EXHIBIT 10.16
SECOND AMENDMENT TO CREDIT AGREEMENT AND WAIVER OF DEFAULTS
This Amendment, dated as of May 14, 2004, but effective as of
January 31, 2004, is made by and between HEALTH FITNESS CORPORATION, a Minnesota
corporation (the "Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a
national banking association (the "Bank").
Recitals
The Borrower and the Bank are parties to a Credit Agreement
dated as of August 22, 2003, as amended by a First Amendment to Credit Agreement
dated as of December 5, 2003 (as so amended, the "Credit Agreement").
Capitalized terms used in these recitals have the meanings given to them in the
Credit Agreement unless otherwise specified.
The Borrower has requested that certain amendments be made to
the Credit Agreement. The Bank is willing to grant the Borrower's requests
pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, it is agreed as follows:
1. Definitions. All terms defined in the Credit Agreement that
are not otherwise defined herein shall have the meanings given them in the
Credit Agreement. Section 1.1 of the Credit Agreement is amended by adding or
amending, as the case may be, the following definitions:
"'Cash Flow Leverage Ratio' means, as of any date, the ratio
of the sum of the Borrower's (i) Senior Funded Debt and (ii) Bayview
Subordinated Debt as of such date to its EBITDA."
"'Current Maturities of Long Term Debt' means as of a given
date, the amount of the Borrower's long-term debt and capitalized
leases which became due during the period ending on the designated
date."
"'Current Ratio' - deleted."
"Interest Expense' means, as of any date, during the
twelve-month period ending on such date (except where noted otherwise),
the Borrower's total gross interest expense (excluding interest
income), and shall in any event include (i) interest expensed (whether
or not paid) on all Debt, (ii) the amortization of debt discounts,
(iii) the amortization of all fees payable in connection with the
incurrence of Debt to the extent included in interest expense, and (iv)
the portion of any capitalized lease obligation allocable to interest
expense."
"'EBITDA' means, as of any date, the sum of (i) pretax
earnings from continuing operations, (ii) Interest Expense and (iii)
depreciation, depletion, and amortization of tangible and Intangible
Assets, before (a) special extraordinary gains, (b) minority interests,
and (c) miscellaneous gains and losses, in each case for the
twelve-month period ending on such date (except where noted otherwise),
computed and calculated in accordance with GAAP."
"'Fixed Charge Coverage Ratio' means, as of any date, the
ratio of (a) the Borrower's EBITDA minus the sum of the Borrower's (i)
Capital Expenditures, and (ii) taxes to (b) the sum of the Borrower's
(i) Interest Expense (measured on the same basis as Fixed Charge
Coverage Ratio), and (ii) Current Maturities of Long Term Debt."
"'Net Worth' means the aggregate of capital and retained
earnings of the Borrower and its Subsidiaries, as determined on a
consolidated basis in accordance with GAAP, except for the purposes of
this agreement the preferred stock of the Borrower shall be included in
Net Worth."
"'Senior Cash Flow Leverage Ratio' - deleted."
2. Financial Covenants. Sections 5.9, 5.10 and 5.11 of
the Credit Agreement are amended to read as follows:
Section 5.9 Cash Flow Leverage Ratio.
(a) The Borrower will at all times maintain its Cash Flow
Leverage Ratio, with the EBITDA computed on a basis annualized
from January 1, 2004 through the date of determination,
determined as of the last day of each fiscal quarter, at not
more than the ratio set forth below:
YEAR TO DATE MAXIMUM CASH
FISCAL QUARTER ENDING FLOW LEVERAGE RATIO
- --------------------- -------------------------
June 30, 2004 1.75 to 1.00
September 30, 2004 1.50 to 1.00
December 31, 2004 1.50 to 1.00
(b) Beginning on the fiscal quarter ending March 31, 2005 and
for each fiscal quarter thereafter, the Borrower will at all
times maintain its Cash Flow Leverage Ratio on a trailing
twelve month basis determined as of the last day of each
fiscal quarter, at not more than 1.50 to 1.00.
Section 5.10 Senior Leverage Ratio. The Borrower will maintain
its Senior Leverage Ratio, determined as of the end of each fiscal
quarter during each fiscal quarter described below, at not more than
the ratio set forth below opposite such quarter:
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MAXIMUM SENIOR
QUARTER LEVERAGE RATIO
------- --------------
June 30, 2004 3.75 to 1.00
September 30, 2004 3.00 to 1.00
December 31, 2004 2.50 to 1.00
March 31, 2005 and thereafter 2.25 to 1.00
Section 5.11 Fixed Charge Coverage Ratio. The Borrower will
maintain its Fixed Charge Coverage Ratio, determined as of the end of
each fiscal quarter, (i) on a year to date basis, beginning with the
fiscal quarter ending June 30, 2004 through the fiscal quarter ending
December 31, 2004, at not less than 3.00 to 1.00, and (ii) on a
trailing twelve month basis, beginning with the fiscal quarter ending
March 31, 2005 and for each fiscal quarter thereafter, at not less than
3.00 to 1.00.
3. Financial Covenants - EBITDA. Article V of the Credit
Agreement is further amended by adding the following new Section 5.12:
Section 5.12 EBITDA.
(a) The Borrower will achieve minimum EBITDA, determined as of
the end of each fiscal quarter on a year-to-date basis during
each fiscal quarter described below, at not less than the
amount set forth below opposite such quarter:
YEAR TO DATE MINIMUM
PERIOD EBITDA
------ --------------------
June 30, 2004 $1,300,000
September 30, 2004 $2,100,000
December 31, 2004 $3,000,000
(b) The Borrower will achieve minimum EBITDA, determined as of
the end of each fiscal quarter on a trailing twelve month
basis during each fiscal quarter described below, at not less
than the amount set forth below opposite such quarter:
TRAILING TWELVE MONTH
PERIOD MINIMUM EBITDA
------ ----------------------
March 31, 2005 through $3,250,000
December 31, 2005
March 31, 2006 through $3,500,000
December 31, 2006
March 31, 2007 through $4,000,000
December 31, 2007
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4. Waiver of Defaults. The Borrower is in default of the
following provisions of the Credit Agreement (collectively, the "Existing
Defaults"):
Covenant Actual
Section/Covenant Computation Date Required Performance Performance
- ------------------------------ ----------------- -------------------- -------------
Section 5.9/Senior Cash Flow January 31, 2004 2.00 to 1.00 2.28 to 1.00
Leverage Ratio
February 29, 2004 2.00 to 1.00 2.24 to 1.00
March 31, 2004 1.65 to 1.00 2.32 to 1.00
Section 5.10/Senior Leverage January 31, 2004 3.75 to 1.00 3.79 to 1.00
Ratio
March 31, 2004 3.75 to 1.00 4.15 to 1.00
Upon the terms and subject to the conditions set forth in this
Amendment, the Bank hereby waives the Existing Defaults. This waiver shall be
effective only in this specific instance and for the specific purpose for which
it is given, and this waiver shall not entitle the Borrower to any other or
future waiver in any similar or other circumstances.
5. No Other Changes. Except as explicitly amended by this
Amendment, all of the terms and conditions of the Credit Agreement shall remain
in full force and effect and shall apply to any advance or letter of credit
thereunder.
6. Conditions. The amendments set forth above shall be
effective only if the Bank has received, on or before the date hereof (or such
later date as the Bank may agree to in writing), this Amendment, duly executed
by the Borrower.
7. Representations and Warranties. The Borrower hereby
represents and warrants to the Bank as follows:
(a) The Borrower has all requisite power and authority to
execute this Amendment and to perform all of its obligations
hereunder, and this Amendment has been duly executed and
delivered by the Borrower and constitutes the legal, valid and
binding obligation of the Borrower, enforceable in accordance
with its terms.
(b) The execution, delivery and performance by the Borrower of
this Amendment have been duly authorized by all necessary
corporate action and do not (i) require any authorization,
consent or approval by any governmental department,
commission, board, bureau, agency or instrumentality, domestic
or foreign, (ii) violate any provision of any law, rule or
regulation or of any order, writ, injunction or decree
presently in effect, having applicability to the Borrower, or
the articles of incorporation or by-laws of the Borrower, or
(iii) result in a breach of or constitute a default under any
indenture or loan or credit agreement
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or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be
bound or affected.
(c) All of the representations and warranties contained in
Article IV of the Credit Agreement are correct on and as of
the date hereof as though made on and as of such date, except
to the extent that such representations and warranties relate
solely to an earlier date.
8. No Other Waiver. Except as set forth in Paragraph 4 hereof,
the execution of this Amendment any documents related hereto shall not be deemed
to be a waiver of any Default or Event of Default under the Credit Agreement or
breach, default or event of default under any Security Document or other
document held by the Bank, whether or not known to the Bank and whether or not
existing on the date of this Amendment.
9. Release. The Borrower hereby absolutely and unconditionally
releases and forever discharges the Bank, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
10. References. All references in the Credit Agreement to
"this Agreement" shall be deemed to refer to the Credit Agreement as amended
hereby; and any and all references in the Loan Documents to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby.
11. Miscellaneous. The Borrower shall pay all costs and
expenses of the Bank, including attorneys' fees, incurred in connection with the
drafting and preparation of this Amendment and any related documents. Except as
amended by this Amendment, all of the terms and conditions of the Credit
Agreement shall remain in full force and effect. This Amendment may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which counterparts of this
Amendment, taken together, shall constitute but one and the same instrument.
This Amendment shall be governed by the substantive law of the State of
Minnesota.
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IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
WELLS FARGO BANK, NATIONAL HEALTH FITNESS CORPORATION
ASSOCIATION
/s/ Kent Paulson /s/ Wesley W. Winnekins
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By Kent Paulson By Wesley W. Winnekins
Its Vice President Its Chief Financial Officer and Treasurer