<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended MARCH 31, 2000
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or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT
For the transition period from to
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Commission File Number: 0-19283
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VISIONAMERICA INCORPORATED
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(Exact name of small business issuer as specified in its charter)
Delaware 13-3220466
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5350 Poplar Avenue, Suite 900, Memphis, Tennessee 38119
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(Address of principal executive offices)
901-683-7868
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
DURING THE PRECEEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at April 30, 2000
- --------------------------------------------------------------------------------
Common Stock, $0.06 par value 9,033,192
<PAGE> 2
VISIONAMERICA INCORPORATED AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Index to Financial Information: Page
------
<S> <C>
Item 1:
Condensed Consolidated Balance Sheets
as of March 31, 2000 and December 31,
1999 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
March 31, 2000 and 1999 4
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
March 31, 2000 and 1999 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2:
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Item 3:
Quantitative and Qualitative Disclosures about 14
Market Risks
</TABLE>
2
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VISIONAMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
ASSETS 2000 1999
<S> <C> <C>
Current Assets:
Cash $ 2,136,766 $ 1,866,616
Accounts receivable, net of allowance
for doubtful accounts 8,715,640 8,705,593
Prepaid expenses and other assets 1,901,232 1,575,319
Net assets held for disposal 3,818,615 3,644,615
------------ ------------
TOTAL CURRENT ASSETS 16,572,253 15,792,143
Equipment, furniture and fixtures 30,426,208 28,927,555
Less: Accumulated depreciation (11,811,187) (10,978,361)
------------ ------------
NET EQUIPMENT, FURNITURE AND FIXTURES 18,615,021 17,949,194
Management service agreements and other intangible
assets, net of accumulated amortization of
$2,012,521 and $1,863,000 in 2000 and 1999,
respectively 14,080,357 14,229,901
Other assets 3,849,983 3,734,464
------------ ------------
TOTAL ASSETS $ 53,117,614 $ 51,705,702
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 14,479,947 $ 12,012,862
Current installments of obligations under capital
leases and long-term debt 32,291,894 35,779,628
------------ ------------
TOTAL CURRENT LIABILITIES 46,771,841 47,792,490
Obligations under capital leases, excluding
current installments 7,415,091 6,628,636
Long-term debt, excluding current
installments 406,639 348,145
------------ ------------
TOTAL LIABILITIES 54,593,571 54,769,271
Minority Interest (10,407) 77,004
Stockholders' deficit:
Common stock 611,218 551,218
Treasury stock (152,609) (152,609)
Additional paid-in capital 36,968,534 33,028,534
Accumulated deficit (38,892,693) (36,567,716)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (1,465,550) (3,140,573)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 53,117,614 $ 51,705,702
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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VISIONAMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Center net revenues $ 14,042,889 $ 14,163,866
Other revenues 462,089 878,672
------------ ------------
TOTAL REVENUES 14,504,978 15,042,538
Center operating expenses 12,289,807 11,094,785
Selling, general, and administrative expenses 2,006,689 1,314,133
Cost of sales 223,226 568,525
Provision for doubtful accounts 976,781 607,438
------------ ------------
EARNINGS (LOSS) FROM OPERATIONS (991,525) 1,457,657
Interest expense (1,217,245) (644,223)
Minority interest in net income of partnerships (107,969) (132,907)
Equity in loss of joint venture (148,866) --
Income tax expense (41,000) (167,737)
------------ ------------
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS (2,506,605) 512,790
Discontinued operations, net of tax 181,628 80,761
------------ ------------
NET EARNINGS (LOSS) $ (2,324,977) $ 593,551
============ ============
Earnings (loss) from continuing
operations per common share:
Basic $ (.26) $ 0.06
============ ============
Diluted $ (.26) $ 0.06
============ ============
Earning from discontinued operations:
Basic $ 0.02 $ 0.01
============ ============
Diluted $ 0.02 $ 0.01
============ ============
Earnings (loss) per common share:
Basic $ (.24) $ 0.07
============ ============
Diluted $ (.24) $ 0.07
============ ============
Weighted average number of common shares:
Basic 9,664,590 8,962,988
============ ============
Diluted 9,664,590 8,981,098
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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VISIONAMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $(2,324,977) $ 593,551
Adjustments to reconcile net earnings (loss) to net
cash provided by continuing operations:
Depreciation and amortization 1,035,915 776,774
Provision for doubtful accounts 976,781 612,013
Income from discontinued operations (181,629) (80,761)
Equity in loss of joint venture 148,886 --
Minority interest in partnerships 107,969 132,907
Increase in:
Receivables (1,061,828) (2,467,984)
Prepaids and other assets (618,223) (420,554)
Increase in:
Accounts payable and accrued expenses 2,612,310 877,762
----------- -----------
NET CASH PROVIDED BY CONTINUING OPERATIONS 695,204 23,708
NET CASH USED IN DISCONTINUED OPERATIONS (62,596) (912,425)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 632,608 (888,717)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (565,868) (360,413)
Acquisition of assets of physician practices -- (411,151)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (565,868) (771,564)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in long-term debt and capital lease obligations (3,601,210) 2,090,960
Distributions to minority interest (195,380) (192,692)
Proceeds from issuance of Common Stock 4,000,000 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 203,410 1,898,268
----------- -----------
NET INCREASE IN CASH 270,150 237,987
CASH AT BEGINNING OF PERIOD 1,866,616 3,100,145
----------- -----------
CASH AT END OF PERIOD $ 2,136,766 $ 3,338,132
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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VISIONAMERICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The information contained in the interim consolidated financial statements and
footnotes is condensed from that which would appear in the annual consolidated
financial statements. Accordingly, the interim condensed consolidated financial
statements included herein should be read in conjunction with the consolidated
financial statements as of and for the year ended December 31, 1999 filed by
VisionAmerica Incorporated and Subsidiaries (the "Company") with the Securities
and Exchange Commission on Form 10-K. The unaudited interim condensed
consolidated financial statements as of March 31, 2000 and 1999, include all
normal recurring adjustments which management considers necessary for a fair
presentation. Certain 1999 amounts have been reclassified to conform to the 2000
presentation. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the entire fiscal
year.
The Company adopted a plan in the fourth quarter of 1998 to transition the
ownership and operation of its managed care subsidiary ("EHN") to a strategic
partner. The Company completed the sale of certain assets of EHN in the third
quarter of 1999, but the anticipated strategic relationship did not materialize
and the Company discontinued the remaining operations of EHN. The remaining
contracts of EHN have terminated as of December 31, 1999, and the operation
should be completely discontinued by the end of May 2000. During the fourth
quarter of 1999 the Company's board of directors also adopted plans of disposal
related to Primary Eyecare Network ("PEN"), its ophthalmic buying group, and
Providers Optical Inc. ("Providers"), its wholesale optical laboratory.
Providers was sold in 1999 and PEN is expected to be sold in 2000. As a result
of the above, the operations of EHN, PEN, and Providers have been classified as
discontinued operations for each period presented in the accompanying condensed
consolidated financial statements.
2. EARNINGS PER SHARE
Basic earnings (loss) per share for each period are computed by dividing net
earnings (loss) by the weighted-average number of shares of common stock
outstanding during the period. Diluted earnings (loss) for each period are
computed by dividing net earnings (loss) by the sum of (1) the weighted-average
number of shares outstanding during the period and (2) the dilutive effect of
the assumed exercise of stock options and warrants using the treasury stock
method. The following is a reconciliation of the numerators and denominators of
the per share computations for earnings (loss) from continuing operations per
share(EPS) for the three months ended March 31, 2000 and 1999, respectively:
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
NUMERATOR:
Earnings (loss) from continuing operations (numerator
for basic and diluted EPS) $(2,507) $ 513
DENOMINATOR:
Weighted average shares (denominator for basic EPS) 9,665 8,963
Effect of dilutive securities-stock options -- 18
------- ------
Weighted average shares and assumed conversions
(denominator for diluted EPS) 9,665 8,981
======= ======
BASIC EPS $ (.26) $ .06
DILUTED EPS $ (.26) $ .06
</TABLE>
Options and warrants to purchase 1,086,414 and 1,053,521 shares of common stock
were outstanding during the quarters ended March 31, 2000 and 1999,
respectively, that were not included in the computations of diluted EPS because
they were antidilutive. Additionally, as discussed in Note 3 the
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<PAGE> 7
Company's seniors lenders were issued warrants to purchase 2,836,760 shares
effective May 1, 2000, which are not included in the computations.
3. REVOLVING CREDIT AGREEMENT
The Company has a $50,000,000 bank revolving credit facility. Borrowings under
the agreement bear interest at the 30-day commercial paper rate plus 4.25%,
which was 10.05% at March 31, 2000. Interest only was due monthly until January
2000, at which time the borrowings are due in installments over a four-year
period. Substantially all the Company's assets are pledged under the agreement.
Under the terms of the agreement, the Company is required to maintain compliance
with certain financial covenants. As of December 31, 1999 and March 31, 2000,
the Company is in technical default under the terms of its revolving credit
facility and has not received any waivers of noncompliance with related debt
covenants. Because of these circumstances, all amounts due under the facility
can be deemed immediately due and payable at the lenders' discretion. Therefore,
such amounts totaling $30,307,000 and $33,675,000 have been classified as a
current liability in the accompanying condensed consolidated financial
statements at March 31, 2000 and December 31, 1999, respectively. The Company's
senior lenders agreed on May 1, 2000, subject to various terms and conditions,
to provide a new $2.5 million discretionary over-line as an amendment to the
credit facility to fund certain Company expenditures. As a part of this new
lending agreement, the senior lenders received warrants, exercisable at $0.06
per share, to purchase 20% of the Company's common stock on a fully diluted
basis (2,836,760 shares). If the Company repays both the $2.5 million facility
and the $3.0 million letter of credit described in note 5 within six months of
their respective effective dates, 50% of the warrants will be canceled at no
cost to the Company. The Company's lenders have not to-date, however, extended
any commitment to waive such noncompliance or otherwise renegotiate the terms of
the credit facility. The Company does not currently have alternative financing
arrangements should the lenders demand repayment. Management intends to pursue
the renegotiation of the Company's credit facility with the current lenders.
However, if the Company cannot resolve these issues with its current lenders,
management expects to pursue alternative financing arrangements. The Company's
objective is to achieve a new financing arrangement in such a fashion that the
Company's financial position will not be adversely affected. Nevertheless, no
new financing arrangements are in place and there can be no assurances that any
such arrangements will in fact be consummated. Deferred financing costs totaling
$815,000 at March 31, 2000, which are included in other assets, would be written
off in the event that the Company reaches an agreement with lenders other than
those currently in place.
4. RESTRICTED STOCK SALE AND JOINT VENTURE
On February 24th, 2000 ICON Laser Eye Centers, Inc. (ICON) purchased 1,000,000
restricted shares of the Company's common stock for aggregate proceeds totaling
$4,000,000. The related agreement also grants ICON, contingent upon certain
events, registration rights with respect to the restricted shares. These rights
include the Company's issuance of a warrant for an additional 1,000,000 shares
of the Company's common stock if, among other things, a registration statement
is not filed for the original 1,000,000 shares by July 31, 2000.
ICON has subsequently requested that the Company renegotiate the agreement
described above, and such negotiations are currently in process. As a result of
negotiations to-date, the Company and ICON entered into a Letter of Intent
("LOI") on May 12, 2000 that outlines the terms of both a settlement regarding
the stock purchase agreement and a joint operating arrangement.
The settlement portion of the LOI contemplates the termination of the stock
purchase agreement and the issuance by the Company of a $4,000,000 subordinated
convertible note to ICON. The note would bear interest at 5% annually, and all
principal and interest would be due at the note's suggested maturity date of May
31, 2005. The note would be convertible at any time into Company common stock at
a conversion rate of $1.00 per share. Additionally, ICON would receive
detachable warrants to purchase 1,000,000 shares of the Company's common stock
at $0.06 per share. The LOI also outlines the structure of a joint operating
arrangement, whereby the Company and ICON would each have a 50% ownership
interest in a new entity that would market and provide laser vision correction
services in select markets. The Company's investment in this joint operating
arrangement will be accounted for using the equity method.
7
<PAGE> 8
Both the Company and ICON have agreed to immediately negotiate definitive
agreements with respect to the terms of the LOI. The Company views its
relationship with ICON as critical to its future business objectives, and
therefore the importance of current negotiations with ICON should be viewed in
that light. There are no such agreements currently in place nor can achievement
of such agreements be assured. Additionally, the agreement's terms with respect
to stock purchase revisions would require the approval of both the Company's
shareholders and senior lenders, and the joint operating arrangement would
require the approval of the senior lenders.
As of March 31, 2000, the Company and ICON had begun joint laser vision
correction activities in 9 of the Company's markets as an unincorporated joint
venture with terms substantially in accord with the LOI. The operations of the
venture, from commencement in mid-February 2000 through March 31, 2000,
consisted principally of marketing efforts and patient scheduling, with
surgeries having begun in only one of the 9 markets. The Company's 50% interest
in the start-up activities is included in the accompanying condensed
consolidated statement of operations for the three months ended March 31, 2000
as equity in loss of joint venture.
5. CONTINGENCIES
DELINQUENT PAYROLL TAXES AND WITHHOLDINGS
At March 31, 2000 and December 31, 1999, the Company had accrued approximately
$6.4 million and $5.3 million, respectively, for unremitted payroll taxes and
withholdings that are included in accrued expenses in the accompanying condensed
consolidated balance sheets.
The Company and its advisors continue to negotiate with the Internal Revenue
Service (IRS) regarding a settlement of outstanding amounts (including
accumulated penalties and interest) due to the IRS. Based on negotiations to
date, it is considered probable that the IRS will ultimately agree to a
settlement wherein the Company will be released from its obligation for all
delinquent payroll taxes, withholdings, penalties and interest for a lump sum
payment no greater than the accrual at December 31, 1999. Nevertheless, there
can be no assurance that the Company will be able to negotiate a settlement with
the IRS for an amount less than is owed, including penalties and interest, and
further that, in the event of a settlement, it will have the funds to effect the
settlement. If applicable, the $6.4 million accrual in the accompanying
condensed consolidated financial statements will be adjusted downward when the
Company has entered into a formal settlement with the IRS and has been legally
released from liability with respect to this matter.
In an agreement dated May 3, 2000, between the Company, its senior lenders and
the IRS, the IRS has agreed to withdraw existing liens against Company assets
for the unpaid taxes and withholdings and to refrain from taking any further
collection actions against the Company. In exchange, the senior lenders will
provide a $3,000,000 letter of credit on which the IRS may draw upon under
certain conditions, and in any event after one year if the Company has not
settled with the IRS.
LITIGATION
The Company and certain of its officers are the subjects of various class-action
claims, filed at various dates since March 2000, alleging violations of federal
securities laws. These complaints generally allege that certain shareholders
suffered financial losses as a result of false and misleading information the
Company provided about its financial condition.
The Company is not yet able to determine what impact, if any, the litigation
described above will have on the Company's financial position or results of
operations. The Company has directors' and officers' liability insurance
coverage that would apply to losses that might be suffered as a result of these
claims; however, there is a possibility that related alleged damages may be in
excess of such available coverage. An unfavorable outcome to these matters could
have a material adverse effect on the Company's financial position or results of
operations.
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PROVIDERS NOTES
Effective December 14, 1999, the Company sold all of the stock of Providers.
Consideration for the stock sale, totaling approximately $2.8 million, consisted
of the following: $100,000 due within 90 days of closing, $400,000 due within
180 days of closing, a $1.5 million 9% term note payable over 60 months, and a
$1.3 million non-interest bearing balloon note due December 3, 2004 (interest
imputed at a 9% stated interest rate for financial reporting purposes). The
aggregate loss from Providers for financial reporting purposes from both
operations and its disposal totaled approximately $1.3 million for the year
ended December 31, 1999. The first $100,000 payment due on the sale was received
on March 22, 2000, but failed to clear the Company's bank upon receipt.
Subsequent recovery of the $100,000 payment has yet to be resolved. Because of
these events and the lack of sufficient information concerning the buyer's
current financial condition, the recoverability of the amounts due from the sale
are uncertain and potential write-downs thereof could have a material adverse
effect on future results of the Company.
LIABILITY INSURANCE COVERAGES
The Company maintains professional liability coverage on a claims-made basis for
its centers, employees, and independent contractors, including center directors,
with minimum requirements of $3,000,000 per occurrence and $3,000,000 annually.
The Company's management agreements require its affiliated ophthalmologists to
maintain professional liability coverage, generally with minimum requirements of
$1,000,000 per occurrence and $3,000,000 annually. The Company also maintains
general liability coverage. Providing support associated with health care
services may give rise to claims from patients or others for damages, and the
Company has in fact been named in certain professional liability claims. The
Company believes that the ultimate resolution of these matters will not have a
material effect on the Company's financial position or results of operations. To
the extent that any claims-made coverage is not renewed or replaced with
equivalent insurance, claims based on occurrences during the term of such
coverage, but reported subsequently, would be uninsured. Management anticipates
that the claims-made coverage currently in place will be renewed or replaced
with equivalent insurance as the term of such coverage expires.
6. GOING CONCERN MATTERS AND RELATED SUBSEQUENT EVENTS
The Company faces significant operational and financial challenges in the
near-term, including but not limited to:
- Renegotiation of its senior credit facility, as described in note 3;
- Negotiation of definitive agreements with ICON with respect to the
LOI discussed in note 4:
- Reaching a final settlement of the IRS matter discussed in note 5; and
- Management of the various class action claims described in note 5.
The Company, with the assistance of its lenders, certain advisors and ICON, is
actively and globally evaluating its business strategy and operating model. This
evaluation is especially important in light of significant economic weaknesses
evidenced by its physician practice management segment in 1999 (leading to an
impairment charge to 1999 earnings of $19.2 million) and what the Company
believes are dramatic opportunities to grow and enhance its laser vision
correction revenue streams through a joint venture arrangement with ICON. The
complexity of the Company's business evaluation is further aggravated by
significant immediate liquidity issues that must be addressed in parallel with
any contemplated strategic and operational changes.
In order to emerge from its current liquidity and operational difficulties with
a profitable business model, the Company must achieve success on a number of
critical fronts, including those described above. While the Company's management
is focused on these objectives, there can be no assurance that the Company will
in fact achieve such success. These circumstances raise substantial doubt about
the Company's ability to continue as a going concern. The condensed consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
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7. SEGMENT INFORMATION
The Company classifies its operations into two business segments: center
operations and other. The center operations segment includes all activity
related to managing ophthalmology practices and ambulatory surgical centers. The
other segment primarily includes the operations of VisionAmerica Surgical
Services, Inc., formerly Omega Medical Services, Inc., which provides mobile
surgical and other supplies and services to eye care providers. The corporate
category includes general and administrative expenses associated with the
operation of the Company's corporate office. There are no material intersegment
sales, and operating income by business segment excludes interest income,
interest expense, and corporate expenses.
Summarized financial information by business segment for three months ended
March 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Revenues:
Center operations $ 14,042,889 $ 14,163,866
Other 462,089 878,672
------------ ------------
Total revenues $ 14,504,978 $ 15,042,538
============ ============
Earnings (losses):
Center operations $ 822,178 $ 2,366,400
Other 108,846 96,422
------------ ------------
Total segments 931,024 2,462,822
Corporate expense (2,068,656) (1,001,386)
Net interest expense (1,220,004) (648,002)
Minority interest expense (107,969) (132,907)
Income tax expense (41,000) (167,737)
------------ ------------
Total earnings (losses) from
continuing operations $ (2,506,605) $ 512,790
============ ============
</TABLE>
8. DELISTING NOTIFICATION
The Company received a notification from the NASDAQ Stock Market (NASDAQ) on
April 20, 2000, indicating that it would be delisted if it did not file its Form
10-K with the SEC by April 27, 2000. The company appealed this action which
stayed the delisting pending the appeal hearing. The NASDAQ granted the Company
an appeal hearing to be held May 18, 2000, requesting that it demonstrate its
ability to sustain long term compliance with all listing maintenance criteria,
as well as timely filing with the SEC. In the interim, on May 17, 2000, the
Company filed its Form 10-K with the SEC.
As a result of the hearing on May 18, 2000, the NASDAQ has granted the Company
until May 30, 2000, to provide a supplemental written submission to the hearing
panel addressing certain listing criteria not addressed in the initial hearing.
Upon receipt of this information or May 30, 2000 at the latest, the NASDAQ will
make a final determination regarding continued listing of the Company
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for historical information, statements relating to the Company's
plans, objectives and future performance are forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are based on management's current expectations. Because of various
risks and uncertainties, actual strategies and results in future periods may
differ materially from those currently expected.
The discussion set forth below analyzes certain factors and trends
related to the financial results for each of the three months ended March 31,
2000 and 1999. This discussion should be read in conjunction with the condensed
consolidated financial statements and notes to the condensed consolidated
financial statements.
LIQUIDITY AND CAPITAL RESOURCES
In early 1999 the Company announced plans to focus its resources on its
core business of operating eye care and surgery centers including a major new
initiative to expand its laser vision correction capabilities. Despite some
success in its refractive surgery campaign in certain of its markets, in
planning discussions beginning in late 1999 and continuing into 2000, the
Company determined that dramatic shifts in strategic and operational focuses
were required to enhance the sustainability of the Company's business model. An
important component of these shifts in focus was a global evaluation of existing
physician practice management relationships and the related assets underneath
those contractual arrangements, referred to here as the "impairment analysis."
The impairment analysis was characterized by an identification (generally based
on poor historical cash flows and/or active disposal consideration) of
under-performing physician practice management relationships and an evaluation
of the business case for continuation of those relationships. The impairment
analysis specifically identified 10 contractual relationships that are
economically burdensome to the Company and that also meet the accounting
criteria for impairment as of December 31, 1999. As a result of the analysis,
the Company recorded an impairment charge to earnings in the 4th quarter of
fiscal 1999 totaling $19.2 million, comprised primarily of write-downs of
related practice intangible assets.
The 10 centers identified as impaired represent approximately 26% of
the Company's 1999 net revenues from physician practice management operations
(the center operations segment). While the Company's Board of Directors has not
yet formally adopted plans for disposal of the practice assets discussed above,
the Company expects such plans to be adopted in the 2nd quarter of fiscal 2000
and such assets to be reported as held for disposal beginning in that quarter.
The Company incurred a net loss from continuing operations of
$28,827,000 for the year ending December 31, 1999, including the impairment
charge discussed above, and incurred a further loss from continuing operations
in the three months ended March 31, 2000 of $2,507,000. At March 31, 2000,
current liabilities (which includes all amounts due to the Company's senior
lenders as discussed below) exceeded current assets by $30,200,000. Reflective
of these amounts, the Company faces significant operational and financial
challenges in the near-term, including but not limited to those described below.
The Company is in technical default under the terms of its revolving
credit facility and has not received any waivers of noncompliance with related
debt covenants. Because of these circumstances, all amounts due under the
facility can be deemed immediately due and payable at the lenders' discretion.
Therefore, such amounts totaling $30,307,000 and $33,675,000 have been
classified as a current liability in the accompanying condensed consolidated
financial statements at March 31, 2000 and December 31, 1999, respectively. The
Company's senior lenders agreed on May 1, 2000, subject to various terms and
conditions, to provide a new $2.5 million discretionary over-line as an
amendment to the credit facility to fund certain Company expenditures. As a part
of this new lending agreement, the senior lenders have received warrants,
exercisable at $0.06 per share, to purchase 20% of the Company's common stock on
a fully diluted basis. If the Company repays both the $2.5 million facility and
a $3.0 million letter of credit described below within six months of their
respective effective dates, 50% of the warrants will be canceled at no cost to
the Company. The Company's lenders have not to-date, however, extended any
commitment to
11
<PAGE> 12
waive noncompliance with the covenants under the credit facility. The Company
does not currently have alternative financing arrangements should the lenders
demand repayment. Management intends to pursue the renegotiation of its credit
facility with its current lenders. However, if the Company cannot resolve the
issues with its current lenders, management expects to pursue alternative
financing arrangements. The Company's objective is to achieve a new financing
arrangement in such a fashion that the Company's financial position will not be
adversely affected. Nevertheless, no new financing arrangements are in place and
there can be no assurances that any such arrangements will in fact be
consummated.
At March 31, 2000 and December 31, 1999, the Company had accrued
approximately $6.4 million and $5.3 million, respectively, for delinquent
unremitted payroll taxes and withholdings. The Company and its advisors are
currently negotiating with the Internal Revenue Service (IRS) regarding a
settlement of outstanding amounts (including accumulated penalties and interest)
due to the IRS. In an agreement dated May 3, 2000, between the Company, its
senior lenders and the IRS, the IRS has agreed to withdraw existing liens
against Company assets for the unpaid taxes and withholdings and to refrain from
taking any further collection actions against the Company. In exchange, the
senior lenders will provide a $3,000,000 letter of credit on which the IRS may
draw upon under certain conditions, and in any event after one year if the
Company has not settled with the IRS. The Company believes its negotiations with
the IRS will result in a settlement within a range, the high end of which is no
greater than the recorded liability for these taxes and withholdings at December
31, 1999. Nevertheless, there can be no assurance that the Company will be able
to negotiate a settlement with the IRS for an amount less than is owed,
including penalties and interest, and further that, in the event of a
settlement, it will have the funds to effect the settlement.
The Company and certain of its officers are the subjects of various
class-action claims, filed at various dates since March 2000, alleging
violations of federal securities laws. These complaints generally allege that
certain shareholders suffered financial losses as a result of false and
misleading information the Company provided about its financial condition. The
Company is not yet able to determine what impact, if any, the litigation
described above will have on the Company's financial position or results of
operations. The Company has directors' and officers' liability insurance
coverage that would apply to losses that might be suffered as a result of these
claims; however, there is a possibility that related alleged damages may be in
excess of such available coverage. An unfavorable outcome to these matters could
have a material adverse effect on the Company's financial position or results of
operations.
The Company, with the assistance of its lenders, certain advisors and
ICON, is actively and globally evaluating its business strategy and operating
model. This evaluation is especially important in light of significant economic
weaknesses evidenced by its physician practice management segment throughout
1999 (leading to the impairment analysis and related material charge to 1999
earnings) and what the Company believes are dramatic opportunities to grow and
enhance its laser vision correction revenue streams through a joint venture
arrangement with ICON. The complexity of the Company's business evaluation is
further aggravated by significant immediate liquidity issues that must be
addressed in parallel with any contemplated strategic and operational changes.
In February 2000, the Company announced plans to jointly offer laser
vision correction programs in certain of its markets with ICON Laser Eye
Centers, Inc. (ICON), a market leader in lower-priced excimer laser services. In
connection with these joint efforts, ICON provides marketing services and access
to its telephone response call center for patient follow-up and scheduling and
the Company provides the facilities and personnel. As of May 15, 2000, this
joint program has been initiated in 13 of the Company's markets and early
results of the joint programs indicate strong market acceptance. The definitive
terms of the joint venture relationship have not been finalized, however a
letter of intent outlining the arrangement was signed on May 12, 2000, subject
to the preparation and execution of definitive documents by May 27, 2000 and
approval of the Company's senior lenders. The letter of intent provides for
equal ownership in a newly formed joint venture entity.
Additionally, on February 24, 2000, ICON purchased 1,000,000 shares of
restricted common stock of the Company for $4,000,000. ICON subsequently
requested that the Company renegotiate the transaction and in the letter of
intent dated May 12, 2000 noted above, the Company has agreed to rescind the
prior stock purchase and issue ICON a $4,000,000 subordinated convertible
debenture with interest at 5%,
12
<PAGE> 13
convertible into the Company's common stock at $1.00 per share and maturing on
May 31, 2005. ICON would also be issued warrants to purchase 1,000,000 shares of
the Company's common stock at $.06 per share. This agreement is also subject to
the negotiation and execution of definitive documents by May 27, 2000, and
further, would require approval of the Company's shareholders and its senior
lenders. The Company views its relationship with ICON as critical to its future
business objectives, and therefore the importance of current negotiations with
ICON should be viewed in that light.
In order to emerge from its current liquidity and operational
difficulties with a profitable business model, the Company must achieve success
on a number of critical fronts, including those described above. While the
Company's management is focused on these objectives, there can be no assurance
that the Company will in fact achieve such success. These circumstances raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result if the Company is unable to continue to operate its business.
Net cash provided by continuing operations for the three months ended
March 31, 2000 was $695,000, however, an increase in accounts payable and
accrued expenses of $2,612,000 was a significant contributing factor in causing
these inflows. The increase in accounts payable and accrued expenses was due to
the delinquent payroll taxes and withholdings noted above as well as to an
elongation of the Company's payables cycle. Net cash used in investing
activities during the quarter consisted of $566,000 in capital expenditures, and
net cash provided by financing activities totaled $203,000. With regard to these
financing activities, the Company received $4,000,000 from ICON in February 2000
in a stock purchase transaction as discussed previously. The proceeds
principally financed the first principal payments due under the Company's senior
credit facility and capital lease payments, and the net financing amount of
$203,000 was used to pay down certain aged payables. Although alleviating the
severity of the Company's immediate cash flow problems, this infusion of capital
was not sufficient to satisfy any future working capital needs.
Net cash provided by continuing operations for the three months ended
March 31, 1999 was $24,000, however net cash used by operating activities
totaled $889,000, as cash used by the Company's discontinued operations was
$913,000 for the quarter. Cash used in investing activities totaled $772,000,
consisting of capital expenditures and practice acquisitions. These operating
and investing uses were financed principally by additional bank borrowings.
As discussed in note 8 to the accompanying condensed consolidated
financial statements, the Company has received a delisting notification from the
NASDAQ Stock Market and is in the process of appealing the delisting. The NASDAQ
is scheduled to rule on the appeal no later than May 30, 2000, and there can be
no assurances given that it will rule favorably on the continued listing of the
Company's securities.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31
--------------
(in thousands)
2000 1999
<S> <C> <C>
Center net revenues $ 14,043 $ 14,164
Other revenues 462 879
-------- --------
TOTAL REVENUES 14,505 15,043
Center operating expenses 12,290 11,095
Selling, general, and administrative expenses 2,007 1,314
Cost of sales 223 569
Provision for doubtful accounts 977 607
-------- --------
EARNINGS (LOSS) FROM OPERATIONS (992) 1,458
Interest expense (1,217) (644)
Minority interest in net income of partnerships (108) (133)
Equity in loss of joint venture (149) --
Income tax expense (41) (168)
-------- --------
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS $ (2,507) $ 513
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Total Revenues. Total revenues decreased from $15,043,000 for the three
months ended March 31, 1999 to $14,505,000 for the three months ended March 31,
2000, a decrease of $538,000 or 3.6%.
Center net revenues decreased from $14,164,000 for the 1999
period to $14,043,000 for the 2000 period, a decrease of $121,000, or
0.9%. The decline was the combined effect of a decrease in revenues of
approximately $600,000 or 15% between the periods for the "impaired"
centers more than offsetting a net increase in volume for the remainder
of the centers.
Other revenues decreased from $879,000 for the 1999 period to
$462,000 for the 2000 period, a decrease of $417,000 or 47.4% due
principally to a large nonrecurring equipment sale in the first quarter
of 1999.
Center Operating Expenses. Center operating expenses increased from
$11,095,000 for the three months ended March 31, 1999 to $12,290,000 for the
three months ended March 31, 2000, an increase of
13
<PAGE> 14
$1,195,000 or 10.8%, and as a percentage of center net revenue, center
operating expenses increased from 78.3% to 84.7%. The increase relates
principally to the discontinuance in 2000 of the accrual of management fees from
"impaired" centers from which due to continuing losses, the fees appear
uncollectible. Management fees are recorded as a reduction of center operating
expenses. Approximately $2,000,000 of the impairment charge recorded in the
fourth quarter of 1999 related to the collectibility of accrued management fees.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $1,314,000 for the three months ended
March 31, 1999 to $2,007,000 for the three months ended March 31, 2000, an
increase of $693,000, or 52.7%. The increase results principally from spending
on the continuing development of new information systems and an increase in
professional fees related to the Company's operational and administrative
difficulties. As a percentage of total revenues, selling, general, and
administrative expenses increased from 8.7% in the 1999 period to 13.8% in the
2000 period.
Cost of Sales. Cost of sales decreased from $569,000 for the three
months ended March 31, 1999 to $223,000 for the three months ended March 31,
2000, a decrease of $346,000. As a percentage of other revenues, cost of sales
decreased from 64.7% in the 1999 period to 48.3% in the 2000 period as a result
of the large equipment sale noted above causing a higher mix of equipment and
supply sales in 1999, which have a relatively lower margin, to mobile surgical
sales.
Provision for Doubtful Accounts. Provision for doubtful accounts
increased from $607,000 for the three months ended March 31, 1999 to $977,000
for the three months ended March 31, 2000, an increase of $370,000, or 61.0%.
The increase relates principally to the continued deterioration in the aging of
the accounts receivable caused by disruptions in collection activity associated
with computer system conversions at the centers during the latter half of 1999.
As a percentage of total revenues, provision for doubtful accounts increased
from 4.0% in the 1999 period to 6.7% in the 2000 period.
Interest Expense. Interest expense increased from $644,000 for the
three months ended March 31, 1999 to $1,217,000 for the three months ended March
31, 2000, an increase of $573,000, or 89.0%. This increase relates principally
to the increase in capital lease obligations incurred during 1999 for lasers and
other equipment related to the Company's refractive surgery marketing initiative
and to a much lessor extent increased bank borrowings for 1999 acquisitions and
working capital needs and the impact of increasing interest rates on the
floating rate bank debt.
Equity in loss of joint venture. Equity in loss of joint venture
represents the Company's 50% interest in the start-up activities of its joint
laser vision correction arrangement with ICON Laser Eye Centers, Inc. as more
fully described in note 4 to the condensed consolidated financial statements.
Income Tax Expense. Income tax expense in the three months ended March
31, 2000, represents state income taxes related to profitable centers, as the
Company is in a loss carryforward position for Federal income tax purposes.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
There were no material changes during the quarter in the information
about market risks included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
14
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 5 to the accompanying Condensed Consolidated Financial
Statements and Item 3. Legal Proceedings in the Company's Form 10-K
filed on May 17, 2000.
Item 2. Changes in Securities.
See Notes 3 and 4 of the accompanying Condensed Consolidated Financial
Statements regarding recent sales of unregistered securities to the
Company's senior lenders and ICON Laser Eye Centers, Inc.,
respectively.
Item 3. Defaults Upon Senior Securities.
See Note 3 to the accompanying Condensed Consolidated Financial
Statements regarding defaults by the Company under its senior credit
facility.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(10) Intercreditor Agreement
(27) Financial Data Schedule
(b) Reports on Form 8-K:
(1) Report dated March 8, 2000 under Item 5. reporting a
$4,000,000 private placement to ICON Laser Eye Centers, Inc.
(2) Report dated March 30, 2000, reporting under i) Item 5.
regarding press releases dated March 24, 2000 and March 27,
2000, which discuss among other things, the resignation of
the Company's Chief Financial Officer, delay of the filing
of the 1999 Form 10-K, election of two new directors, and
the appointment of a Chief Operating Officer, and
ii) Item 6. regarding the resignation of Ron Edmonds as a
Director on March 22, 2000.
15
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VISIONAMERICA INCORPORATED
---------------------------------------------
Registrant
May 23, 1999 By \s\ Andrew W. Miller
------------------------------------------
Andrew W. Miller
Acting Chief Executive Officer
By \s\ Todd E. Smith
------------------------------------------
Todd E. Smith
Chief Accounting Officer
16
<PAGE> 1
Exhibit 10
INTERCREDITOR AGREEMENT
THIS AGREEMENT is made and entered into on the dates set forth below, but
is effective as of May 1, 2000, among BANC OF AMERICA COMMERCIAL FINANCE
CORPORATION, a Delaware corporation (formerly known as NationCredit Commercial
Corporation in its capacity as agent under the Credit Agreement defined below,
together with its successors in such capacity the "AGENT"), the INTERNAL REVENUE
SERVICE, an agency of the government of the UNITED STATES OF AMERICA (the
"IRS"), VISIONAMERICA INCORPORATED, a Delaware corporation (formerly known as
Omega Health Systems, Inc., together with its successors the "COMPANY"), and
each subsidiary of the Company signatory hereto (collectively, the
"SUBSIDIARIES"). Hereinafter, May 1, 2000, is treated as the date of this
agreement.
STATEMENT OF FACTS
The Company, the lenders from time to time party thereto (the "LENDERS")
and the Agent are parties to that certain Second Amended and Restated Credit
Agreement dated as of December 16, 1998, as amended by the Amendment and Waiver
Letter dated as of April 27, 1999, the First Amendment to Second Amended and
Restated Credit Agreement and Waiver dated as of May 18, 1999, that certain
letter agreement among the Company, the Agent and the Lenders dated February 25,
2000, that certain Second Amendment to Second Amended and Restated Credit
Agreement, dated as of April 24, 2000 and that certain Third Amendment to Credit
Agreement, dated as of May 1, 2000 (as so amended and as amended from time to
time hereafter, the "CREDIT AGREEMENT"), whereby the Lenders have agreed to make
certain loans and other financial accommodations to the Company, subject to the
terms, covenants and conditions contained in the Credit Agreement. The
obligations of the Company under the Credit Agreement have been guaranteed by
each of its direct and indirect subsidiaries and the Company and such
subsidiaries have pledged substantially all of their assets to the Agent as
security for such obligations and the guarantees thereof, all in accordance with
the terms of the Financing Documents.
The IRS has filed two notices of tax lien against the Company, one in the
stated amount of $2,762,520.68 with respect to liabilities incurred by the
Company and its subsidiaries with respect to federal employment and/or employee
withholding taxes ("EMPLOYMENT TAX LIABILITIES") for the fourth quarter of 1998
and the first quarter of 1999 which notice was filed October 10, 1999 (the
"OCTOBER LIEN NOTICE") and a second in the stated amount of $3,056,211.08 with
respect to Employment Tax Liabilities for the second and third quarters of 1999
(the "MARCH LIEN NOTICE;" the Employment Tax Liabilities that are the subject of
the October Lien Notice and the March Lien Notice are hereinafter referred to as
the
<PAGE> 2
"SECURED EMPLOYMENT TAX LIABILITIES"). The Company and its Subsidiaries may also
have unpaid Employment Tax Liabilities with respect to the fourth quarter of
1999 and the first quarter of 2000 or may have unpaid federal income tax
liabilities with respect to taxable years that have ended prior to the date
hereof that the IRS has not assessed (the "UNASSESSED TAX LIABILITIES" which,
together with the Secured Employment Tax Liabilities and any other Employment
Tax Liabilities incurred by any Credit Party prior to May 1, 2000 are
hereinafter referred to as the "PRIOR TAX LIABILITIES").
The IRS has agreed, subject to the terms and conditions hereof, to
withdraw the October Lien Notice and the March Lien Notice and not to take any
action to collect the Prior Tax Liabilities during the term of this Agreement,
and in exchange therefor, the Agent has agreed to issue the Letter of Credit to
the IRS for the account of the Company in the form of Exhibit A attached hereto,
and the Company and its Subsidiaries have agreed to join in the execution hereof
in order to effectuate such agreement, all on the terms and conditions set forth
herein.
In consideration of the mutual covenants set forth herein and other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and in order to induce each party to enter into the transactions
contemplated hereby, the parties hereto agree as follows:
STATEMENT OF TERMS
1. DEFINITIONS. (a) The following terms shall have the following meanings
as used in this Agreement:
"AGENT" shall have the meaning given such term in the preamble to this
Agreement and shall include its successors and assigns.
"AGENT COLLATERAL" shall mean any or all of the Collateral in or upon
which the Agent now or hereafter has a Lien under the Financing Documents as
security for the Credit Agreement Obligations and all Proceeds of such property.
"AGENT LIENS" shall mean any and all of the Liens on the Collateral which
may be now or hereafter granted to Agent by any Credit Party pursuant to any of
the Financing Documents to secure any of the Credit Agreement Obligations.
"BUSINESS DAY" shall mean any day except a Saturday, Sunday or other day
on which commercial banks in Atlanta, Georgia or Memphis, Tennessee are
authorized by law to close.
"CLOSING DATE" shall mean the date as of which this Agreement is dated.
-2-
<PAGE> 3
"COLLATERAL" shall mean any and all property or interests in property of
Company or any Credit Party, real or personal, tangible or intangible, now owned
or hereafter acquired by Company or such Credit Party and in or upon which
either or both of the Lienholders now or hereafter has a Lien, and all Proceeds
of such property.
"COLLECTION ACTION" shall mean any of the following actions by or on
behalf of the IRS with respect to the Prior Tax Liabilities: any demand for, or
attempt to receive, collect or retain the same, whether by collection, set-off,
foreclosure, counterclaim or otherwise, including without limitation the filing
of any notice of federal tax lien or equivalent action, any administrative levy
or other seizure action, failure of the IRS to execute instruments evidencing a
discharge of property for purposes of IRC Section 6325(c) with respect to any of
its liens imposed with respect to Prior Tax Liabilities, on or before 30 days
following its receipt of a written request therefor (said discharge of property
to be provided on the grounds that the interest of the United States in the
property in question has no value or to the extent of any such value the United
States is compensated therefor by the Letter of Credit), or the filing in any
Court of a suit to collect the Prior Tax Liabilities, but shall exclude the
assessment of the Unassessed Tax Liabilities and the generation of the automatic
notices for payment generated in connection therewith.
"COMPANY" shall have the meaning set forth in the preamble to this
Agreement and shall include such person's successors and permitted assigns, and
shall also include without limitation the Company acting as a
debtor-in-possession in any Insolvency Proceeding.
"CREDIT AGREEMENT" shall have the meaning given such term in the Statement
of Facts above and shall include, without limitation, any amendment,
modification, restatement, replacement, extension, increase or refinancing of
the foregoing.
"CREDIT AGREEMENT OBLIGATIONS" shall mean any and all of the Obligations,
as defined in the Credit Agreement, of any Credit Party to the Agent and/or any
Lender under the Financing Documents.
"CREDIT PARTY" shall mean any of the Company or any Subsidiary.
"EMPLOYMENT AND INCOME TAX PROCEDURES" shall mean the procedures specified
on EXHIBIT B hereto.
"EMPLOYMENT TAX LIABILITIES" shall have the meaning given such term in the
Statement of Facts.
"EVENT OF DEFAULT" shall mean any Default under the Credit Agreement.
"FEDERAL BANKRUPTCY CODE" shall mean the U.S. Bankruptcy Code of 1978, as
amended (11 U.S.C.ss. 101).
-3-
<PAGE> 4
"FINANCING DOCUMENTS" shall mean the Financing Documents under and as
defined in the Credit Agreement and shall include, without limitation, any
supplemental or replacement Financing Documents entered into or executed in
connection with the Agent and/or the Lenders' provision of financing to Company
in its capacity as a debtor-in-possession in an Insolvency Proceeding.
"FUTURE TAX LIABILITIES" shall mean Employment Tax Liabilities accruing
for periods after the date of this Agreement and prior to the expiry of the
Letter of Credit or federal income tax liabilities which are: (i) attributable
to a taxable year either ending after the date hereof or with respect to which
no return is due as of the date hereof taking into account extensions of time
for the filing thereof which are available to the applicable Credit Party under
the applicable IRC provisions and (ii) subject to assessment by the IRS prior to
the termination of this Agreement.
"INDEBTEDNESS" shall mean the Credit Agreement Obligations and/or the IRS
Indebtedness and in the case of each Lienholder, such term shall include,
without limitation, any interest accruing on such Lienholder's Indebtedness
after the filing by or against the Credit Parties of any petition in bankruptcy
and all other Indebtedness of Company to such Lienholder which may be incurred
in any Insolvency Proceeding of the Credit Parties whether or not recoverable by
such Lienholder from any Credit Party or its estate under 11 U.S.C. ss. 506 or
otherwise.
"INSOLVENCY PROCEEDING" shall mean any insolvency or receivership
proceeding, or any proceeding under the Federal Bankruptcy Code, or any other
case or proceeding under any other bankruptcy or insolvency laws or other laws
relating to the relief of debtors or the readjustment, extension or composition
of debts, and which is brought by or against the Credit Parties.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"IRS" shall have the meaning given such term in the preamble to this
Agreement and shall include its successors and assigns.
"IRS INDEBTEDNESS" shall mean any and all indebtedness, liabilities and
obligations now or hereafter owing by any Credit Party to the IRS with respect
to the Prior Tax Liabilities.
"IRS LIENS" shall mean any and all Liens on any of the Collateral which
may be now or hereafter granted to, or obtained by, the IRS with respect to any
of the assets of the Credit Parties to secure any or all of the IRS
Indebtedness.
"LETTER OF CREDIT" shall mean the Letter of Credit, in the form of Exhibit
A hereto, issued by the Agent to the IRS for the account of the Company.
-4-
<PAGE> 5
"LIEN" and "LIENS" shall mean the IRS Liens and the Agent Liens.
"LIENHOLDER" and "LIENHOLDERS" shall mean the IRS and the Agent and shall
include each such person's successors and assigns.
"MARCH LIEN NOTICE" shall have the meaning given such term in the
Statement of Facts.
"OCTOBER LIEN NOTICE" shall have the meaning given such term in the
Statement of Facts.
"OFFER IN COMPROMISE" shall mean those certain procedures or proceedings
between the IRS and delinquent taxpayers for the purpose of effecting maximum
collection of taxes with the least possible loss or cost to U.S. Government, all
as provided by the IRC and the regulations, rulings and other authorities
promulgated thereunder.
"PRIOR TAX LIABILITIES" shall have the meaning given such term in the
Statement of Facts.
"PROCEEDS" shall mean, with respect to any particular item or type of
Collateral, whatever is received upon the sale, exchange, collection or other
disposition of such Collateral or the Proceeds thereof as well as any amounts
payable under any policy of insurance on account of any loss of or damage to
such Collateral.
"RESPONSIBLE PERSON" means a person liable for Tax Liabilities or
penalties with respect thereto pursuant to Section 3505 or 6672 of the IRC, or
otherwise.
"SECURED EMPLOYMENT TAX LIABILITIES" shall have the meaning given such
term in the Statement of Facts.
"SECURITY DOCUMENTS" shall have the meaning assigned to it in the Credit
Agreement.
"TERMINATION EVENT" shall mean any of the following:
(a) The Company shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its
debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or substantially all
of its property, or shall consent to any such relief or to the appointment
of or taking possession by any such official in an
-5-
<PAGE> 6
involuntary case or other proceeding commenced against it, shall make a
general assignment for the benefit of creditors or shall take any
corporate action to authorize any of the foregoing;
(b) an involuntary case or other proceeding shall be commenced against the
Company seeking liquidation, reorganization or other relief with respect
to it or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or
substantially all of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60 days;
or an order for relief shall be entered against the Company under the
federal bankruptcy laws as now or hereafter in effect;
(c) The Lenders shall accelerate the Credit Agreement Obligations and commence
action to foreclose on the Collateral;
(d) The occurrence of the date 30 days prior to the expiration date of the
Letter of Credit, or receipt of notice by the IRS from the Agent that the
Letter of Credit will terminate in thirty days and directing the IRS to
draw the full amount thereunder, unless notice is first given by the IRS
to the Agent that there shall have first occurred settlement of the Prior
Tax Liabilities pursuant to an Offer in Compromise under IRC Section 7122,
which shall include agreement as to the payment terms; and
(e) The receipt by the Agent and the Company of notice from the IRS that
the Company has defaulted in its obligations to pay Future Tax Liabilities
or to timely file any return or statement with the IRS that is required by
law to be so filed in correction therewith and such default shall not have
been cured or waived within 10 Business Days of such receipt;
"UCC" shall mean of the Uniform Commercial Code as in effect on the date
hereof in the state of the applicable jurisdiction.
"UNASSESSED TAX LIABILITIES" shall have the meaning ascribed thereto in
the Statement of Facts.
(b) All other undefined terms used in this Agreement shall, unless the
context otherwise dictates, have the meanings given such terms in the UCC as in
effect in the State of Georgia to the extent the same are used or defined
therein.
-6-
<PAGE> 7
2. BASIC AGREEMENTS OF THE PARTIES.
(a) Within ten (10) Business Days following the date hereof: (i) the Agent
agrees to deliver to the IRS the duly executed Letter of Credit, in the form
attached hereto as Exhibit A (ii) the Company and the other Credit Parties agree
to execute such documents and deliver such evidences and opinions as the Agent
and the IRS shall reasonably request to effectuate the terms of this Agreement,
and (iii) the IRS agrees to deliver to the Agent evidence, satisfactory to the
Agent in its reasonable discretion, that the IRS has withdrawn of record the
October Lien Notice and the March Lien Notice. If any party shall fail to comply
with the foregoing, at the option of, and within one business day following the
delivery to the other parties of written notice thereof by, the aggrieved party
(but excluding the Company or any other Credit Party), this agreement shall
terminate (except for the following sentence), and the IRS and the Agent shall
each return any consideration received hereunder (including the Letter of
Credit). If such termination results from the failure of the IRS to perform its
obligations hereunder, the IRS agrees that the priority of its lien under the
March Lien Notice with respect to any Collateral arising after May 1, 2000 and
prior to one Business Day following such termination shall be subordinated to
the Credit Agreement Obligations to the same extent as if the 45-day period
following the March Lien Notice had not passed.
(b) INTENTIONALLY OMITTED
(c) The Company agrees to file as promptly as practicable after the date
hereof, and thereafter to diligently pursue with the IRS in good faith, a
settlement of the Prior Tax Liabilities pursuant to the Offer in Compromise
process.
(d) During the term of this Agreement, the Credit Parties agree to follow
the Employment and Income Tax Procedures. The IRS agrees to give the Agent
prompt notice upon its learning of any failure to comply with the preceding
sentence, and the IRS and the Credit Parties agree that the Agent may act to
cure such failure upon receipt of such notice. The IRS agrees that the foregoing
provision is granted in part for the assurance of the payment of Future Tax
Liabilities and that neither the conveyance of such right, nor the existence or
good faith exercise of such right or any other right of the Agent or the Lenders
pursuant to this Agreement or the Financing Documents shall create an obligation
of the Agent or the Lenders to pay any such Tax Liabilities or cause the Agent
or any Lender, or any officer, agent or employee thereof, to become a
Responsible Person or otherwise liable for the payment of any Tax Liabilities.
(e) The IRS hereby agrees for the benefit of the Agent and the Lenders
that, unless this Agreement shall have been terminated pursuant to paragraph (g)
of this section 2 or there shall have occurred and be continuing a Termination
Event, the IRS shall not take any Collection Action with respect to the Prior
Tax Liabilities.
(f) The IRS further agrees that the Agent will be subrogated to the rights
of the IRS with respect to any tax liability paid pursuant to a drawing under
the Letter of Credit to
-7-
<PAGE> 8
the extent allowed by law, including, without limitation, any rights against a
Responsible Person. The IRS and the Company agree that any amount drawn under
the Letter of Credit with respect to (i) Future Tax Liabilities shall be applied
to the liabilities in respect of which such amounts were drawn, or (ii) Prior
Tax Liabilities shall be applied first, to the amount of the Tax Liability
constituting unpaid taxes, second, to the amount of the Tax Liability
constituting interest and, third, to the amount of the Tax Liability
constituting penalties.
(g) The IRS will return the Letter of Credit to the Agent for cancellation
without drawing thereon, upon the occurrence of one of the following:
1. The Agent's receipt of notice from the IRS that the IRS has approved
a settlement of the taxpayer's tax liabilities pursuant to an Offer
in Compromise (including agreement as to the payment terms); or
2. Action by the IRS in violation of Section 2(e) and such violation
shall continue unremedied for 30 days after the date of notice, by
certified mail, thereof from the Agent.
3. INTENTIONALLY OMITTED
4. INTENTIONALLY OMITTED
5. INTENTIONALLY OMITTED
6. INTENTIONALLY OMITTED
7. INTENTIONALLY OMITTED
8. INTENTIONALLY OMITTED
9. INTENTIONALLY OMITTED
10. ENFORCEMENT ACTIONS. Agent may, at its option, take any Enforcement
Action authorized under the Credit Agreement, in order to foreclose or realize
upon or enforce any of its rights with respect to the Collateral without the
prior written consent of or notice to IRS.
11. INTENTIONALLY OMITTED
12. INTENTIONALLY OMITTED
13. EXERCISE OF RIGHTS. Agent may exercise all of its rights with respect
to the Collateral, without any obligation to IRS, until there has been full
payment and performance of the Credit Agreement Obligations and a termination of
the Agent Liens. Agent shall be
-8-
<PAGE> 9
entitled to manage and supervise its Indebtedness, its Liens and the Collateral
in accordance with applicable law and its practices in effect from time to time
without regard to the existence of the IRS Liens, and Agent shall have no
liability to IRS for (i) any and all actions which Agent, in good faith, takes
or omits to take with respect to its Indebtedness, its Liens or the Collateral
(including without limitation actions with respect to creation, perfection or
continuation of its Liens in any Collateral), the occurrence of any default with
respect to any such Indebtedness, the foreclosure upon, sale, release or
depreciation of, or any failure to realize upon, any of the Collateral, and the
collection of any of its Indebtedness from Company or any other party, and (ii)
any election of the application of Section 1111(b)(2) of the Federal Bankruptcy
Code.
14. NOTICES HEREUNDER. All notices, requests or demand hereunder shall be
in writing and shall be effective upon receipt and shall be sent by one of the
following means: certified mail, return receipt requested, postage prepaid;
first class mail, postage prepaid; Federal Express or other reputable overnight
courier service; telegram; telex; telecopy; or by hand delivery, and in each
case shall be addressed as set forth below:
(a) If to Agent: Banc of America Commercial Finance Corporation
50 Glenlake Parkway
Suite 600
Atlanta, Georgia 303028
Attention: Terrell Harris, Senior Vice President
Telephone No.: (770) 225-0852
Telecopy No.: (770) 225-0841
(b) If to IRS: The Chief of the Advisory Section of the
IRS Special Procedures Branch,
Second Floor, Federal Building
MDP 53, 801 Broadway
Nashville, Tennessee 37203
With copy to:
District Counsel,
Internal Revenue Service
Suite 400
810 Broadway
Nashville, Tennessee 37203
Attention: Ford Holman, Esq.
Each party hereto may by written notice to the other designate a different
address to which notices and demands should be sent hereunder. Any written
notice that is not sent in conformity with the provisions hereof shall
nevertheless be effective on the date that such notice is actually received by
the noticed party.
-9-
<PAGE> 10
15. RIGHTS AGAINST OTHER CREDITORS. This Agreement shall not modify,
affect or impair in any way any of the rights and priorities of the parties
hereto, including the parties to the Credit Agreement, relative to any of the
rights and priorities of any other creditors (unsecured or secured) of any
Credit Party.
16. NO EFFECT ON CREDIT PARTIES' OBLIGATIONS. Nothing in this Agreement
shall be construed to modify or relieve, in any manner, any Indebtedness of the
Credit Parties to any of the Lienholders under any of the Credit Documents. The
Credit Parties are signing this Agreement below solely for the purpose of
signifying their consent to the terms and conditions hereof and their agreement
to be bound hereby and to make certain other acknowledgments and agreements with
respect thereto, all as expressly set forth below, but nothing in this Agreement
is intended or shall be construed to confer any rights upon any Credit Party and
no Credit Party (nor its estate nor any trustee in any Insolvency Proceeding) is
a beneficiary of any of the terms and conditions of this Agreement.
17. MISCELLANEOUS.
(a) No agreement shall be effective to amend, supplement or
discharge in whole or in part this Agreement unless such agreement is in writing
and signed by all of the Lienholders. This Agreement shall be binding upon and
shall inure to the benefit of the respective successors and assigns of the
Lienholders; provided, however, that no Lienholder shall assign or transfer any
of its Liens (or any interest therein) unless such Lienholder's transferee or
assignee agrees in writing that it has acquired such Liens (or interest therein)
subject to the terms and conditions of this Agreement and that such assignee and
transferee shall be fully bound hereby to the same extent as was the case with
respect to the assigning or transferring Lienholder. Notwithstanding the
immediately preceding sentence, any person or entity whose loans or advances to
Company hereafter are used to refinance and pay indefeasibly in full the Credit
Agreement Obligations shall be deemed for purposes of this Agreement to be the
successor to Agent, and from and after the date of any such refinancing in
satisfaction in full of the Credit Agreement Obligations such person or entity
shall be deemed a party hereto in the place and stead of Agent as if such person
or entity had been the original signatory hereto, and all loans, advances,
liabilities, debit balances, covenants and duties at any time or times owed by
Company to such successor, whether direct or indirect, absolute or contingent,
secured or unsecured, due or to become due, then existing or thereafter arising,
including any renewals, extensions, modifications, or replacements of any of the
foregoing, shall be deemed for all purposes hereunder to constitute and be such
succeeding Lienholder's Indebtedness.
(b) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions hereof, and any such prohibition or enforceability in
any one jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.
-10-
<PAGE> 11
(c) This Agreement shall terminate upon termination of the Letter
of Credit.
(d) The headings in this Agreement are for convenience of reference
only and shall not define or limit the terms hereof.
(e) THIS AGREEMENT SHALL BE INTERPRETED UNDER THE LAWS OF THE STATE
OF GEORGIA (WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW RULES).
(f) This Agreement may be executed in any number of several
counterparts and each such counterpart shall constitute an original and all such
counterparts together shall constitute one and the same instrument.
(g) This Agreement expresses the entire understanding and agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all prior understandings and agreements of the parties regarding the same
subject matter
(h) IRS AND THE AGENT EACH HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY
IN CONNECTION WITH ANY ACTION, SUIT, OTHER PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATED TO THIS AGREEMENT.
(i) This Agreement is final and conclusive except that matters to
which it relates may be reconsidered in the event a court of law determines the
existence of fraud, malfeasance or misrepresentation of a material fact.
-11-
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective duly authorized officers, all as of
the day and year first above written.
BANC OF AMERICA COMMERCIAL FINANCE CORPORATION
By:
---------------------------------------------
Terrell W. Harris
Authorized Signatory
Date:
-------------------------------------------
THE INTERNAL REVENUE SERVICE OF THE UNITED STATES OF AMERICA
By:
---------------------------------------------
Terry H. Delaney
Chief, Special Procedures Branch, Collection Division
Date:
-------------------------------------------
VISIONAMERICA INCORPORATED
By:
---------------------------------------------
Andrew W. Miller
Chairman and Chief Executive Officer
Date:
-------------------------------------------
SUBSIDIARIES:
AMERICAN VISION SERVICES
CAPITAL EYE SURGERY CENTER, INC.
CENTRAL OHIO EYE INSTITUTE, INC.
OCUMANAGEMENT CORPORATION
OMEGA HEALTH SERVICES OF BIRMINGHAM, INC.
OMEGA HEALTH SERVICES OF JACKSON, TENNESSEE, INC.
OMEGA HEALTH SERVICES OF NEBRASKA, INC.
OMEGA HEALTH SERVICES OF WEST VIRGINIA, INC.
OMEGA HEALTH SYSTEMS OF ATLANTA, INC.
OMEGA HEALTH SYSTEMS OF CHATTANOOGA, INC.
OMEGA HEALTH SYSTEMS OF CRESTVIEW, INC.
-12-
<PAGE> 13
OMEGA HEALTH SYSTEMS OF FLORIDA, INC.
OMEGA HEALTH SYSTEMS OF THE GREAT LAKES, INC.
OMEGA HEALTH SYSTEMS OF ILLINOIS, INC.
OMEGA HEALTH SYSTEMS OF INDIANA, INC.
OMEGA HEALTH SYSTEMS OF JACKSONVILLE, INC.
OMEGA HEALTH SYSTEMS OF KISSIMMEE, INC.
OMEGA HEALTH SYSTEMS OF MEMPHIS, INC
OMEGA HEALTH SYSTEMS OF MIDDLE TENNESSEE, INC.
OMEGA HEALTH SYSTEMS OF NEW MEXICO, INC.
OMEGA HEALTH SYSTEMS OF NEW ORLEANS, INC.
OMEGA HEALTH SYSTEMS OF NORTH TEXAS, INC.
OMEGA HEALTH SYSTEMS OF OHIO, INC.
OMEGA HEALTH SYSTEMS OF SAN ANTONIO, INC.
OMEGA HEALTH SYSTEMS OF TAMPA BAY, INC.
OMEGA HEALTH SYSTEMS OF UTAH, INC.
OMEGA HEALTH SYSTEMS OF VIRGINIA, INC.
OMEGA MEDICAL SERVICES, INC.
OMEGA OPTICAL LABS, INC.
OMEGA SURGICAL ASSOCIATES OF NORTH TEXAS, INC.
OPHTHALMIC PRACTICE ENHANCEMENT, INC.
OPHTHALMIC AMBULATORY SURGERY CENTER, INC.
PEN RESOURCES, INC.
PRIMARY EYECARE NETWORK
RUIDOSO OPTICAL, INC.
SPRINGFIELD OCUCENTER, INC.
ST. LOUIS OCUCENTER, INC.
By:
--------------------------------------
Thomas Lewis
President
-13-
<PAGE> 14
EXHIBIT A
IRREVOCABLE LETTER OF CREDIT
Banc of America Commercial Finance Corporation
187 Danbury Road
Wilton, CT 06897
----------
May 1, 2000
IRREVOCABLE LETTER OF CREDIT NO. __________
Internal Revenue Service
Second Floor, Federal Building
MDP 53, 801 Broadway
Nashville, Tennessee 37203
Attention: IRS Special Procedures Branch
At the request and on the instructions of our customer, VisionAmerica
Incorporated, a Delaware corporation (the "Company"), we hereby establish,
pursuant to that certain Second Amended and Restated Credit Agreement, dated as
of December 16, 1998, as amended from time to time thereafter, including,
without limitation, the Third Amendment thereto, dated as of May 1, 2000 (as so
amended, and as has been heretofore or may be hereafter amended from time to
time, the "Credit Agreement") and pursuant to that certain Intercreditor
Agreement entered into as of May 1, 2000 among you, us and the Company (the
"Intercreditor Agreement"), this Irrevocable Letter of Credit in your favor in
the amount of $3,000,000 (hereinafter the "Stated Amount"), of which (i) an
amount not exceeding $300,000 (the "Future Tax Component") and (ii) an amount
not exceeding the Stated Amount, less the Future Tax Component, determined
without respect to the amount of Future Tax Component actually being drawn, (the
"Prior Tax Component," the Prior Tax Component and the Future Tax Component are
referred to herein as the "Components"), may be drawn on a one time basis upon
the presentation of those documents, and following one of the events, referred
to in the succeeding paragraph. This Letter of Credit shall be effective
immediately and shall automatically expire upon the first to occur of the
following events and shall be forthwith returned to us for cancellation:
(i) 5:00 P. M. (Atlanta, Georgia time) on May 1, 2001,
(ii) Our honoring of a drawing hereunder,
<PAGE> 15
(iii) Our receipt of notice from the IRS stating that the
Company and you have reached a compromise under IRC
Section 7122 (including agreement as to the payment
terms) of the Company's liability for unpaid federal
employment and employee withholding taxes, and any
federal income taxes, which settlement has been
approved by the IRS, for the periods prior to the
date hereof (such settlement, a "Tax Settlement"),
(iv) 5:00 P. M. (Atlanta, Georgia time) on the first day
that we are open for business in Atlanta, Georgia,
that is at least 30 days following the date that we
shall have notified you in writing at the above
address that this Letter of Credit will terminate on
such day and directing you to draw hereunder; and
(v) Our notifying you that this Letter of Credit is being
terminated pursuant to Section 2(a) or Section 2(g)
of the Intercreditor Agreement,
unless terminated earlier in accordance with the provisions hereof or unless
otherwise renewed or extended.
Funds under this Letter of Credit will be made available to you against
receipt by us of this Letter of Credit together with your written certificate in
the form of Annex A attached hereto appropriately completed and signed by an
Authorized Official following any of the events described below, but prior to
the expiration hereof. Presentation of such certificate shall be made at our
office located at Banc of America Commercial Finance Corporation, 187 Danbury
Road, Wilton, CT 06897; Attention: Letters of Credit Department, or at any other
office which may be designated by us by written notice delivered to you. This
Letter of Credit may be drawn immediately following any of the following
circumstances:
(a) Company shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or
other similar official of it or substantially all of
its property, or shall consent to any such relief or
to the appointment of or taking possession by
any such official in an involuntary case or other
proceeding commenced
-2-
<PAGE> 16
against it, or shall make a general assignment for
the benefit of creditors;
(b) an involuntary case or other proceeding shall be
commenced against the Company seeking liquidation,
reorganization or other relief with respect to it or
its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or
substantially all of its property, and such
involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days; or
an order for relief shall be entered against the
Company under the federal bankruptcy laws as now or
hereafter in effect;
(c) The obligations of the Company under the Credit
Agreement shall have been accelerated and the Agent
and the Lenders thereunder shall have commenced
action to foreclose on the Collateral;
(d) The occurrence of the date 30 days prior to the
expiration date of the Letter of Credit;
(e) Your receipt of notice from us that the Letter of
Credit will terminate in thirty days and directing
you to draw the full amount thereunder;
(f) The receipt by us and the Company of your notice
stating that the Company has defaulted in its
obligations to pay federal employment and employee
withholding or income taxes owing with respect to tax
periods after the date hereof ("Future Tax
Liabilities") or to timely file any return or
statement that is required under law to be filed by
the Company in connection therewith in accordance
with the Employment and Income Tax Procedures (as
defined in the Intercreditor Agreement) and such
default shall not have been waived by you or cured by
us or the Company within 10 Business Days (as defined
in the Intercreditor Agreement) of such receipt.
-3-
<PAGE> 17
Provided that the requirements set forth above have been strictly
satisfied and that such drawing and the documents presented in connection
therewith conform to the terms and conditions hereof, payment shall be made to
you, or to your designee, of the amount specified in immediately available
funds, by delivery to an authorized representative of the Internal Revenue
Service of a certified check made payable to "United States Treasury".
Demand for payment hereunder honored by us shall not, in the aggregate,
exceed the Stated Amount (if demand is made under both the Prior Tax Component
and the Future Tax Component), and shall not exceed the amount of the Prior Tax
Component of this Letter of Credit if demand is made only with respect to that
Component.
The rights under this Letter of Credit are not assignable or otherwise
transferable. Only you may make a drawing under this Letter of Credit. Upon the
payment to you or to your designee of the amount demanded hereunder, we shall be
fully discharged on our obligation under this Letter of Credit, and we shall not
thereafter be obligated to make any further payments under this Letter of Credit
to you or any other person. By so paying to you an amount demanded in accordance
herewith, we make no representation as to the correctness of the amount
demanded.
This credit is subject to the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce,
Publication No. 500 (the "Uniform Customs"). This Letter of Credit shall be
deemed to be a contract made under the laws of the State of Georgia and shall,
as to matters not governed by the Uniform Customs, be governed by and construed
in accordance with the laws of such State and the laws of the United States, to
the extent controlling.
Very truly yours,
BANC OF AMERICA COMMERCIAL
FINANCE CORPORATION
By:__________________________________
Name:________________________________
Title:_______________________________
-4-
<PAGE> 18
DRAWING CERTIFICATE
ANNEX A
[Date]
Banc of America Commercial Finance Corporation
187 Danbury Road
Wilton, CT 06897
Attention: Letters of Credit Department
Re: Irrevocable Letter of Credit No. (the "Letter of Credit")
-----------------------------------------------------------------------
The undersigned, a duly authorized official of the Internal Revenue
Service, an agency of the government of the United States of America ("IRS"),
hereby certifies to Banc of America Commercial Finance Corporation that:
(1) The undersigned is the IRS District Director for the
Kentucky-Tennessee District or her lawful successor in interest under
the reorganization of the Internal Revenue Service that will be
effective on October 1, 2000 (or a delegate of such person whose
authority is evidenced by the attached document).
(2) The undersigned is making a drawing under the
above-referenced Letter of Credit in the amount of $___________, of
which $____________ is being drawn against the Prior Tax Component and
$_____________ is being drawn against the Future Tax Component.
(3) With respect to the amount being drawn under the Prior Tax
Component, such amount equals the lesser of (i) $2,700,000 and (ii) the
sum of: (a) taxes and penalties that were the subject of the October
Lien Notice (as defined in the Intercreditor Agreement) (b) accrued
interest on (a), determined at the applicable rate under the IRC (as
defined in the Intercreditor Agreement) to the date hereof, and (c)
$200,000, which is attributable to taxes secured by the March Lien
Notice (as defined in the Intercreditor Agreement).
(4) With respect to amounts being drawn under the Future Tax
Component, such amount equals that amount remaining unpaid on the date
hereof with respect to Future Tax Liabilities that constitute
Employment Tax Liabilities (as defined in the Intercreditor Agreement)
accrued and unpaid through the date hereof and does not in the
aggregate exceed $300,000.
<PAGE> 19
(5) All conditions precedent to this Drawing have heretofore
occurred; to wit,
(A) This drawing is being made pursuant to clause __
of the second paragraph of the Letter of Credit;
(B) No Drawing has previously been made with respect
to this Letter of Credit;
(C) The IRS has not taken any Collection Action (as
defined in the Intercreditor Agreement) that has not been
cured or waived;
(D) No Tax Settlement (including agreement as to the
payment terms) has been agreed to and approved by the IRS nor
is this drawing being made in contemplation thereof; and
(E) This drawing and the amounts requested hereunder
are consistent with the terms of the Letter of Credit and the
Intercreditor Agreement.
(6) All capitalized terms used herein but not otherwise defined herein
shall have the meanings described thereto in the Letter of Credit.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the ____ day of ______________, ______.
INTERNAL REVENUE SERVICE
By:____________________________________
Name:__________________________________
Title:_________________________________
-2-
<PAGE> 20
EXHIBIT B
EMPLOYMENT AND INCOME TAX PROCEDURES
I. PROCEDURES FOR PERIODIC PAYMENT OF EMPLOYMENT TAXES
The Company shall pay over (or cause to be paid over) to the
IRS the amount of federal employment and employee withholding taxes with respect
to its employees and employees of all subsidiaries of the Company ("Employment
Taxes"), upon the making of every payroll by the Cmpany and its Subsidiaries.
The tax deposits shall be made on the Wednesday or Friday subsequent to the
payroll, as provided in the Treasury Regulations. The following procedures shall
be complied with --
(1) said payments shall be made by wiring the amount then due
to the IRS, ACH, to the IRS account designated for this purpose by the IRS,
(2) the Company shall telephonically confirm with the IRS
Collection Group 1300, Suite 400, 22 North Front Street, Memphis, Tennessee, by
using fax number 901-423-9886 that such amount (referred to in (1) above) has
been wired and obtain a confirmation of the facsimile that had been sent to the
IRS no later than the next succeeding Business Day, and
(3) not later than the Second Business Day next succeeding the
deposit and paying over of the Employment Taxes, the President and Chief
Financial Officer of the Company shall, each, in their individual capacities,
provide written certification to the Agent that, to the best information after
the due inquiry of the undersigned the correct amount of Employment Taxes has
been paid over to the IRS with respect to the applicable period, together with a
copy of the facsimile to the IRS and the confirmation of it transmission
referred to in (2), above.
II. PROCEDURES FOR THE FILING OF RETURNS OF EMPLOYMENT TAXES.
The Company and each of its subsidiaries --
(1) shall prepare and timely file, or cause to be prepared and
timely filed, its quarterly return of FICA and withholding Taxes on Form 941,
and its annual federal unemployment taxes on Form 940 (the "Employment Tax
Returns") by certified mail, return receipt requested to the IRS at the IRS
Collection Group 1300, Suite 400, 22 North Front Street, Memphis, Tennessee, or
such other place that is designated by the IRS for the receipt of such returns,
and
(2) not later than the second Business Day next succeeding the
due date for said Employment Tax Returns, shall submit copies of the Employment
Tax Returns, together
<PAGE> 21
with the proof of mailing thereof, to the Agent, together with certifications of
each the President and Chief Financial Officer of the Company to the effect that
their best information after due inquiry the Employment Tax Return in question
is correct, was timely filed and the amount of Employment Taxes due with respect
to the applicable quarter, as shown on said return, have been timely paid over
to the IRS pursuant to the procedures set forth in I, above.
III. PROCEDURES FOR THE FILING RETURNS AND MAKING PAYMENTS OF FEDERAL
INCOME TAXES
The Company and its subsidiaries -
(1) shall prepare and timely file, or cause to be prepared and
timely filed, its 1999 income tax return and any subsequent annual income tax
return due to be filed during the pending of this agreement on Form 1120 by
certified mail, return receipt requested to the IRS at IRS Collection Group
1300, Suite 400, 22 North Front Street, Memphis, Tennessee 38103, or such other
place that is designated by the IRS for the receipt of such returns,
(2) shall timely make each estimated tax payment at the
address given in (1) above and make payment of any remaining income tax
liability with the timely-filed Form 1120, and
(3) not later than the second Business Day next succeeding the
due date for said Income Tax Returns, shall submit copies of the Income Tax
Returns, together with the proof of mailing thereof, to the Agent, together with
certifications of each the President and Chief Financial Officer of the Company
in their individual capacities to the effect that their best information after
due inquiry the Income Tax Return in question is correct, was timely filed and
the amount of Income Taxes due with respect to the applicable tax year, as shown
on said return, have been timely paid to the IRS pursuant to the procedures set
forth in III above.
-2-
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