($12,500,000); or
(ii) 85% of the balance due on Acceptable Receivables minus
the sum of (A) the bad debt allowance for accounts
receivable contained in the Borrower's most recent
Form 10-K Annual Report ("10-K") or Form 10-Q
Quarterly Report ("10-Q") provided to the Bank and (B)
contractual allowances provided by the Borrower or any
Subsidiary as set forth in the Borrower's most recent
10-K or 10-Q provided to the Bank; or
Page 1 - LOAN MODIFICATION NO. 3
(iii) 85% of the amount resulting from the following
computation:
(A) 100% of the sum of the Borrower's net revenue for
the previous three months as established by
generally accepted accounting principles
consistently applied ("Net Revenue");
(B) Multiplied by 120 for calculations of the
Borrowing Base on or after January 1, 1996;
(C) Divided by 91.
For the purposes of this Agreement, the Borrower's Net Revenue
and Acceptable Receivables (as defined below) include the Net Revenues and
accounts receivable of the Borrower's subsidiaries, and any subsidiary of a
subsidiary, including, but not limited to, Leeward Back and Neck, Inc., PR
Acquisition Corporation, Dade Physical Therapy Rehab, Inc., Pacific Rehab of
Maryland, Inc., Longview Physician's Physical Therapy, Inc. and St. Xxxx &
Xxxxxx Medical Associates, LLC, (hereinafter referred to individually and
collectively as the "Subsidiary")."
b. INTEREST RATE. Section 2.3(a) is hereby deleted in its
entirety and replaced with the following:
"(a) Unless the Borrower elects an optional interest rate as described
below, the interest rate is the Reference Rate plus 1.0
percentage point."
c. OFFSHORE RATE. Section 2.7 of the Agreement is hereby
amended to provide that Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Offshore Rate plus
2.5 percentage points.
d. FACILITY NO. 2. Sections 3.1 to 3.6 of the Agreement,
regarding the equipment line of credit (referred to in the Agreement as
"Facility No. 2"), are hereby deleted in their entirety.
e. DEFAULT RATE. Section 6.10 of the Agreement is hereby
amended by adding the following:
"Upon the occurrence and during the continuation of any default
resulting from a breach of Section 9.3 (Funded Debt to EBITDA Ratio)
or Section 9.4 (Fixed Charge Coverage Ratio) of this Agreement,
advances under this
Page 2 - LOAN MODIFICATION NO. 3
Agreement will at the option of the Bank bear interest at a
rate per annum which is 1 percent higher than the rate of
interest otherwise provided under this Agreement. Upon the
occurrence and during the continuation of any default
resulting from a breach of one or more of the Covenants
(other than Sections 9.3 or 9.4) contained in this
Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is 3
percentage points higher than the rate of interest otherwise
provided under this Agreement. This will not constitute a
waiver of any event of default."
3. WAIVER OF BREACH OF COVENANTS.
a. OVER ADVANCE OF BORROWING BASE. Borrower has breached the
covenants contained in Section 2.1(c) of the Agreement by allowing an over
advance of the Borrowing Base for Facility No. 1 to exist since November 1,
1995. Bank hereby waives the breach of covenant and forgoes its right to
demand immediate payment of the over advance as of the date of this
Modification.
b. FUNDED DEBT TO EBITDA RATIO. It is anticipated that Borrower
will breach the covenants contained in Section 9.3 of the Agreement relating to
the Funded Debt to EBITDA Ratio (the "EBITDA Ratio") for the quarter ending
December 31, 1995. Bank hereby waives any breach of the EBITDA Ratio for the
quarter ending December 31, 1995.
c. FIXED CHARGE COVERAGE RATIO. Borrower has breached the
covenants contained in Section 9.4 of the Agreement relating to the Fixed Charge
Coverage Ratio (the "FCCR Covenant") for the quarter ending September 30, 1995,
and is anticipated to breach the FCCR Covenant for the quarter ending December
31, 1995. Bank hereby waives the breach of the FCCR Covenant for the quarter
ending September 30, 1995 and any breach of the FCCR Covenant for the quarter
ending December 31, 1995.
d. FUTURE WAIVERS. The waivers of breaches of specific covenants
of the Agreement contained in this Modification shall not be considered to be a
waiver of that covenant or any other term, condition, covenant, obligation or
undertaking or any subsequent breach of the same term, condition, covenant or
undertaking.
4. FEES. In consideration of Bank's consent to modify the Agreement,
Borrower agrees to pay Bank a fee of Fifty Thousand Dollars ($50,000) (the
"Fee"). The Fee shall be payable as follows:
Page 3 -- LOAN MODIFICATION NO. 3
(i) Twenty Thousand Dollars ($20,000) shall be paid
upon execution of this Modification;
(ii) Thirty Thousand Dollars ($30,000) shall be due and
payable on April 1, 1996 if Borrower's anticipated
stock merger with Horizon/CMS has not been completed;
if the stock merger is completed on or before April 1,
1996, and all of Borrower's indebtedness under the
Agreement has been repaid in full to Bank, the Thirty
Thousand Dollar ($30,000) balance of the Fee shall not
be due or payable.
5. NO OTHER MODIFICATIONS. Except as expressly modified by this
Modification, the terms of the Agreement shall remain unchanged and in full
force and effect. The Bank's agreement to modify the Agreement pursuant to this
Modification shall not obligate Bank to make any further modifications to the
Agreement, or Modification, or any other loan document. Nothing in this
Modification shall constitute a satisfaction of any indebtedness of Borrower to
Bank. It is the intention of Bank and the Borrower to retain as liable parties
all makers and endorsers of the Agreement and Modification or any other loan
document. No maker, endorser, or guarantor shall be released by virtue of this
Modification. The terms of this paragraph shall apply not only to this
Modification, but also to all subsequent loan modification agreements.
6. REPRESENTATIONS AND WARRANTIES.
a. Borrower represents and warrants to Bank that the execution,
delivery and performance of this Modification are within Borrower's corporate
powers, and have been duly authorized and are not in contravention of law or the
terms of Borrower's charter, bylaws, or other incorporation papers, or of any
undertaking of Borrower of which either Borrower is a party or by which it is
bound.
b. Borrower understands and agrees that in entering into this
Modification, Bank is relying upon Borrower's representations, warranties, and
agreements as set forth in the Agreement, and other loan documents. Borrower
hereby reaffirms all representations and warranties in the Agreement, all of
which
Page 4 -- LOAN MODIFICATION NO. 3
are true with respect to each such corporation as of the date of this
Modification.
BORROWER: PACIFIC REHABILITATION
SPORTS MEDICINE, INC.
BY: /s/ Xxxx X. Xxxxxxxxx
--------------------------------
Xxxx X. Xxxxxxxxx
Its: President and
Chief Executive Officer
LENDER: BANK OF AMERICA OREGON
By:
--------------------------------
Xxxxxx X. XxXxxx
Its: Vice President
The undersigned guarantors consent to the modifications to the
Agreement contained in this Modification, and ratify the provisions of the
Continuing Guaranty executed by each guarantor for the benefit of Bank and
confirm that all provisions of its Continuing Guaranty are in full force and
effect.
LEEWARD BACK AND NECK, INC.
By:/s/ Xxxx X. Xxxxxxxxx
--------------------------------
Xxxx X. Xxxxxxxxx
Its: President
P.R. ACQUISITION CORPORATION
By:/s/ Xxxxx Xxxxxxxxx
--------------------------------
Xxxxx Xxxxxxxxx
Its: President
Page 5 - LOAN MODIFICATION NO. 3
