FOURTH AMENDMENT TO MASTER AGREEMENT
AND OTHER OPERATIVE DOCUMENTS
-----------------------------
THIS FOURTH AMENDMENT TO MASTER AGREEMENT AND OTHER OPERATIVE DOCUMENTS is
made as of the 28/th/ day of March, 2002, by and among CORRECTIONAL SERVICES
CORPORATION, a corporation duly organized and validly existing under the laws of
the State of Delaware (the "Company"); each of the Subsidiaries of the Company
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that is a signatory hereto or that, pursuant to Section 3.6 of the Master
Agreement (as hereinafter defined), shall become a party hereto as a lessee
(individually, together with the Company in its capacity as a lessee, a "Lessee"
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and, collectively, the "Lessees"); each of the Subsidiaries of the Company
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identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages
hereto (individually, a "Subsidiary Guarantor" and, collectively, the
--------------------
"Subsidiary Guarantors"); ATLANTIC FINANCIAL GROUP, LTD., a Texas limited
---------------------
partnership (the "Lessor"); certain financial institutions parties hereto as
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lenders (together with any other financial institution that becomes a party
hereto as a lender, collectively referred to as "Lenders" and individually as a
"Lender"); FLEET NATIONAL BANK, a national banking association and successor by
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merger to Summit Bank, as syndication agent for the Lenders (in such capacity,
together with its successors in such capacity, the "Syndication Agent"); and
-----------------
SUNTRUST BANK, NASHVILLE, N.A., a national banking association, as documentation
agent (in such capacity, the "Document Agent").
--------------
W I T N E S S E T H:
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WHEREAS, the Company, the Lessees, the Subsidiary Guarantors, the Lessor,
the Lenders, the Syndication Agent and the Documentation Agent entered into a
Master Agreement dated as of August 31, 1999, as amended by a first amendment
thereto dated as of November 10, 2000, a second amendment thereto dated in or
about August, 2001, and a third amendment thereto dated in or about November,
2001 (collectively, the "Master Agreement"); and
----------------
WHEREAS, concurrently herewith, the Lessor is making an additional Funding
in the amount of $65,000.40, the proceeds of which will be used to reduce the
outstanding principal amounts under the B Loan; and
WHEREAS, the Company has requested the Lessor, the Lenders, the Syndication
Agent and the Documentation Agent to make certain amendments to the Master
Agreement, including increasing the C Percentage and decreasing the B
Percentage, as more fully described herein, and the Lessor, the Lenders, the
Syndication Agent and the Documentation Agent have agreed to do so, subject to
and in accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Defined Terms. Except as otherwise indicated herein,
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all words and terms defined in the Appendix A to the Master Agreement shall have
the same meanings when used herein.
2. Amendments to Master Agreement.
------------------------------
(a) Appendix A to the Master Agreement is amended by adding
the following definitions thereto:
"EBIT" shall mean, for any period, the income from
----
operations of the Company and its Subsidiaries for such
period, determined on a consolidated basis without duplication
in accordance with GAAP.
"Restructuring Charges" shall mean the cash payments made
---------------------
by the Company and its Subsidiaries during any fiscal
quarter relating to restructuring and impairment charges
reflected in the consolidated statement of operations for the
Company and its Subsidiaries for the quarter ending September
30, 2001.
(b) The following definitions appearing in Appendix A to the
Master Agreement are hereby amended to read in their entirety as follows:
"Applicable Margin" shall mean, with reference to
-----------------
Advances (i) that are Base Rate Advances, an amount in excess
of the Base Rate, equal to 3.50%, and (ii) that are LIBOR
Advances, an amount in excess of the LIBOR Rate, equal to
5.00%; provided, however, in the event that (A) the Company
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consummates the sale of its facility located in Phoenix,
Arizona, in accordance with Section 9.1.26 of the Credit
Agreement, and the net proceeds from such sale result in a
reduction of (x) the outstanding principal amount of the
Revolving Credit Loans (as defined in the Credit Agreement) by
at least $8,000,000 and (y) the Revolving Credit Commitments
(as defined in the Credit Agreement) by at least $4,000,000,
or (B) the facility leased by the Company in Salinas, Puerto
Rico, is sold to a third party in accordance with Article XIV
of the Lease and (1) the total purchase price for such sale
equals or exceeds the Lease Balance as of the closing date for
such sale and (2) the down payment from such sale which is
applied to reduce the aggregate principal amount of the Loans
equals or exceeds $7,500,000, then the Applicable Margin for
Advances (a) that are Base Rate Advances shall mean an amount
in excess of the Base Rate equal to 2.50%, and (b) that are
LIBOR Advances shall mean an amount in excess of the LIBOR
Rate equal to 4.00%. Notwithstanding the foregoing, the
Applicable Margin shall not be reduced at any time during
which an Event of Default shall have occurred and be
continuing.
2
"Available Excess Cash Flow" - [Deleted]
--------------------------
"Consolidated Interest Expense" shall mean, for any
-----------------------------
period, for the Company and its Subsidiaries (determined on a
consolidated basis without duplication in accordance with
GAAP), the sum or difference of (a) all interest in respect of
Indebtedness (including, without limitation, the interest
component of any payments under Capital Leases) accrued or
capitalized during such period (whether or not actually paid
during such period), plus (b) the net amount payable (or minus
----
the net amount receivable) under Interest Rate Protection
Agreements during such period (whether or not actually paid or
received during such period).
"EBITDA" shall mean, for any period, the sum of (a) the
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income from operations of the Company and its Subsidiaries
for such period, determined on a consolidated basis without
duplication in accordance with GAAP, plus (b) depreciation and
----
amortization expenses deducted in the determination of the
Consolidated Net Income of the Company and its Subsidiaries
for such period, minus (c) the Restructuring Charges paid
-----
during such period, plus (d) non-cash expenses incurred by the
----
Company and its Subsidiaries during such period, if and to the
extent approved by the Syndication Agent and the Lenders.
"Permitted Investments" means (a) direct obligations of
---------------------
the United States of America, or of any agency thereof, or
obligations guaranteed as to principal and interest by the
United States of America, or of any agency thereof, in either
case maturing not more than 90 days from the date of
acquisition thereof; (b) certificates of deposit issued by any
Lender or by any bank or trust company organized under the
laws of the United States of America or any state thereof and
having capital, surplus and undivided profits of at least
$500,000,000, maturing not more than 90 days from the date of
acquisition thereof; (c) commercial paper rated A-1 or better
or P-1 by Standard & Poor's Corporation or Xxxxx'x Investors
Services, Inc., respectively, maturing not more than six
months from the date of acquisition thereof; (d) commercial
paper of any Lender (or any Affiliate thereof located in the
United States of America) that is rated A-1 or better or P-1
by Standard and Poor's Corporation or Xxxxx'x Investors
Services, Inc., respectively, maturing not more than six
months from the date of acquisition thereof; (e) repurchase
agreements entered into with any Lender or with any bank or
trust company satisfying the conditions of clause (b) hereof
that are secured by any obligation of the type described in
clauses (a) through (d) of this definition; and (f) money
market funds acceptable to the Required Lenders.
"Permitted Stock Repurchases" - [Deleted]
---------------------------
(c) Section 5.1(a) of the Master Agreement is hereby amended
by adding the following subsection 5.1(a)(xxii) immediately after subsection
5.1(a)(xxi):
(xxii) on the first day of each month, consolidated
cash flow projections for the Company and its Subsidiaries for
the 90-day period commencing on the required delivery date of
the projections; provided, that, in the event the Syndication
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Agent is not satisfied with the form or presentation of such
projections, or the assumptions underlying the same, the
Company shall, at its sole cost and expense, engage an
independent consultant (acceptable to the Syndication Agent in
its sole discretion) to assist the Company in modeling for,
and the preparation of, revised cash flow projections. The
Company shall cause the consultant to commence work in
assisting with the modeling and the revised projections within
15 Business Days after the Company's receipt of the
Syndication Agent's request therefor.
(d) Section 5.1(i) of the Master Agreement is hereby amended
to read in its entirety as follows:
(i) Dividend Payments.
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The Company will not, nor will it permit any of its
Subsidiaries to, declare or make any Dividend Payment at any
time, except a Dividend Payment from a Subsidiary to the
Company in order to fund the mandatory prepayment required
under the Credit Agreement upon the occurrence of a Capital
Event involving such Subsidiary.
(e) Section 5.1(j) of the Master Agreement is hereby
amended to read in its entirety as follows:
(j) Total Funded Debt to Adjusted EBITDA Ratio.
------------------------------------------
[Deleted]
(f) Section 5.1(l) of the Master Agreement is hereby amended
to read in its entirety as follows:
(l) Consolidated Net Worth. [Deleted]
----------------------
(g) Section 5.1(m) of the Master Agreement is hereby amended
to read in its entirety as follows:
(m) Consolidated Total Funded Debt to Net Worth
-------------------------------------------
Ratio. [Deleted]
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(h) Section 5.1(n) of the Master Agreement is hereby amended to
read in its entirety as follows:
(n) Minimum Fixed Charge Coverage Ratio. [Deleted]
-----------------------------------
(i) Section 5.1(w) of the Master Agreement is hereby amended
to read in its entirety as follows (changes from the Master Agreement are
indicated in bold-face type):
(w) Capital Expenditures; Unfunded Capital
--------------------------------------
Expenditures.
------------
The Company will not, and will not permit any of its
Subsidiaries to, make any Capital Expenditures at any time,
except for the following: (i) Capital Expenditures in an
aggregate amount not to exceed $5,000,000 in any fiscal
quarter; and (ii) Capital Expenditures made in connection with
acquisitions permitted under Section 5.1(e) hereof.
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Notwithstanding the foregoing, at no time during any fiscal
year of the Company and its Subsidiaries shall their unfunded
Capital Expenditures exceed the amount of depreciation and
amortization expenses of the Company and its Subsidiaries,
both calculated on a cumulative year-to-date basis for each
fiscal year of the Company and its Subsidiaries commencing on
January 1, 2002.
(j) Section 5.1 of the Master Agreement is hereby amended by
adding the following subsections 5.1 (y) through (bb) immediately after
subsection 5.1(x):
(y) Minimum Consolidated Net Income.
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The Company shall not cause, suffer or permit its
Consolidated Net Income (i) during any two consecutive month
period from March, 2002 through July, 2002, to be less than
$150,000, and (ii) to be less than the following amounts as
measured for or at the following times:
Quarter Ending Minimum Consolidated Net Income
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March 31, 2002 $150,000
June 30, 2002 $300,000
5
(z) Minimum EBITDA.
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The Company shall not cause, suffer or permit its
EBITDA (i) during any two consecutive month period from March,
2002 through July, 2002, to be less than $800,000, and (ii) to
be less than the following amounts as measured for or at the
following times:
Quarter Ending Minimum EBITDA
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March 31, 2002 $1,250,000
June 30, 2002 $1,750,000
(aa) EBIT to Consolidated Interest Expense Ratio.
-------------------------------------------
The Company will not permit the ratio of (i) EBIT to (ii
Consolidated Interest Expense to be less than 1.05 for
each fiscal quarter ending March 31, 2002 and June 30, 2002.
(bb) Evidence of Refinancing.
-----------------------
By no later than April 30, 2002, the Company shall
provide to the Syndication Agent a letter evidencing the
Company's request to refinance with a third-party lender all
of the obligations of the Company and its Subsidiaries under
the Basic Documents and the Operative Documents.
(k) Schedule 2.2 of the Master Agreement is hereby deleted
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and replaced with Schedule 2.2 attached to this Agreement.
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3. Amendments to Other Operative Documents. Appendix A to each of the
---------------------------------------
Lease, the Loan Agreement, and the Construction Agency Agreement are hereby
amended to incorporate therein the changes to Appendix A to the Master Agreement
effected by paragraphs 2(a) and 2(b) of this Agreement.
4. Amendment Fee. Concurrently herewith and in consideration for the
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Syndication Agent, the Lessor and the Lenders entering into this Agreement, the
Company is paying the Syndication Agent an amendment fee in the amount of
$68,021 for the ratable benefit of the Lenders. The foregoing fees are earned in
full on the date hereof and not subject to rebate or reduction.
5. Guaranty Reaffirmation. The Company hereby reaffirms all of the terms
-----------------------
and conditions of the Guaranty Agreement and acknowledges and agrees that it has
no defenses, offsets or counterclaims with respect to its obligations
thereunder.
6
6. Substitute Notes. To evidence the decrease in the aggregate Commitments
----------------
allocable to the A Loan and the B Loan as set forth in Schedule 2.2 attached
hereto, the Lessor is, concurrently herewith, executing and delivering to the
Syndication Agent, for the ratable benefit of the Lenders, (a) a substitute A
Note (the "Substitute A Note") in the principal amount of $11,689,368.79, in
substitution for, but not repayment of, the A Note heretofore issued to the
Syndication Agent in the principal amount of $30,800,000 and (b) a substitute B
Note (the "Substitute B Note") in the principal amount of $1,130,503.51 in
substitution for, but not repayment of, the B Note heretofore issued to the
Syndication Agent in the principal amount of $3,150,000. The parties acknowledge
and agree that the execution and delivery of the Substitute A Note and the
Substitute B Note shall not constitute a repayment, refinancing, accord and
satisfaction or novation of the A Note or the B Note, respectively, or the
indebtedness evidenced thereby.
7. Representations and Warranties.
------------------------------
(a) In order to induce the Syndication Agent and the Lenders to
enter into this Agreement and amend the Master Agreement as provided herein,
each Obligor, as to itself, hereby represents and warrants to the other parties
hereto as follows:
(i) All of the representations and warranties of the
Obligors set forth in the Master Agreement are true, complete and correct in all
material respects on and as of the date hereof with the same force and effect as
if made on and as of the date hereof and as if set forth at length herein.
(ii) After giving effect to this Agreement, no Potential
Event of Default or Event of Default presently exists and is continuing on and
as of the date hereof.
(iii) Since the date of the Obligors' most recent financial
statements delivered to the Syndication Agent, no Material Adverse Effect has
occurred, and no event has occurred or failed to occur which has had or is
likely to have a Material Adverse Effect.
(iv) Each Obligor has full power and authority to execute,
deliver and perform any action or step which may be necessary to carry out the
terms of this Agreement and all other agreements, documents and instruments, if
any, executed and delivered by the Obligor to the Syndication Agent and the
Lenders concurrently herewith or in connection herewith (collectively, the
"Amendment Documents"); each Amendment Document to which any of the Obligors is
-------------------
a party has been duly executed and delivered by such party and is the legal,
valid and binding obligation of such party enforceable in accordance with its
terms, subject to any applicable bankruptcy, insolvency, general equity
principles or other similar laws affecting the enforcement of creditors' rights
generally.
(v) The execution, delivery and performance of the
Amendment Documents will not (i) violate any provision of any existing law,
statute, rule, regulation or ordinance binding upon the Obligors, (ii) conflict
with, result in a breach of, or constitute a default under (A) the certificate
of incorporation or by-laws or other equivalent formation documents of any
Obligor, (B) any order, judgment, award or decree of any court, governmental
authority, bureau or agency, or (C) any mortgage, indenture, material lease,
contract or other material agreement or
7
undertaking to which any Obligor is a party or by which such party or its
properties or assets may be bound, or (iii) result in the creation or imposition
of any lien or other encumbrance upon or with respect to any property or asset
now owned or hereafter acquired by any Obligor, other than liens in favor of the
Syndication Agent for the ratable benefit of the Lenders.
(vi) No consent, license, permit, approval or
authorization of, exemption by, notice to, report to, or registration, filing or
declaration with any Person is required in connection with the execution,
delivery or performance by the Obligors of the Amendment Documents or the
transactions contemplated thereby.
(b) The Lessor hereby represents and warrants to the other parties
hereto as follows:
(i) All of the representations and warranties of the
Lessor set forth in the Master Agreement are true, complete and correct in all
material respects on and as of the date hereof with the same force and effect as
if made on and as of the date hereof and as if set forth at length herein.
(ii) Since the date of the Lessor's most recent
financial statements delivered to the Syndication Agent, no Material Adverse
Effect has occurred, and no event has occurred or failed to occur which has had
or is likely to have a Material Adverse Effect.
(iii) The Lessor has full power and authority to
execute, deliver and perform any action or step which may be necessary to carry
out the terms of this Agreement and any other Amendment Document; each Amendment
Document to which the Lessor is a party has been duly executed and delivered by
the Lessor and is the legal, valid and binding obligation of the Lessor
enforceable in accordance with its terms, subject to any applicable bankruptcy,
insolvency, general equity principles or other similar laws affecting the
enforcement of creditors' rights generally.
(iv) The execution, delivery and performance of
the Amendment Documents will not (i) violate any provision of any existing law,
statute, rule, regulation or ordinance binding upon the Lessor, (ii) conflict
with, result in a breach of, or constitute a default under (A) the formation
documents of the Lessor, (B) any order, judgment, award or decree of any court,
governmental authority, bureau or agency, or (C) any mortgage, indenture,
material lease, contract or other material agreement or undertaking to which the
Lessor is a party or by which the Lessor or its properties or assets may be
bound, or (iii) result in the creation or imposition of any lien or other
encumbrance upon or with respect to any property or asset now owned or hereafter
acquired by the Lessor.
(v) No consent, license, permit, approval or
authorization of, exemption by, notice to, report to, or registration, filing or
declaration with any Person is required in connection with the execution,
delivery or performance by the Lessor of the Amendment Documents or the
transactions contemplated thereby.
8
8. Waiver of Financial Covenant Default. The Lessor, the Syndication
------------------------------------
Agent and the Lenders hereby waive compliance by the Company and its
Subsidiaries with the December 31, 2001 financial covenants contained in
Sections 5.1(k) and 5.1(n) of the Master Agreement; provided, however, that the
Company hereby acknowledges and agrees that such waiver and the agreement by the
Syndication Agent, the Lessor and the Lenders to enter into this Agreement and
to amend the Master Agreement as provided herein shall in no way be deemed to be
a waiver by the Syndication Agent, the Lessor or the Lenders of any other
Potential Defaults or Events of Default nor preclude the Syndication Agent, the
Lessor and the Lenders from declaring an Event of Default or exercising any
other remedies under the Master Agreement as a result of such other Events of
Default or upon the occurrence at a later date of any other Events of Default
under the Master Agreement. The Syndication Agent, the Lessor and the Lenders
reserve the right to enforce all terms and provisions of the Master Agreement
and the other Operative Documents at any time or from time to time.
9. Syndication Agent's Costs. The Company shall on demand reimburse the
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Syndication Agent for all out-of-pocket costs, including legal fees and
expenses, incurred by the Syndication Agent in connection with this Agreement
and the other Amendment Documents and the transactions referenced herein. The
Company hereby authorizes the Syndication Agent to charge the Company's
account(s) with the Syndication Agent (or its affiliate) in the amount of such
out-of-pocket costs.
10. No Change. Except as expressly set forth herein or modified hereby, all
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of the terms and provisions of the Master Agreement and the other Operative
Documents are hereby reaffirmed in their entirety shall continue in full force
and effect.
11. Counterparts; Effectiveness. This Agreement may be executed in any
---------------------------
number of counterparts, each of which shall be an original and all of which
shall constitute one and the same instrument. This Agreement shall not be
binding upon any party until all parties hereto have executed this Agreement and
delivered it to the Syndication Agent.
12. Governing Law. This Agreement shall be governed by and construed in
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accordance with the laws of the State of New York.
9
IN WITNESS WHEREOF, the undersigned have caused their duly authorized
representatives to execute and deliver this Agreement as of the day and year
first above written.
CORRECTIONAL SERVICES CORPORATION,
a Delaware corporation
By:_________________________________
Name:
Title:
YOUTH SERVICES INTERNATIONAL, INC.
a Maryland corporation
By:_________________________________
Name:
Title:
(Signatures continued on next page)
10
FF&E, INC., a New Jersey corporation
By:
-------------------------------------
Name:
Title:
YOUTH SERVICES INTERNATIONAL
OF NORTHERN IOWA, INC., an
Iowa corporation
By:
-------------------------------------
Name:
Title:
YOUTH SERVICES INTERNATIONAL
HOLDINGS, INC., a Delaware corporation
By:
-------------------------------------
Name:
Title:
YOUTH SERVICES INTERNATIONAL
REAL PROPERTY PARTNERSHIP, LLP,
a Maryland limited liability partnership
By:
-------------------------------------
Name:
Title:
YOUTH SERVICES INTERNATIONAL
OF ILLINOIS, INC., a Maryland
corporation
By:
-------------------------------------
Name:
Title:
(Signatures continued on next page)
11
YOUTH SERVICES INTERNATIONAL
OF SOUTH DAKOTA, INC., a South Dakota
corporation
By:
-------------------------------------
Name:
Title:
YOUTH SERVICES INTERNATIONAL
OF TEXAS, INC., a Texas corporation
By:
-------------------------------------
Name:
Title:
YSI OF CENTRAL IOWA, INC.,
an Iowa corporation
By:
-------------------------------------
Name:
Title:
YOUTH SERVICES INTERNATIONAL
OF IOWA, INC., a Maryland
corporation
By:
-------------------------------------
Name:
Title:
(Signatures continued on next page)
12
YOUTH SERVICES INTERNATIONAL
OF MICHIGAN, INC., a Michigan
corporation
By:
-------------------------------------
Name:
Title:
YOUTH SERVICES INTERNATIONAL
OF MISSOURI, INC., a Missouri
corporation
By:
-------------------------------------
Name:
Title:
CSC MANAGEMENT DE PUERTO RICO, INC.,
a Puerto Rico corporation
By:
-------------------------------------
Name:
Title:
FLEET NATIONAL BANK,
as the Syndication Agent and a Lender
By:
-------------------------------------
Name:
Title:
(Signatures continued on next page)
13
ATLANTIC FINANCIAL GROUP, LTD.,
as Lessor
By: Atlantic Financial Managers, Inc.,
its General Partner
By:
--------------------------------
Name:
Title:
SUNTRUST BANK, NASHVILLE, N.A.,
as the Documentation Agent and a Lender
By:
-------------------------------------
Name:
Title:
14
SCHEDULE 2.2
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AMOUNT OF EACH FUNDING PARTY'S COMMITMENT
Funding Party Commitment Percentage Commitment Amount
------------- --------------------- -----------------
Lessor 3.489% $ 463,502.20
Fleet National Bank - A Loan 77.590% $10,306,516.46
Fleet National Bank - B Loan 7.935% $ 1,054,075.80
SunTrust Bank - A Loan 10.410% $ 1,382,852.33
SunTrust Bank - B Loan 0.575% $ 76,427.71
