<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 000-23953
OMEGA WORLDWIDE, INC.
(Exact name of Registrant as specified in its charter)
Maryland 38-3382537
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
900 Victors Way, Suite 345 48108
Ann Arbor, Michigan (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: 734-887-0300
Securities Registered Pursuant to Section 12 (b) of the Act:
Common Stock, $.10 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and 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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant held
by non-affiliates was $43,388,132 based on the $4.125 closing price per share
for such stock on the NASDAQ National Market on December 16, 1998.
As of December 16, 1998, there were 12,258,000 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders which will be filed with the Commission on or about January 28,
1999, are incorporated herein by reference as indicated herein.
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<PAGE> 2
PART I
ITEM 1 - BUSINESS OF THE COMPANY
The business of the Company is to provide asset management services and
management advisory services to firms providing financing to providers of
healthcare services, particularly healthcare services to the elderly. The
Company has established financing activities in the United Kingdom and the
Commonwealth of Australia.
The Company often provides seed equity and debt capital to enable the
establishment of operating or financing firms, in the latter instance
identifying high quality management personnel and providing financial support to
such companies. The intent of the Company is to invest in less than majority
equity positions in such firms, to provide continuing support while such firms
are not public, and to secure local capital as the major source of the growth
capital for expansion and development of such firms. The result is to enable
such firms to access capital markets in the locales in which services are
provided.
It is the intent of the Company to develop a significant international presence
in healthcare services to the elderly, both in finance and operations, and to
undertake within the United States operation or real estate activities
of a sort not possible for a healthcare REIT. The Company was established by and
shares certain management personnel with, Omega Healthcare Investors, Inc.
("Omega"), a publicly traded REIT, which owns and finances healthcare operating
facilities in the United States.
The Company was established in November 1997 and began initial operation as a
separate entity on April 2, 1998, when Omega distributed shares of the Company's
common stock to Omega's existing shareholders. At the same time, the Company
undertook a primary offering and Omega undertook a secondary offering of shares
of the Company's common stock. Omega distributed 5.2 million shares, sold 2.8
million shares (of which 500,000 shares were sold for the account of the
Company) and retained approximately 9.9% of the common shares, together with
260,000 preferred shares, in exchange for the contribution to the Company of the
following assets:
(a) 33.375% of the ordinary shares in Principal Healthcare Finance Limited,
("Principal"), a Jersey corporation which is engaged in investing in
long-term care facilities in the United Kingdom;
(b) Warrants to purchase 10,256,000 shares of Principal;
(c) A subordinated debt note of Principal in the amount of (pound)15
million; and
(d) Miscellaneous other net assets stated at a net carrying amount of
$150,000.
<PAGE> 3
Principal is, as of the date of this report, the owner of 176 long-term care
facilities, primarily purpose-built nursing homes, subject to long-term,
triple-net leases to 11 operating companies in the UK. Principal's revenues for
the year ending August 31, 1998, totaled $51,042,000 and its net earnings
totaled $2,122,000. Principal has employed fixed-rate financing in which it
attempts to match the term of assets and liabilities. Its rental agreements
provide annual increases in rentals in 30-year terms, generally in accordance
with the British consumer price index. Principal has financed its activities
through the issuance of long-term, fixed-rate securitized debt. Its initial
securitization was issued in December 1997 in the amount of (pound)150 million,
repayable in the years 2027 and 2029, consistent with the term of the leases
with respect to the facilities financed.
In June 1998, the Company acquired 100% of the units of Assisted Living Unit
Trust from FAI Insurances Limited, a life and health insurer in Australia, and
its subsidiary, Premier Care Australia (Holdings) Pty Limited, and changed the
name of the Trust to Principal Healthcare Finance Trust ("the Trust"). The Trust
is an Australian Unit Trust which owned, as of the date of acquisition by the
Company, ten long-term nursing homes and 480 assisted living units in New South
Wales. The A$50 million (approximately $30 million)purchase price payable by the
Company is due June 30, 1999. The Company deposited a Banker's Bill (Letter of
Credit) in support of the Trust's obligation to deliver funds on June 30, 1999.
The Trust also deposited A$10 million as security for the performance of the
Trust's obligations and the Trust granted to a bank, mortgage liens with respect
to all of the assets owned by the Trust.
The Trust net leased its assets to an affiliate of Moran Health Care Group Pty
Limited ("Moran"), the largest operator of long-term care and assisted living
facilities in Australia, for an initial term of 30 years.
On November 12, 1998, the Trust completed the first phase of a three-part
purchase and leaseback transaction, also with Moran, which encompasses 30
long-term care facilities in Victoria, New South Wales and Western Australia. In
phase one of the transaction, an affiliate of Moran sold 25 homes to the Trust
for A$80 million and immediately leased them back for an initial 30-year term.
Simultaneously, phase two of the agreement calls for the Trust to acquire, upon
completion and rent-up to stabilized occupancy, five additional Victoria
facilities from an affiliate of Moran for an aggregate purchase price of A$20
million. Phase three involves the advance by the Trust of an additional A$25
million to enable refurbishing and renovation of such of the initial facilities
as is necessary over a five-year period. The advance of funds in excess of A$90
million is subject to the tenant achieving special performance standards and
operating profitability (rent coverage) over the period of the commitment, which
expires in October 2003. The Trust has financed its purchase and leaseback
through credit facilities with a local bank.
The Trust's credit facilities with a local bank have an initial term of one
year, provide exclusive rights for the bank to provide certain additional
long-term finance and contemplate the establishment of a typical revolving
credit facility to make temporary acquisition of investments in Australia,
pending refinance through securitization or otherwise.
<PAGE> 4
The Company acquired, in connection with its initial establishment, an interest
in Essex Healthcare Corporation ("Essex") and an affiliate, Atrium Living
Centers, Inc. In August 1998, the Company invested an additional $500,000,
increasing its equity interest in Essex to 47%. Essex is an operator of 13
long-term care facilities containing 1,400 beds in Ohio, which are leased from
independent third parties.
In August 1998, the Company acquired from a subsidiary of Principal for
(pound)640,000 a 19.9% interest in Moran Healthcare (UK) Limited ("Moran UK"),
the sole shareholder of Baneberry Healthcare, ("Baneberry"), a UK operating
company engaged in the business of providing healthcare services in Northern
Ireland and England. Baneberry was previously financed by Principal. Moran (UK)
is an affiliate of Moran, the operator of the long-term care facilities in
Australia that are owned by the Trust.
Employees
At December 15, the Company employed nine persons in its operating office in
London, England, one person in its operating office in Sydney, Australia and
thirty persons as shared employees with Omega at the Company's executive
offices in Ann Arbor, Michigan.
The Opportunity Agreement
The Company and Omega have entered into the Opportunity Agreement to provide
each other with rights to participate in certain transactions and make certain
investments. The Opportunity Agreement provides, subject to certain terms, that,
regardless of whether the following kinds of investments (each a "Worldwide
Opportunity") first come to the attention of the Company or Omega, the Company
will have the right to: (a) provide advisory services and/or management services
to any healthcare investors, wherever located; (b) acquire or make debt and/or
equity investments (through a joint venture or otherwise) in any healthcare
investor or in healthcare real estate-related assets outside the United States;
(c) make investments in any entity conducting healthcare operations; and (d)
make any other real estate, finance or other investments not customarily
undertaken by a qualified REIT. However, Omega will have the right, regardless
of whether the following kinds of investments (each a "REIT Opportunity") first
come to the attention of the Company or Omega, to: make any investment within
the United States (a) in real estate, real estate mortgages, real estate
derivatives or entities that invest exclusively in or have a substantial portion
of their assets in any of the foregoing, so long as Omega's REIT status would
not be jeopardized by the investment; and (b) that, if made by a REIT, would not
result in the termination of the REIT's status as a REIT under Sections 856
through 860 of the Internal Revenue Code ("Code"). If the Company declines to
pursue a Worldwide Opportunity, it must offer that opportunity to Omega, and if
Omega declines to pursue a REIT Opportunity, it must offer that opportunity to
the Company. Each of the Company and Omega may participate, in its discretion,
in any REIT Opportunity or Worldwide Opportunity that the other requests be
pursued jointly. The terms upon which each of the Company and Omega may elect to
participate in such an opportunity will be negotiated in good faith and must be
mutually acceptable to the respective boards of directors of the Company and
Omega, with the affirmative votes of the independent directors of the respective
boards of directors of the Company and Omega. Each of the Company and Omega, in
<PAGE> 5
its sole discretion, will make all decisions as to whether to pursue
transactions or investments. The determination by each of the Company and Omega
as to whether to pursue an investment or transaction individually shall be made
by the affirmative votes of the independent director(s) of the board of
directors of the Company or Omega. Each of Omega and the Company has agreed to
notify the other of, and make available to the other, investment opportunities
developed by such party or of which such party becomes aware but is unable or
unwilling to pursue. The Opportunity Agreement has a term of ten years and
automatically renews for successive five-year terms unless terminated. In that
connection, the Company has offered to Omega the opportunity to acquire up to
9.9% of the common shares of the Trust.
Omega and the Company have entered into a Services Agreement pursuant to which
Omega provides shared management and other employees, office space and
administrative services to the Company. The Company reimburses Omega quarterly
for a portion of Omega's overhead expenses such as rent, compensation and
utilities, based on a formula determined by dividing the value of the assets
managed by the Company at the end of each fiscal quarter by the sum of the value
of the assets of Omega and assets managed by the Company at the end of each
fiscal quarter.
Investment Objectives
The investment objectives of the Company are:
1. To extend its franchise value by providing and financing long-term care
services to the elderly.
2. To expand its asset management business by establishing new financing
entities and establishing relationships with strong operating companies to
extend and expand assets under management.
3. To expand the Company's ability to provide financial capital to develop,
expand and consolidate nursing home operating companies, primarily outside
the United States.
4. To grow the capital value of the Company through prudent use of leverage,
extension of its franchise value and the application of the intellectual
capital of the Company to investment opportunities in Europe, Australia,
Asia and the United States.
There is no expectation or intent in the near-term to pay a dividend on common
stock.
Financial information about foreign and domestic operations.
The information required by this item is incorporated herein by reference to the
"Business Segment Information" footnote on page F-13 of the Company's financial
statements.
Regulation of the Healthcare Industry
The Company will invest in entities which own healthcare facilities
principally outside of the United States. Accordingly, the Company does not
intend to diversify its investments to reduce the risks associated with
investment in the healthcare industry. Future investments by the Company may be
on terms or conditions less favorable than the terms applicable to the
<PAGE> 6
Company's initial investments. The operation of healthcare facilities is subject
to substantial regulation. In addition to other laws and regulations with which
the Company will be required to comply, the Company will be subject to laws that
govern financial arrangements between healthcare providers. Any failure to
comply with these laws or regulations could have an adverse effect on the
operations of the Company.
Healthcare is an area of extensive governmental regulation and frequent
regulatory change. The lessees and mortgagors of Principal, the Trust or similar
companies in which the Company invests are and will continue to be subject to
extensive regulation. Changes in laws or regulations or new interpretations of
existing laws or regulations can have a dramatic effect on the healthcare
industry with respect to methods of doing business, costs of doing business and
revenues. Principal and the Trust are attempting to develop and market a method
of financing for healthcare properties which is not, at present, widely accepted
in the United Kingdom, Australia or elsewhere, and the business of the Company
may not develop and grow as the Company anticipates.
The operating results of the healthcare facilities underlying the investments of
Principal, the Trust and similar companies in which the Company invests will
depend on various factors over which the Company will have no control and which
may affect the present or future cash flows of the Company. Those factors
include, without limitation, general economic conditions, changes in supply of,
or demand for, competing long-term healthcare facilities, changes in occupancy
levels, the ability of the lessees and mortgagors of Principal, the Trust and
similar companies in which the Company invests through rate increases or
otherwise to absorb increases in operating expenses, changes in governmental
regulations and changes in planning (zoning) regulations.
A significant portion of the revenues of the lessees of Principal, the Trust and
similar companies in which the Company invests will be dependent upon payments
from third party payors, including private insurers and local and national
governments. The levels of revenues and profitability of such lessees and
mortgagors may be affected by the continuing efforts of third party payors to
contain or reduce the cost of healthcare. Medical advances and changes in the
method of providing long-term healthcare services may significantly change the
healthcare needs of the elderly and thereby reduce the demand for long-term
healthcare facilities. Likewise, such advances and changes may make obsolete the
healthcare properties owned or financed by Principal, the Trust and similar
companies in which the Company invests.
Although Principal plans to increase rapidly the number of healthcare operators
it finances, currently over 50% of Principal's rents are derived from rent
payments received from Tamaris PLC and Ashbourne Healthcare PLC. The Trust also
plans to increase the number of healthcare operators it finances, but presently
all of its assets are operated by and leased to affiliates of Moran. Thus, the
results of operations and financial condition of Principal and the Trust will be
dependent upon the ability of these tenants to meet their obligations under
their agreements with Principal and the Trust.
<PAGE> 7
Healthcare services, particularly those for the elderly outside the United
States, often have been provided by government or by not-for-profit
organizations, and the ability of the Company to extend its financing and
investment activities is premised upon additional changes in the way in which
healthcare services for the elderly will be provided in such countries as the
Company may invest. While the United Kingdom and the Commonwealth of Australia
have been advanced in permitting and encouraging the private for-profit sector
to develop healthcare services, there is no assurance that such encouragement
and permission will be available in other countries in which the Company may
desire to invest.
No assurance can be given that a lessee will exercise any option to renew its
lease upon the expiration of its term. In such an instance, the Company may not
be able to locate a qualified purchaser or qualified replacement tenant for the
healthcare properties in question, and as a result it would lose a source of
revenue while remaining responsible for payment of its obligations incurred in
financing such properties.
Directors and Executive Officers of Omega Worldwide
Set forth below is information regarding (i) current directors of the Company,
who will serve until the next annual meeting of shareholders or until their
successors are elected, and (ii) the current executive officers of the Company,
who are elected to serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
TERM
NAME EXPIRES AGE POSITION
---- ------- --- --------
<S> <C> <C> <C>
Jacques Aigrain............ 2001 44 Director
Essel W. Bailey, Jr........ 1999 54 Director, President and Chief Executive Officer
James E. Eden.............. 2000 61 Director
James P. Flaherty.......... 51 Chief Operating Officer
Thomas F. Franke........... 2001 69 Director
Anil Gupta................. 2000 49 Director
F. Scott Kellman........... 42 Vice President
Harold J. Kloosterman...... 1999 56 Director
Bernard J. Korman.......... 2000 67 Director
Susan A. Kovach............ 38 Vice President, General Counsel and Secretary
Edward Lowenthal........... 2001 54 Director
Robert L. Parker........... 1999 64 Chairman of the Board of Directors
David A. Stover............ 53 Vice President and Chief Financial Officer
</TABLE>
Jacques Aigrain, has been employed by J.P. Morgan and Company for 14 years. Mr.
Aigrain is a managing director of J.P. Morgan and Company, and joined the firm's
Investment Banking Committee in July 1998 and was also made co-head of Global
Mergers and Acquisitions, working from New York and London. For the previous two
years, Mr. Aigrain headed Morgan's Paris office, and from 1991 through 1996
served in the London office, where he was responsible for transactions in the
healthcare and chemical industries. Mr. Aigrain became a director of the
Company on July 7, 1998 and holds a Ph.D. in Economics from the Sorbonne in
Paris.
Mr. Bailey has been Chief Executive Officer of the Company since April 1998, as
well as a Director, since its formation in November 1997. Mr. Bailey also has
served as President and Chief Executive Officer of Omega, as well as a Director
of Omega, since its formation in 1992, and he has served as Chairman of the
Board of Directors of Omega since 1995. Prior to forming
<PAGE> 8
Omega, he was a Managing Director of Omega Capital, a healthcare investment
partnership, from 1986 to 1992. Mr. Bailey was formerly a Director of Evergreen
Healthcare, Inc., which was a NYSE listed company engaged in the operation of
long-term healthcare facilities, and of Vitalink Pharmacy Services, Inc., a NYSE
listed company, and the operator of institutional pharmacies serving the
long-term care industry in the United States. Mr. Bailey currently serves as
Managing Director of Principal and of Principal Trust.
Mr. Eden has been a Director of the Company since April 1998. He is President
and principal owner of Eden & Associates, Inc., which provides consulting
services to the senior living and long-term care industries. He is also
President and principal owner of Senior Living Properties, LLC, and serves as
Chairman and Chief Executive Officer of Oakwood Living Centers, Inc., which owns
and operates 7 nursing homes in Massachusetts and Virginia. From 1976 to 1992,
he held various positions in healthcare at Marriott Corporation ultimately as
Executive Vice President and General Manager of its Senior Living Services
Division. Mr. Eden is also a director of Omega, the Alliance for Aging Research
and United Vanguard Homes.
Mr. Flaherty joined Omega in 1996 and was appointed Vice President-International
of Omega and Chief Executive of Omega (UK) Limited in January 1997. Mr. Flaherty
was appointed Chief Operating Officer of the Company in April 1998. Before he
joined Omega, Mr. Flaherty was Chairman of Black Rock Capital Corporation, a
leasing and merchant banking firm he founded in 1994. From April 1991 until
December 1993, Mr. Flaherty was Managing Partner of Pareto Partners, a London
based investment management firm. Prior to 1991, he was employed by American
Express Bank Ltd. in London and Geneva in a number of senior management
capacities and by State National Bank of Connecticut and its successor, The
Connecticut Bank & Trust Co.
Mr. Franke has been a Director of the Company since April 1998. He is Chairman
and principal owner of Cambridge Partners, Inc., an owner, developer and manager
of multifamily housing in Grand Rapids and Ann Arbor, Michigan. He is also the
principal owner of private healthcare firms operating in the United States and
the United Kingdom and a private hotel firm in the United Kingdom. Mr. Franke
has been a Director of Omega since its formation in 1992 and, since Principal's
formation in 1995, Mr. Franke has been a Director of Principal.
Dr. Anil K. Gupta has been a Director of the Company since July 7, 1998. He is
Professor of Strategy, Organization and International Business at the Robert
H. Smith School of Business, The University of Maryland. He holds a Doctor of
Business Administration from Harvard Business School. Dr. Gupta served as a
director of Vitalink Pharmacy Services, Inc. from 1992 to 1998. Recipient of
numerous scholarly awards, he also provides consulting and executive training to
a number of multinational companies.
Mr. Kellman was appointed Vice President of the Company in April 1998. He joined
Omega as Senior Vice President-Acquisitions in August 1993, and was appointed
Executive Vice President in August 1994 and Chief Operating Officer of Omega in
March 1998. From 1986 to 1989, he was Vice President of Meritor Savings Bank,
the last years as director of the healthcare lending unit. From 1989 to 1991, he
served as Vice President of Van Kampen Merritt, Inc., an
<PAGE> 9
investment banking subsidiary of Xerox. From September 1991 to December 1992, he
was employed by Philadelphia First Group, and from January 1993 through August
of 1993 he was an officer of Medical REIT.
Mr. Kloosterman has been a director of the Company since April 1998. He also
has been a director of Omega since its formation in 1992 and was a managing
director of Omega Capital from 1986 to 1992. Mr. Kloosterman has been involved
in the acquisition, development and management of commercial and multi-family
properties since 1978. He has been a senior officer of LaSalle Partners, Inc.,
and in 1985 he formed Cambridge Partners, Inc., where he serves as President.
At Cambridge, he has been involved in the development and management of
commercial, apartment and condominium projects in Grand Rapids and Ann Arbor,
Michigan and in the Chicago area.
Mr. Korman has been a director of the Company since April 1998. He is Chairman
of the Board of Trustees of Philadelphia Healthcare Trust, a not-for-profit
health care system, and of NutraMax Products, Inc., a public consumer health
care products company. He formerly was President, Chief Executive Officer and
Director of MEDIQ Incorporated (health care services) from 1977 to 1995. Mr.
Korman has been a Director of Omega since 1993 and also is a Director of the
following public companies: The New America High Income Fund (financial
services), The Pep Boys, Inc. (auto supplies), Today's Man, Inc. (retail men's
clothing sales), and Kranzco Realty Trust (real estate investment trust).
Ms. Kovach joined Omega in December 1997 as Vice President, General Counsel and
Secretary, and was appointed Vice President, General Counsel and Secretary of
the Company in April 1998. Prior to that she was a lawyer with Dykema Gossett
PLLC in Detroit, Michigan for 12 years, the last three years as a senior member
of the firm.
Mr. Lowenthal has served as a director of the Company since April 1998. He is
President and Chief Executive Officer of Wellsford Real Properties, Inc. (AMEX:
WRP), a real estate merchant bank, and was President of the predecessor of
Wellsford Real Properties, Inc. since 1986. Mr. Lowenthal has been a Director of
Omega since 1995 and also serves as a Director of United American Energy
Corporation, a developer, owner and operator of energy facilities; Corporate
Renaissance Group, Inc., a mutual fund; Equity Residential Properties Trust; and
Great Lakes REIT, Inc.
Mr. Parker has served as Chairman of the Company's Board of Directors since
April 1998. He is a consultant to, and formerly was Chairman of Omega from 1992
to 1995 and Managing Director of Omega Capital from 1986 to 1992. From 1972
through 1983, Mr. Parker was a senior officer of Beverly Enterprises, the
largest operator of long-term care facilities in the United States. At the time
of his retirement in 1983, Mr. Parker was Executive Vice President of Beverly
Enterprises. Mr. Parker is a registered architect and is licensed in California
and Oklahoma. Mr. Parker also served as a Director of GranCare, Inc., a public
company engaged in the operation of long-term care facilities from 1995 to
1997,
<PAGE> 10
and of Vitalink Pharmacy Services Inc., a publicly-traded institutional pharmacy
during 1997. He has served as a director of Principal since 1995, and of First
National Bank of Bethany, Oklahoma.
Mr. Stover has been Vice President and Chief Financial Officer of Omega since
September 1994 and of the Company since April 1998. Mr. Stover is a Certified
Public Accountant and has 23 years' experience with the international accounting
firm of Ernst & Young LLP and its predecessor firms. From 1981 through 1990, he
was an audit, tax and consulting partner, spending the last of those years as
area partner-in-charge of services for the firm's healthcare clients in Western
Michigan. From 1992 to 1994, Mr. Stover was principal of his own consulting firm
and, from 1990 to 1992, he was Chief Financial Officer of International Research
and Development Corporation.
The following individuals were delinquent in complying with Section 16(a) of the
Securities Exchange Act of 1934 during fiscal year 1998:
The Forms 3 for Messrs. Bailey, Kellman, Flaherty and Stover and for
Ms. Kovach were required to be filed with the Securities and Exchange
Commission by April 12, 1998 and were filed on April 14, 1998. In addition,
the Form 4 for Mr. Flaherty for the month of May, 1998 was required to be
filed by June 10, 1998 and was filed on November 13, 1998.
Todd P. Robinson, who was appointed Vice President of the Company on April 2,
1998 and resigned from the Company on April 20, 1998, was required to file his
Form 3 by April 12, 1998 and his Form 4 for the month of April, 1998 by May 10,
1998. He filed his Form 3 on April 14, 1998 and his Form 4 on November 13, 1998.
The Form 3 for Mr. Aigrain was required to be filed by July 17, 1998 and was
filed on July 20, 1998. The Form 4 for Mr. Franke for the month of April, 1998
was required to be filed by May 10, 1998 and was filed on June 10, 1998. The
Form 4 for Mr. Kloosterman for the month of May, 1998 was required to be
filed on June 10, 1998 and was filed on October 9, 1998.
ITEM 2 - PROPERTIES
At September 30, 1998, the Company's real estate investments are in purchased
long-term care facilities located in New South Wales, Australia and leased and
operated by Moran. There are ten nursing homes with a total of 733 licensed
beds, (weighted average occupancy 99.1%) and the yield on this investment is
10.0%. Eight of the properties also have a total of 480 assisted living units.
ITEM 3 - LEGAL PROCEEDINGS
There were no legal proceedings pending as of September 30, 1998 or as of the
date of this report, to which the Company is a party to or to which the
properties are subject.
<PAGE> 11
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to shareholders during the last quarter of the year
covered by this report.
<PAGE> 12
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company completed its IPO on April 2, 1998, and its common stock began
trading on the NASDAQ National Market System on April 10, 1998. Therefore,
data for the first and second quarter of the Company's fiscal year do not exist.
The Company's shares of common stock are traded under the symbol OWWI.
The following table sets forth, for the period ended September 30, 1998, the
high and low prices as reported by the NASDAQ National Market System:
<TABLE>
<CAPTION>
QUARTER HIGH LOW
------- ------- ------
<S> <C> <C>
April 10 through June 30 $10.625 $6.875
July 1 through September 30 $ 8.250 $4.000
</TABLE>
The closing price quoted on the NASDAQ National Market System on December 16,
1998 was $4.125 per share. As of December 16, 1998, there were 12,258,000 shares
of common stock outstanding with approximately 2,000 registered holders and
approximately 28,000 beneficial owners.
<PAGE> 13
ITEM 6 - SELECTED FINANCIAL DATA
The following unaudited selective financial data should be used in conjunction
with the Company's consolidated financial statements applying elsewhere herein
(in thousands, except per share data):
<TABLE>
<CAPTION>
OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 1998:
<S> <C>
Revenues $5,127
Operating income 2,461
Equity in earnings of Principal Healthcare
Finance, Limited 421
Income tax provision (927)
Net earnings 1,955
Net earnings available to common shareholders 1,851
PER SHARE AMOUNTS
Earnings per common share, basic 0.15
Earnings per common share, dilutive 0.15
Weighted average of shares outstanding, basic 12,255
Weighted average of shares outstanding, dilutive 12,255
FINANCIAL POSITION AT SEPTEMBER 30, 1998:
Current assets $21,567
Total assets 88,992
Current liabilities 30,341
Long-term debt ---
Shareholders' equity 58,651
</TABLE>
<PAGE> 14
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Safe Harbor" Statement Under the United States Private Securities Litigation
Reform Act of 1995 Statements that are not historical facts contained in
Management's Discussion and Analysis are forward-looking statements that involve
risks and uncertainties that could cause actual results to differ from projected
results. Some of the factors that could cause actual results to differ
materially include: the financial strength of the operators of the facilities
owned by the Company's subsidiaries or investees, as it affects their continuing
ability to meet their obligations under the terms of the lease agreements;
changes in operators or ownership of operators; government policy relating to
the healthcare industry, including changes in the reimbursement levels;
operators' continued eligibility to participate in the government sponsored
payment programs; changes in reimbursement by other third party payors;
occupancy levels at the facilities; the availability and cost of capital of the
Company and its investees; the strength and financial resources of competitors
of the Company and investees; the ability of investees to make additional real
estate investments at attractive yields; and the ability of investees to obtain
debt and equity capital at reasonable costs.
<PAGE> 15
Following is a discussion and analysis of the Company's consolidated results of
operations, financial condition and liquidity and capital resources. The
discussion should be read in conjunction with the audited consolidated financial
statements and notes thereto.
Results of Operations
Revenues from rents and interest for the period from April 2, 1998 (the date the
Company began operating as an independent public company) through September 30,
1998 (representing approximately a six-month period) were $5,127,000. The
Company's revenue is generated from investment and advisory services stemming
primarily from investments outside the United States. The Company also is an
owner of and provides management services to Principal, an Isle of Jersey
company that owns and leases 166 nursing home facilities to operators in the
United Kingdom. In June 1998, the Company acquired the Trust, a unit trust that
owns and leases 10 nursing home facilities and 480 assisted living units in
Australia. The Trust is a wholly owned subsidiary of the Company whose financial
position and results of operations are consolidated with that of the Company's
after elimination of all material intercompany accounts and transactions. The
Company intends to reduce its equity investment in the Trust to less than a
majority through the sale of units by the Trust to Australian institutional
investors. The Company will then account for its investment in the Trust at its
equity in the underlying net assets of the Trust and will recognize in its
statement of operations its pro rata share of the Trust's results of operations.
Equity in earnings of Principal of $421,000 ($0.03 per share) for the period
through September 30, 1998, represents the Company's 33.375% equity ownership in
Principal, which the Company acquired as a result of the spin-off from Omega on
April 2, 1998. Included in the Company's share of earnings is $172,000 ($0.01
per share) related to the non-recurring operating items realized by Principal
during the six-month period ended August 31, 1998.
On June 19, 1998, the Trust made an investment of approximately $30 million in
certain aged care facilities subject to long-term triple-net lease in Australia,
which is to be paid in June 1999. The deferred purchase obligation, which is due
June 19, 1999, was recorded net of imputed interest. Interest expense of
$573,000, for the period through September 30, 1998, represents non-cash
interest calculated on the $30 million deferred purchase obligation of the Trust
implied at an 8% interest rate.
Direct cost of service provided of $1,113,000, for the period ended September
30, 1998, represents cost incurred by Omega (UK) Limited. Omega (UK) Limited is
the primary service provider for activities related to Principal. The reported
amount represents direct cost incurred in the delivery of the services for which
rent and fee income has been recognized.
Allocated expenses from Omega of $303,000, for the period ended September 30,
1998, represents allocated share of compensation and occupancy costs of Omega
pursuant to provisions of the Services Agreement between Omega and the Company.
(See Note 11 to the consolidated financial statements)
<PAGE> 16
General and administrative expenses of $485,000, for the period ended September
30, 1998, represent direct administrative costs incurred by the Company on its
own behalf for corporate expenses, including state taxes, investor
relations, directors' expenses, legal, accounting and similar costs.
Liquidity and Capital Resources
On April 2, 1998, the Company issued 12,250,000 shares of common stock and
260,000 shares of Class B preferred stock in connection with its initial public
offering (3,750,000 shares sold in the public offering) and the contribution of
assets by Omega in exchange for 8,500,000 shares of the Company's common stock
and 260,000 shares of the Class B preferred stock. Proceeds from the IPO and
rights offering totaled $27,375,000 (net of issuance costs totaling $750,000).
On June 19, 1998, the Company acquired 100% of the units of the Trust as
described in Note 3 to the consolidated financial statements. The Trust's
investment in facilities approximates $30 million, which is to be paid in June
1999. The Company has deposited $9,330,000 in a cash collateral account to
secure a $30 million bankers' bill (letter of credit) obtained by the Trust to
guarantee funding for the deferred purchase obligation.
Cash provided by operating activities, for the period ended September 30, 1998,
totaled $2,231,000. Subsequent to September 30, the Company has obtained a
$25,000,000 two-year line-of-credit facility which expires on September 30,
2000. In November 1998, the Trust obtained an A$75 million (approximately $45
million) revolving credit facility from a bank in Australia. This revolving
credit facility and an interim bridge loan of $14.4 million from Omega were used
to fund the purchase by the Trust of 25 long-term care facilities from an
affiliate of Moran for A$80 (approximately $48 million). The facilities were
immediately leased back to an affiliate of Moran for an initial 30-year term.
Funds borrowed from Omega will be repaid in full by December 31, 1998.
The Company intends to continually seek new investment in providers of finance
to long-term care operators outside the United States.
<PAGE> 17
Market Risk
The Company is exposed to various market risks. Market risk is the potential
loss arising from adverse changes in market interest rates and prices, such as
foreign currency exchange rates. The Company does not enter into derivatives or
other financial instruments for trading or speculative purposes.
The Company enters into forward foreign exchange contracts principally to hedge
currency fluctuations in its investments denominated in foreign currencies,
thereby limiting the Company's risk that would otherwise result from changes in
exchange rates. During 1998, the Company obtained a hedge for its A$15,000,000
investment in and temporary loans to the Trust. At September 30, 1998, the
Company had outstanding a ten-year British pound forward currency swap to
exchange (pound)20,000,000 for $31,740,000 to mature on October 15, 2007, and a
five-year Australian dollar forward currency swap to exchange A$15,000,000 for
$9,330,000 to mature on July 3, 2003. From time to time, the Company may also
obtain hedges for its foreign currency exposure relative to temporary loans to
Principal and the Trust. Because of the Company's foreign exchange contracts
its sensitivity to foreign exchange currency exposure is considered low. See
Notes 1 and 6 to the consolidated financial statements for a discussion of the
accounting policies for Financial Instruments and information on Financial
Instruments, respectively.
Year 2000 Implications
The Year 2000 compliance issue concerns the inability of certain systems and
devices to properly use or store dates beyond December 31, 1999. This could
result in system failures, malfunctions, or miscalculations that disrupt normal
operations. This issue affects most companies and organizations to large and
small degrees, at least to the extent that potential exposures must be
evaluated.
The Company is reviewing risks with regard to the ability of the impact of
outside vendors' ability to operate, including Omega's services under the
Services Agreement, and the impact of tenants' ability to operate. Omega has
certified that its internal operations, its technology infrastructure,
information systems, and software applications are likely to be compliant or
will be compliant by mid-1999 based upon certification statements by the
applicable vendors. In those cases where there are compliance issues, these are
considered to be minor in nature and remedies are already identified.
Expenditures for such remedies will not be material.
With respect to the Company's other material outside vendors, such as its banks,
the Company's assessment will cover the compliance efforts of significant
vendors, the effects of potential non-compliance, and remedies that may mitigate
or obviate such effects as to the Company's business and operations. The Company
plans to complete its assessment of compliance by important vendors by mid-1999.
With respect to the tenants and properties, the Company's subsidiaries and
investees are making assessments covering their tenants' compliance efforts, the
possibility of any interface
<PAGE> 18
difficulties or electromechanical problems relating to compliance by material
vendors, the effects of potential non-compliance, and remedies that may mitigate
or obviate such effects. The subsidiaries and investees plan to process
information from tenant surveys beginning in 1999 and complete its assessment by
mid-1999.
Because these early evaluations have been conducted by the Company's own
personnel or by selected inquiries of its vendors and tenants in connection with
their routine servicing operations, the Company believes that its expenditures
for assessing Year 2000 issues, though difficult to quantify, have not been
material. In addition, the Company is not aware of any issues that will require
material expenditures by the Company in the future.
Based upon current information, the Company believes that the risk posed by
foreseeable Year 2000 related problems with internal systems (including both
information and non-information systems) is minimal. Year 2000 related problems
with software applications and internal operational programs are unlikely to
cause more than minor disruptions in the Company's operations. Year 2000 related
problems at certain of its third-party service providers, such as its banks,
payroll processor, and telecommunications provider is marginally greater,
though, based upon current information, the Company does not believe any such
problems would have a material effect on its operations. For example, Year 2000
related
<PAGE> 19
problems at such third-party service providers could delay the processing of
financial transactions and could disrupt the Company's internal and external
communications.
The Company believes that the risk posed by Year 2000 related problems at
properties of its subsidiaries and investees or with its tenants is marginally
greater, though, based upon current information, the Company does not believe
any such problems would have a material effect on its operations. Year 2000
related problems at certain governmental agencies and third-party payers could
delay the processing of tenant financial transactions, though, based upon
current information, the Company does not believe any such problems would have a
material long-term effect on its operations. Year 2000 related problems with the
electromechanical systems at its properties are unlikely to cause more than
minor disruptions in the Company's operations.
The Company and Omega intend to complete outstanding assessments, to implement
identified remedies, to continue to monitor Year 2000 issues, and will develop
contingency plans if, and to the extent deemed, necessary. However, based upon
current information and barring developments, the Company does not anticipate
developing any substantive contingency plans with respect to Year 2000 issues.
In addition, the Company has no plans to seek independent verification or review
of its assessments.
While the Company and Omega believe that they will be Year 2000 compliant by
December 31, 1999, there can be no assurance that the Company and Omega will be
successful in identifying and assessing all compliance issues, or that the
Company's efforts to remedy all Year 2000 compliance issues will be effective
such that they will not have a material adverse effect on the Company's business
or results of operations.
ITEM 7a - QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
These disclosures are included in Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE> 20
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and report of independent auditors are
filed as part of this report on pages F-1 through F-15.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
<PAGE> 21
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Located in Part I as permitted by Instruction 3 to Item 401(b) of Regulation
S-K.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's definitive proxy statement for the Annual Meeting of Shareholders to
be held on March 23, 1999, which will be filed on or about January 28, 1999 with
the Securities and Exchange Commission pursuant to Regulation 14A.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Company's definitive proxy statement for the Annual Meeting of Shareholders to
be held on March 23, 1999, which will be filed on or about January 28, 1999 with
the Securities and Exchange Commission pursuant to Regulation 14A.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's definitive proxy statement for the Annual Meeting of Shareholders to
be held on March 23, 1999, which will be filed on or about January 28, 1999 with
the Securities and Exchange Commission pursuant to Regulation 14A.
<PAGE> 22
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a)(1) Listing of Consolidated Financial Statements
<TABLE>
<CAPTION>
Title of Document Page Number
----------------- -----------
<S> <C>
Report of independent auditors F-1
Consolidated Balance Sheet
as of September 30, 1998 F-2
Consolidated Statement of Operations
for the period from April 2, 1998
to September 30, 1998 F-3
Consolidated Statement of Shareholders'
Equity for the period from April 2, 1998
to September 30, 1998 F-4
Consolidated Statement of Cash Flows for the
period from April 2, 1998 to September 30, 1998 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
(a)(2) Listing of Financial Statement Schedules. The following consolidated
financial statement schedule is included herein:
<TABLE>
<S> <C>
Schedule III--Real Estate and Accumulated Depreciation
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
(a)(3) Listing of Exhibits -- See Index to Exhibits beginning on Page 40 of
this report.
(b) Reports on Form 8-K - Form 8-K dated July 2, 1998: Report with the
following exhibits, each of which is dated as of June 19, 1998:
Mortgage of Deposit; Bill Facility Agreement; Deed of Guarantee and
Indemnity; Redemption and Subscription Agreement; Relationship
Agreement; Deed of Mortgage; Annexure B to Mortgage; Capital
Contribution Agreement; NSW Lease; Lease Guarantee; Indemnity Deed;
Procurement Agreement; Mortgage of Shares; and Mortgage of Units
(c) Exhibits - See Index to Exhibits beginning on Page of this report.
(d) Financial Statement Schedules - The following consolidated financial
statement schedule is included herein: Schedule III -- Real Estate and
Accumulated Depreciation.
<PAGE> 23
Report of Independent Auditors
Board of Directors
Omega Worldwide, Inc.
We have audited the accompanying consolidated balance sheets of Omega Worldwide,
Inc. and subsidiaries as of September 30, 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for the period
from April 2, 1998 (commencement of operations) through September 30, 1998. Our
audit also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Omega
Worldwide, Inc. and subsidiaries at September 30, 1998, and the consolidated
results of their operations and their cash flows for the period from April 2,
1998 through September 30, 1998 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
/s/ Ernst & Young LLP
December 21, 1998
Detroit, Michigan
F-1
<PAGE> 24
OMEGA WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
ASSETS
<S> <C>
Current Assets:
Cash and short-term investments ..................................................... $ 10,281
Restricted cash ..................................................................... 9,330
Other ............................................................................... 1,956
-------------
Total Current Assets ............................................................. 21,567
Land and Buildings subject to triple-net lease, net of $157 of accumulated depreciation 27,300
Investments in and temporary advances to Principal Healthcare Finance Limited ......... 37,902
Other assets .......................................................................... 2,223
-------------
67,425
-------------
Total Assets .......................................................................... $ 88,992
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses ............................................... $ 1,901
Accrued income taxes ................................................................ 433
Non-interest bearing deferred purchase obligation ................................... 28,007
-------------
Total Current Liabilities ........................................................ 30,341
Shareholders' Equity:
Preferred Stock $1.00 par value:
Authorized 10,000 shares
Outstanding 260 Class B shares at liquidation value ............................ 2,600
Common stock $.10 par value
Authorized 50,000 shares
Outstanding 12,258 shares ...................................................... 1,226
Additional paid-in capital ........................................................ 52,861
Retained earnings ................................................................. 1,955
Accumulated Other Comprehensive Income ............................................ 9
-------------
Total Shareholders' Equity ....................................................... 58,651
-------------
Total Liabilities and Shareholders' Equity ............................................ $ 88,992
=============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 25
OMEGA WORLDWIDE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Period from
April 2, 1998
(Commencement of
Operations) to
September 30, 1998
------------------
<S> <C>
Revenues:
Rent income ............................................ $ 1,014
Fee income - Principal Healthcare Finance Limited ...... 1,920
Interest:
Principal Healthcare Finance Limited ................ 1,784
Short-term investments .............................. 347
Other income ........................................... 62
--------
5,127
Expenses:
Direct costs of asset management services .............. 1,113
Allocated expenses from Omega Healthcare
Investors, Inc........................................ 303
Imputed interest expense ............................... 573
Provision for depreciation ............................. 192
General and administrative ............................. 485
--------
2,666
--------
Earnings before equity earnings and income taxes ......... 2,461
Equity in earnings of Principal Healthcare Finance Limited 421
--------
Earnings before Federal and foreign income taxes ......... 2,882
Provision for Federal and foreign income taxes ........... (927)
--------
Net earnings before preferred stock dividends ............ 1,955
Preferred stock dividends ................................ (104)
--------
Net Earnings Available to Common Shareholders ............ $ 1,851
========
Earnings per common share, Basic ......................... $ 0.15
========
Earnings per common share, Diluted ....................... $ 0.15
========
Average Shares Outstanding, Basic ........................ 12,255
========
Average Shares Outstanding, Diluted ...................... 12,255
========
Total comprehensive income, net of taxes ................. $ 1,964
========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 26
OMEGA WORLDWIDE, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDER' EQUITY
(In Thousands)
Period from April 2, 1998 (Commencement
of Operations) to September 30, 1998
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Stock Paid-in Preferred Retained Comprehensive
Par Value Capital Stock Earnings Income
--------- ------- ----- -------- ------
<S> <C> <C> <C> <C> <C>
Issuance of stock:
Issuance of 8,500 common shares and
260 preferred shares to Omega Healthcare
Investors, Inc. ...................... $ 850 $25,802 $ 2,600
Proceeds from April 2 equity offering of
3,750 shares at $7.50 per share, net of
issuance costs of $750 .............. 375 27,000
Grants of restricted stock (8,000 shares at
$7.50 per share) ....................... 1 59
Net earnings for 1998 ....................... $ 1,955
Foreign currency translation adjustments .... $ 9
------- ------- ------- ------- -------
Balance at September 30, 1998 ............... $ 1,226 $52,861 $ 2,600 $ 1,955 $ 9
======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 27
OMEGA WORLDWIDE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Period from
April 2, 1998
(Commencement of
Operation) to
September 30, 1998
------------------
<S> <C>
Operating activities:
Net earnings............................................................ $ 1,955
Adjustment to reconcile net earnings to cash provided by operating
activities:
Equity earnings in Principal Healthcare Finance, Limited ............ (421)
Imputed Interest..................................................... 573
Other non-cash charges .............................................. 252
Net change in operating assets and liabilities ......................... (106)
Foreign currency translation............................................ (22)
------------------
Net cash provided by operating activities ................................ 2,231
Cash flows from financing activities:
Proceeds from issuance of common stock ................................. 27,375
Cash contributed by Omega in exchange of liabilities assumed ........... 837
------------------
Net cash provided by financing activities ................................ 28,212
Cash flow from investing activities:
Restricted cash ........................................................ (9,330)
Advances to Principal Healthcare Finance Limited ....................... (8,379)
Secured loan to individual ............................................. (817)
Other .................................................................. (1,636)
------------------
Net cash used in investing activities .................................... (20,162)
------------------
Increase in unrestricted cash and short-term investments ................. $ 10,281
==================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 28
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Omega Worldwide, Inc. (the "Company") was formed to provide asset
management advisory services and hold equity and debt interest in companies
engaged in providing sale/leaseback and other capital financing to providers of
healthcare services throughout the world, particularly healthcare service for
the elderly. On April 2, 1998, Omega Healthcare Investors, Inc. ("Omega")
contributed substantially all of its investment in Principal Healthcare Finance
Limited ("Principal") to the Company. Assets contributed by Omega which were
recorded by the Company at Omega's accounting basis included a $23,805,000
subordinated loan to Principal, 33.375% of the common stock of Principal with a
carrying value of $5,297,000, other net asset of $150,000 and 10,556,250
warrants as described in Note 2. The interest rate on the subordinated loan was
12.18% at September 30, 1998. Omega also assigned to the Company its interest
in a management agreement with Principal in which the Company receives an
annual fee of .9% of Principal's assets (as defined) for providing certain
advisory services. In exchange for the assets contributed, Omega received
8,500,000 shares of common stock and 260,000 shares of Class B preferred stock.
On April 2, 1998, the Company's registration statement became
effective, and it offered 3,750,000 shares to the public at $7.50 per share. The
Company received $27,375,000, net of issuance costs of $750,000. Shares offered
included 500,000 shares in a primary offering and 3,250,000 shares in a rights
offering. Operations commenced upon the effectiveness of the initial public
offering. There are no differences in the Company's results of operations
between the six-month period ended September 30 1998 and the period from the
date of incorporation to September 30, 1998. Additionally, except for $1,000
invested by Omega at the date of formation, there was no difference between cash
flows from the six-month period ended September 30, 1998 and the period from the
date of incorporation.
CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries after elimination of all material
intercompany accounts and transactions. As disclosed in Note 3, the Company
acquired Principal Healthcare Finance Trust (the "Trust") on June 19, 1998.
Information for the Trust is consolidated on a one-month lag basis as the Trust
has an August 31, 1998 year end. There were no material changes to the Trust's
net assets during the month of September.
CASH AND SHORT-TERM INVESTMENTS
Short-term investments consist of highly liquid investments with a
maturity date of three months or less when purchased. These investments are
stated at cost, which approximates fair value.
F-6
<PAGE> 29
REVENUE RECOGNITION
Rental income is recognized on a straight-line basis over the initial
terms of the related master lease. Such income includes periodic increases based
upon predetermined formulas as defined in the master lease.
DEPRECIATION
Depreciable assets are recorded at cost. Depreciation expense is
calculated using the straight-line method over the estimated useful lives of the
depreciable assets. Estimated useful lives of depreciable assets range from 3 to
7 years for furniture, fixtures and equipment, and 40 years for buildings.
TRANSLATION
Translation of currencies for foreign subsidiary financial information
is computed pursuant to the provisions of Financial Accounting Standards Board
Statement No. 52, which provides that balance sheet amounts are translated at
the year end exchange rate and income statement amounts are translated at the
average annual rate. There are no material amounts of exchange gains or losses
included in the results of operations for 1998.
FINANCIAL INSTRUMENTS
The Company has foreign exchange rate contracts which mitigate the risk
of currency movements. Any gain or loss on the contract offsets any losses or
gains, respectively, on its investments denominated in pounds sterling and
Australian dollars.
STOCK BASED COMPENSATION
The Company grants stock options to employees and directors with an
exercise price equal to the fair value of the shares at the date of the grant.
In accordance with the provisions of APB Opinion No. 25, Accounting for Stock
Issued to Employees, compensation expense is not recognized for these stock
option grants.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
NOTE 2 - INVESTMENT IN PRINCIPAL HEALTHCARE FINANCE LIMITED
As described in Note 1, the Company acquired 33.375% of Principal's
voting ordinary shares in connection with the Omega distribution/exchange. The
Company accounts for its interest in Principal using the equity method.
Principal has $377 million of real estate investments in long-term care
facilities. These facilities are operated by independent operators and are
located in the United Kingdom. Substantially all of Principal's real estate is
pledged as collateral for Principal's debt agreements. Principal has a fiscal
year end of August 31, 1998; therefore, the equity in earnings of Principal is
recognized on a one-month lag basis. Included in consolidated earnings is
$421,000 of undistributed earnings of Principal, representing the Company's
share of Principal's earnings for the period of six months ended August 31,
1998. Included in the Company's
F-7
<PAGE> 30
share of earnings is $172,000 ($0.01 per share) related to the non-recurring
operating items realized by Principal during the six-month period ended August
31. The following is summarized financial information of Principal as of and for
the year ended August 31, 1998 (in thousands):
<TABLE>
<S> <C>
Current assets $ 41,132
Noncurrent assets 438,409
Current liabilities 128,463
Noncurrent liabilities 336,254
Revenue 51,042
Expenses 48,341
Non operating income 1,406
Net earnings before extraordinary item 4,107
</TABLE>
The carrying value of the investment in Common Stock of Principal
exceeds the Company's proportionate share of Principal's equity by approximately
$901,000 and is amortized over a period of 10 years.
The Company also acquired a British pound sterling denominated
subordinated loan due December 31, 2000. The carrying amount of the loan is
$23,805,000, and it bears interest at rates ranging from 12.18% to 12.93% during
the remaining term. The estimated fair value of the loan approximates
$27,348,000 based on estimates of management and on coupon rates currently
prevailing for comparable loans.
The Company also received warrants to purchase 10,000,000 ordinary
shares of Principal expiring June 30, 2001 at an exercise price of (pound)1.50
(approximately $2.55) per share and 556,250 ordinary shares of Principal
expiring December 31, 2000 at an exercise price of (pound)1.00 (approximately
$1.70) per share. As to the warrants that expire in December 2000, no value was
assigned at the date of issuance because the underlying securities were issued
at their fair value at that date. As to the warrants that expire in June 2001,
the coupon rate for the subordinated debt was the prevailing market rate on the
date of the loan, and, therefore, the face amount of the subordinated loans
approximated its fair value on the date of issuance. In addition, at the grant
date the exercise price on these warrants significantly exceeded the fair value
of the stock on the date of issuance since the warrants enabled the purchase of
shares at (pound)1.50, while the current value of the shares at that time was
approximately (pound)1.00. Based on these factors at the date of the loan, no
value was ascribed to the warrants. However, the estimated fair value of these
warrants at September 30, 1998 approximates $6,700,000. In determining the
estimated fair value, the Company used a Black Scholes pricing model with the
following assumptions: risk free interest rate of 6%; a volatility factor of
40%; and an average life of five years from date of grant.
NOTE 3 - ACQUISITION OF PRINCIPAL HEALTHCARE FINANCE TRUST
On June 19, 1998 the Company acquired Assisted Living Unit Trust, an
Australian property trust that owns nursing homes, for a cash investment of $3
million plus a loan of $6.2 million and a guarantee of the Trust's deferred
purchase obligation of $30 million. Concurrent with the acquisition, the
Assisted Living Unit Trust's name was changed to Principal Healthcare Finance
Trust. The Company currently has a 100% interest in the Trust but intends to
hold a minority interest position.
F-8
<PAGE> 31
The Trust's investment in facilities approximates $30 million, which is
to be paid in June 1999. The investment in facilities and the deferred
obligation are recorded net of imputed interest at 8%. Imputed interest expense
for the period was $574,000. The Trust has provided $9,330,000 in cash
collateral to secure a $30 million letter of credit obtained by the Trust to
provide funding for the deferred payment. The cash collateral is classified as
restricted cash.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
The real estate properties owned by the Trust are represented by 10
long-term care facilities and 480 assisted living units and are leased under the
provisions of a 30-year master lease. The lease provides for minimum payments of
$3,110,000 commencing in June 1999. Such payments are subject to annual
increases based on the greater of changes in price indexes or 2%, with a maximum
annual increase of 6%. Under the terms of the lease, the lessee is responsible
for all maintenance, repairs, taxes and insurance on the leased premises.
A summary of the Company's land and buildings subject to triple net
lease and related accumulated depreciation is as follows (in thousands):
<TABLE>
<S> <C>
Land and buildings subject to triple- $ 27,457
net lease
Less accumulated depreciation (157)
--------
$ 27,300
========
</TABLE>
Depreciation expense for the period ended September 30, 1998 which includes
approximately $35,000 to related the Company's office equipment was
approximately $192,000.
NOTE 5 - SECURED LOAN TO INDIVIDUAL
On May 28, 1998, the Company loaned $817,500 to an individual secured by the
individual's interest in a United Kingdom aged care operating company. The
operating company is a tenant of Principal. The loan bears interest at 10.5%
and principal payments are due through the year 2000. The estimated fair value
of the secured loan at September 30, 1998 is $856,000. Fair value is based on
the estimates of management and on rates currently prevailing for comparable
loans.
F-9
<PAGE> 32
NOTE 6- FINANCIAL INSTRUMENTS
At September 30, 1998, the carrying amounts and fair values of the
Company's financial instruments are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------------------------
(In Thousands)
<S> <C> <C>
Assets:
Cash and short-term investments $10,281 $10,281
Restricted Cash 9,330 9,330
Subordinated loan to Principal 23,805 27,348
Temporary advances to Principal 8,379 8,379
Warrants for 10,556,250 Principal shares 0 6,700
Secured loan 817 856
------- -------
$52,612 $62,894
Off Balance Sheet Financial Instruments:
Foreign currency contracts - (1,789)
</TABLE>
Fair value estimates are subjective in nature and are dependent on a
number of important assumptions, including estimates of future cash flows,
risks, discount rates and relevant comparable market information associated with
each financial instrument. The use of different market assumptions and
estimation methodologies may have a material effect on the reported estimated
fair value amounts. Accordingly, the estimates presented above are not
necessarily indicative of the amounts the Company would realize in a current
market exchange.
The Company has forward contracts to hedge currency risks associated
with investments in Principal and the Trust. Pursuant to a ten-year British
pound sterling currency swap agreement, the Company will have the right to
exchange (Pound)20,000,000 for $31,740,000 on October 15, 2007. Also, a
five-year forward contract to sell A$15,000,000 at the rate of US$.6220 was
entered into on June 30, 1998. The carrying amount of the investment in
Principal and the subordinated loans/advances to Principal, as well as
restricted cash related to the Trust, are based on the rates established in the
forward exchange contracts.
NOTE 7 - INCOME TAXES
Income tax expense differs from the amounts computed by applying the
U.S. Federal income tax rate of 34% to earnings before taxes as follows (in
thousands):
Computed expected tax expense $979
Tax effect of equity earnings (143)
Foreign tax rate differential and other 91
----
Total $927
====
The provisions for deferred taxes related to foreign investments has
been partially offset by available related foreign tax credits.
F-10
<PAGE> 33
NOTE 8 - STOCK OPTIONS
Under the terms of the 1998 Stock Option and Restricted Plan (the
"Plan"), the Company reserved 750,000 shares of common stock for grants to be
issued during a period of up to 10 years. Directors, officers, and key employees
are eligible to participate in the Plan. Options for 648,000 have been granted
during 1998. Additionally, 8,000 shares of restricted stock have been granted
under the provisions of the Plan. The vesting period on the restricted stock
lapsed on September 30, 1998, and expenses for 1998 include $60,000 related to
restricted stock grants for 1998.
The following is a summary of activity under the plan.
<TABLE>
<CAPTION>
Stock Options
-----------------------------------------------------
Number of Exercise Weighted
Shares Price Average Price
-----------------------------------------------------
<S> <C> <C> <C>
Outstanding at April 2, 1998 0
Grants during 1998 648,000 $5.688-$7.500 $7.479
Forfeited (42,000) 7.500 7.500
----------------------------------------------------
Outstanding at September 30, 1998 606,000 $5.688-$7.500 $7.477
----------------------------------------------------
</TABLE>
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." This new standard prescribes a fair value based
method of accounting for employee stock options or similar equity instruments
and requires certain pro forma disclosures. For purposes of the pro forma
disclosures required under Statement 123, the estimated fair value of the
options is amortized to expense over the option's vesting period. Based on the
Company's option activity, net earnings and net earnings per share on a pro
forma basis does not differ significantly from that determined under APB 25. The
estimated weighted average fair value of options granted in 1998 approximates $2
million. In determining the estimated fair value of the Company's stock options
as of the date of grant, a Black-Scholes option pricing model was used with the
following weighted-average assumptions: risk-free interest rates of 6.0%;
volatility factors of the expected market price of the Company's common stock at
30%; and a weighted-average expected life of the options of 7 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. For the
period ended September 30, 1998, the Company's pro forma net earnings would be
$1,784,000, and pro forma earnings per common share, basic and diluted, would be
$0.14.
F-11
<PAGE> 34
NOTE 9 - PREFERRED STOCK
Effective April 2, 1998, the Company issued 260,000 shares of 8% Series
B Cumulative Preferred Stock ("Preferred Stock") at $1 par value per share to
Omega in connection with the terms of the agreement. Each share of Series B
Preferred converts to one share of Omega Worldwide Common Stock immediately
after Omega makes a distribution of the Series B Preferred to its shareholders
or otherwise transfers the shares to any unaffiliated third party. Dividends on
the Preferred Stock are payable annually based on a liquidation value of $10 per
share.
NOTE 10 - NET EARNINGS PER SHARE
Net earnings per share are computed based on the weighted average
number of common shares outstanding during the period. Diluted earnings per
share amounts reflect the dilutive effect of stock options (518 shares at
September 30, 1998). The assumed conversion of shares of preferred stock is
currently anti-dilutive.
NOTE 11 - RELATED PARTY TRANSACTIONS
Pursuant to the provisions of a Services Agreement between Omega and
the Company, indirect costs incurred by Omega, including compensation of shared
executive officers and relations support personnel, and costs incurred by Omega
for rent, insurance, telephone, utilities, supplies, maintenance and travel, are
allocated to the Company based upon the relationship of assets under the
Company's management to the combined total of those assets and Omega's assets.
Assets and costs in the formula are on a one-quarter lag basis. Allocated
expenses during the period ended September 30, 1998 were approximately $303,000.
Such allocations are based on estimates and formulas that management believes to
be reasonable.
Temporary advances to Principal in the amount of $8,379,000 are
outstanding at September 30, 1998. Interest at 9.25% is paid on a monthly basis.
Included in interest income for the six-month period ended September 30, 1998 is
$292,000 related to advances to Principal.
Interest on the subordinated loan to Principal and fees from services
are $1,492,000 and $1,920,000, respectively, for the six-month period ended
September 30, 1998.
F-12
<PAGE> 35
NOTE 12 - BUSINESS SEGMENT INFORMATION
Omega Worldwide, Inc. was formed to provide asset management advisory
services and hold equity and debt interest in companies engaged in providing
sale/leaseback and other capital financing to providers of healthcare services
throughout the world, particularly healthcare service for the elderly. The
Company seeks to leverage its management expertise in financing healthcare
providers globally by providing seed equity, debt capital and investment
advisory services to newly-formed or existing finance companies, principally in
countries other than the United States. As of September 30, 1998, the Company
has made equity and debt investments in the United Kingdom and Commonwealth of
Australia. Accordingly, the Company presently operates in three geographic
regions, the United States, United Kingdom and Australia. The following is a
summary of operations by geographic region for the period of six months ended
September 30, 1998 (in thousands):
<TABLE>
<S> <C>
Revenue:
United States $ 2,097
United Kingdom 1,920
Australia 1,110
--------
Total $ 5,127
========
Operating income (expense):
United States $ 2,643
United Kingdom 477
Australia 247
Corporate expenses (485)
--------
Total $ 2,882
========
Identifiable assets:
United States $ 57,108
United Kingdom 131
Australia 31,753
--------
Total $ 88,992
========
</TABLE>
Identifiable assets attributable to the United States include
approximately $45 million represented by cash, loans and investments denominated
in currencies other than the U.S. dollar.
F-13
<PAGE> 36
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Following are details of changes in operating assets, liabilities and
other Non-cash transactions for the period ended September 30, 1998 (in
thousands):
<TABLE>
<S> <C>
Increase (decrease) in cash from changes
in operating assets and liabilities:
Operating assets $ (880)
Other liabilities 341
Accrued taxes 433
-------
$ (106)
=======
Noncash investing and financing transactions:
Contribution by Omega Healthcare Investors,
Inc., excluding cash
Investments $ 5,297
Loans 23,805
Other 150
Equity (29,252)
Acquisition of land and buildings subject
to triple-net lease (27,457)
Non-interest bearing deferred obligation 27,457
Income taxes paid during the period 600
</TABLE>
NOTE 14 - QUARTERLY DATA (UNAUDITED)
The following is an unaudited summary of quarterly results of
operations for the periods ended June 30, and September 30, 1998.
<TABLE>
<CAPTION>
June 30 September 30
(In thousands, except per share)
<S> <C> <C>
Revenues $1,778 $3,349
Net earnings 744 1,211
Net earnings available to common 692 1,159
Per Share Amounts:
Net earnings available to common, basic .06 .09
Net earnings available to common, diluted .06 .09
</TABLE>
F-14
<PAGE> 37
NOTE 15 - SUBSEQUENT EVENTS
In November 1998, the Company entered into a revolving credit agreement
with two banks for loans up to $25,000,000. Omega provided a guarantee to the
banks in consideration of a fee of 1%, plus an annual 25 basis point facility
fee. The agreement is scheduled to expire on September 30, 2000. The Company
will also pay to the bank an unused facility fee presently at .300%. Borrowings
under the facility bear interest at LIBOR plus 1.1875% or at the Company's
option price.
In November 1998, the Trust acquired and leased back 30 nursing
homes in the Australian states of New South Wales, Queensland, Western
Australia, and Victoria for $60 million. The transaction is in three phases with
the first phase closing in November and consisting of the purchase of 25
facilities for $48 million. The purchase of five Victoria homes will occur in
the second phase upon completion of construction and the stabilized occupancy of
the homes for an aggregate purchase price of $12 million. The final phase
involving an additional $15 million encompasses the renovation and refurbishing
of facilities during a five-year period ending October 2003 to enable homes to
comply with physical plant regulations being implemented. All disbursements
subsequent to the first phase are conditioned upon various levels of operating
profitability and performance.
The transaction was funded by drawing $30 million on the Trust's $45
million revolving credit facility, and by an interim bridge loan advance of
$14.4 million provided by Omega. The terms of the bank's financing involved
borrowings at an initial six months interest rate at 6.10% and interest rates
thereafter at the base rate (as defined) plus 1.50%, or approximately 6.45%. The
Omega loan bears interest at 10% and is due December 31, 1998, or sooner upon
completion of local equity financing currently anticipated to be closed in the
Company's first quarter.
F-15
<PAGE> 38
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION
OMEGA WORLDWIDE, INC.
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
- ----------------------------- ------------- ------------- -----------------------------
<CAPTION>
INITIAL COST
TO COMPANY COST CAPITALIZED
------------- SUBSEQUENT TO
ACQUISITION
BUILDINGS -----------------------------
AND LAND CARRYING
DESCRIPTION(1) ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS COSTS
- ----------------------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C>
Moran Healthcare Group pty.:
New South Wales, Australia.. 27,457,565 0 0
<CAPTION>
COLUMN E(3) COLUMN F COLUMN G COLUMN H COLUMN I
---------------- -------------- -------------- --------------- ------------
GROSS AMOUNT AT
WHICH CARRIED AT
CLOSE OF PERIOD
----------------
<CAPTION>
LIFE ON WHICH
BUILDINGS DEPRECIATION
AND LAND IN LATEST
IMPROVEMENTS ACCUMULATED DATE OF DATE INCOME STATEMENTS
TOTAL DEPRECIATION(4) RENOVATION ACQUIRED IS COMPUTED
---------------- --------------- -------------- ------------- -----------------
<S> <C> <C> <C>
27,457,565 157,542 June 19, 1998 40 years
</TABLE>
(1) All the real estate included in this schedule are being used for the
operation of long-term care facilities (LTC) in New South Wales, Australia.
(2) Cost for federal tax purposes.
Column E 1998
----
(3) Balance at beginning of period 0
Additions during period:
Acquisitions 27,457,565
-------------
Balance at Close of period 27,457,565
=============
Column F 1998
----
(4) Balance at Beginning of period 0
Additions during period:
Provisions for depreciation 157,542
-------------
Balance at Close of period 157,542
=============
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OMEGA WORLDWIDE, INC.
By: /s/ ESSEL W. BAILEY, JR.
-------------------------
Essel W. Bailey, Jr.
Chief Executive Officer
Dated: December 28, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER
/s/ ESSEL W. BAILEY, JR. President, December 28,1998
-------------------------------- Chief Executive
Essel W. Bailey, Jr. Officer,
and Director
PRINCIPAL FINANCIAL OFFICER and
PRINCIPAL ACCOUNTING OFFICER
/s/ DAVID A. STOVER Vice President, Chief December 28,1998
-------------------------------- Financial Officer
David A. Stover and Chief Accounting
Officer
DIRECTORS
/s/ JAMES A. EDEN Director December 28,1998
--------------------------------
James A. Eden
/s/ THOMAS F. FRANKE Director December 28,1998
--------------------------------
Thomas F. Franke
/s/ HAROLD J. KLOOSTERMAN Director December 28,1998
--------------------------------
Harold J. Kloosterman
/s/ BERNARD J. KORMAN Director December 28,1998
--------------------------------
Bernard J. Korman
/s/ EDWARD LOWENTHAL Director December 28,1998
--------------------------------
Edward Lowenthal
/s/ ROBERT L. PARKER Chairman of the Board December 28,1998
--------------------------------
Robert L. Parker
/s/ JACQUES AIGRAIN Director December 28,1998
--------------------------------
Jacques Aigrain
/s/ ANIL K GUPTA Director December 28,1998
--------------------------------
Anil K. Gupta
</TABLE>
<PAGE> 40
INDEX TO EXHIBITS
Exhibit 3.1 Articles of Amendment and Restatement Incorporated by
reference to Exhibit 3.1 to Form S-1 Registration Statement
Exhibit 3.2 Amended and Restated Bylaws Incorporated by reference to
Exhibit 3.2 to Form S-1 Registration Statement
Exhibit 3.3 Articles Supplementary for Series B Preferred Stock
Incorporated by reference to Exhibit 3.3 to Form S-1
Registration Statement
Exhibit 3.4 Articles Supplementary for Series A Preferred Stock
Incorporated by reference to Exhibit 3.4 to Form S-1
Registration Statement
Exhibit 10.1 Omega Worldwide, Inc. 1997 Stock Option and Restricted Stock
Plan Incorporated by reference to Exhibit 10.1 to Form S-1
Registration Statement
Exhibit 10.2 Opportunity Agreement between the Company and Omega dated
April 1, 1998 Incorporated by reference to Exhibit 10.2 to
Form S-1 Registration Statement
Exhibit 10.3 Services Agreement between the Company and Omega dated April
1, 1998 Incorporated by reference to Exhibit 10.3 to Form
S-1 Registration Statement
Exhibit 10.4 Amended and Restated Advisory Agreement dated as of July 21,
1995 between the Company (as successor by assignment from
Omega) and Principal Incorporated by reference to Exhibit 10.5
to Form S-1 Registration Statement
Exhibit 10.5 Indemnification Agreements between the Company and its
Directors and Executive Officers Incorporated by reference
to Exhibit 10.7 to form S-1 Registration Statement
Exhibit 10.6 Advisory Agreement between Omega (Australia) Pty Limited and
Principal Healthcare Finance Trust Filed herewith
Exhibit 10.7 Form of Loan Agreement dated as of November 20, 1998 among the
Company, Fleet Bank, N.A., as Agent, and other financial
institutions named therein, Filed herewith
<PAGE> 41
Exhibit 10.8 Promissory Note executed by the Trust to Omega and Guaranty
executed by the Company in favor of Omega Incorporated by
reference to Exhibit 10.3 to the Company's report on Form 8-K
filed on November 27, 1998
Exhibit 10.9 Transaction documents dated June 19, 1998 -- Incorporated by
reference to Exhibit 10.1 to the Company's report on Form 8-K
filed on July 2, 1998:
(a) Mortgage of Deposit between the Company and ABN AMRO
Facilities Australia Limited ("ABN Facilities")
(b) Bill Facility Agreement between Principal Pty and ABN
AMRO Australia Limited ("ABN Australia")
(c) Deed of Guarantee and Indemnity between the Company
and ABN Facilities
(d) Redemption and Subscription Agreement among Premier
Care Australia (Holdings) Pty Limited, FAI Insurances
Limited ("FAI"), PHF No. 1 Pty Limited ("PHF No. 1"),
Tanoa Pty Limited ("Tanoa"), and Premier Care
Australia Pty Limited (now known as Principal
Healthcare Finance Pty Limited ("Principal Pty")
(e) Relationship Agreement among the Company, PHF No. 1
Pty Limited, PHF No. 2 Pty Limited, Tanoa, Mindra
Pty Limited, Beheer-en Beleggingsmaatschappij Dilava
BV, Beheer-en Beleggingsmaatschappij Rocla BV, Moran
Health Care ("Australia") Pty Limited ("Moran
Australia") and Moran Health Care Group Pty Limited
("Moran")
(f) Deed of Mortgage and Annexure B to Mortgage between
Principal Pty and ABN Facilities
(g) Capital Contribution Agreement among Moran Australia,
Moran and Principal Pty
(h) NSW Lease between Principal Pty, as lessor, and Moran
Australia, as lessee
(i) Lease Guarantee between Moran and Principal Pty
(j) Indemnity Deed
(k) Procurement Agreement among Moran Australia, FAI,
Moran, Douglas John Moran, Greta Richmond Moran,
Peter Godfrey Moran and Shane Moran
(l) Mortgage of Shares between Moran and Principal Pty
<PAGE> 42
Exhibit 12 Statement re Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends - Filed herewith
Exhibit 21 Subsidiaries of Registrant - Filed herewith
Exhibit 27 Financial Data Schedule - Filed herewith
Exhibit 99(a) Financial Statements of Principal Healthcare Finance Limited--
(filed herewith):
-Report of Auditors
-Consolidated Statement of operations for the years
ended August 31, 1998, 1997, and 1996
-Consolidated Balance Sheets as of August 31, 1998
and 1997
-Consolidated Statements of Shareholders' Equity for
the years ended August 31, 1998, 1997, and 1996
-Consolidated Statements of Cash Flows for the years
ended August 31, 1998, 1997, and 1996
-Notes to Consolidated Financial Statements
Exhibit 99(b) Financial Statements of Tamaris Plc--(filed herewith):
-Report of Auditors
-Consolidated Profit and Loss Account for the years
ended March 31, 1998 and 1997
-Consolidated Balance Sheets as of March 31, 1998 and
1997
-Company Balance Sheets as of March 31, 1998 and 1997
-Consolidated Cash Flow Statement for the years ended
March 31, 1998 and 1997
-Notes to the Financial Statements
Exhibit 99(c) Financial Statements of Moran Health Care Pty Limited--(filed
herewith):
-Independent Audit Report
-Consolidated Profit and Loss Account for the years
ended June 30, 1998 and 1997
-Consolidated Balance Sheet as of June 30, 1998
and 1997
-Consolidated Statement of Cash Flows for the years
ended June 30, 1998 and 1997
-Notes to and forming part of the financial
statements
<PAGE> 1
EXHIBIT 10.6
ADVISORY AGREEMENT
THIS AGREEMENT IS MADE ON 1998
PARTIES
PRINCIPAL HEALTHCARE FINANCE PTY LIMITED, ACN 069 875 476 in its capacity as
trustee of the Trust of C/- Phillips Fox, 255 Elizabeth Street, Sydney, New
South Wales ("THE COMPANY")
OMEGA (AUSTRALIA) PTY LIMITED ACN 082 747 331 of C/- Phillips Fox, 255
Elizabeth Street, Sydney, New South Wales ("THE ADVISOR")
RECITALS
A. The Company, as trustee of the Trust, is in the business in
Australia of, inter alia, acquiring real estate for the
provision of health care services, which real estate is to be
leased to and operated by Health Care Operators.
B. The Advisor, its Related Entities and its employees have
experience in the administration of real estate assets used to
provide health care services and the origination, structuring
and evaluation of real estate and mortgage investments and
leasing activities related to the health care industry.
C. The Advisor has agreed to provide certain management,
administration and advisory services to the Company on the
terms and conditions set out in this Agreement.
AGREEMENT
1. DUTIES OF THE ADVISOR
0.1 The Advisor will provide such services and activities relating to the
assets, operations and business plans of the Company as may be
appropriate, including:
(a) assisting in the preparation of annual budgets and business
plans for approval by the Board ("the Business Plans");
(b) using its best efforts to present to the Company a continuing
investment program consistent with the investment policies and
objectives of the Company as set out in the Business Plans;
(c) using its best efforts to present to the Company investment
opportunities consistent with the Business Plans and such investment
program as the Board may adopt from time to time;
<PAGE> 2
2
(d) furnishing or obtaining and supervising the performance of the
administration of the day-to-day operations of the Company, including
the investment of reserve funds and surplus cash in short-term money
market investments;
(e) serving as one of the Company's investment and financial advisors and
providing research, economic, and statistical data in connection with
the Company's investments and investment and financial policies;
(f) assisting the Company in investigating, selecting and negotiating
with borrowers, lenders, mortgagors, brokers, investors, builders,
developers and others;
(g) consulting with the Board and providing the Board with advice and
recommendations with respect to the making, acquiring (by purchase,
investment, exchange, or otherwise), holding, and disposition
(through sale, exchange, or otherwise) of investments consistent with
the Business Plans;
(h) advising the Board with respect to such services as may be required
in acquiring and disposing of investments, disbursing and collecting
the funds of the Company, paying the debts and fulfilling the
obligations of the Company, and handling, prosecuting, and settling
any claims of the Company, including enforcing leases, guarantees,
mortgages and other encumbrances securing investments;
(i) assisting the Company in obtaining such services as may be required
for property management, loan disbursements, and other activities
relating to the investments of the Company, so long as the
compensation for such services is to be agreed to by the Company and
the service provider;
(j) advising the Company in connection with capital market activities;
(k) quarterly, and at any time requested by the Board making reports to
the Board regarding the Company's performance to date in relation to
the Company's current approved Business Plan and its various
components, as well as the Advisor's performance of its services
under this Agreement;
(l) making or providing appraisal reports, where appropriate, on
investments or contemplated investments of the Company;
(m) assisting in preparation of reports and other documents necessary to
satisfy the reporting and other requirements of any governmental
bodies or agencies and assisting in maintaining effective
communications with shareholders of the Company; and
(n) doing all things necessary to ensure its ability to render the
services contemplated herein, including providing office space and
office furnishings, computing and accounting equipment and personnel
necessary for the performance of the foregoing services as Advisor,
all at its own expense, except as otherwise expressly provided for
herein.
0.2 In performing its services under this Agreement, the Advisor acknowledges
that:
<PAGE> 3
3
(a) it is doing so pursuant to a delegation of day to day management
by the Board, which delegation remains under the supervision and
control of the Board; and
(b) the Board and not the Advisor maintains ultimate authority for the
conduct of the business of the Company.
0.3 The Company acknowledges that the Advisor will perform its services
under this Agreement through facilities, personnel and support services
located at its Australian, United States and United Kingdom offices
through personnel selected by the Advisor.
0.4 In performing its services under this Agreement, the Advisor may
utilise facilities, personnel and support services of various of its
affiliates, whether located within or outside Australia. The Advisor
shall reimburse such affiliates for their services and facilities out
of the compensation provided for in Section 10. Notwithstanding the
above, the Company may request, and will pay for the direct costs of,
additional services (as described in Section 12 of this Agreement).
The Advisor will engage in other activities related to real estate and
not related to the Company or its assets, as contemplated in Section
15.
1. NO PARTNERSHIP OR JOINT VENTURE
The Company and the Advisor are not partners or joint venturers with
each other. Nothing in this Agreement will be construed so as to make
them such partners or joint venturers or impose any liability as such
on either of them. Nothing contained in this Agreement authorises
either party to act as agent or representative of the other party or to
authorise either party to create any obligation on behalf of the other
party.
2. RECORDS
The Advisor must, at all times keep proper books of account and records
of the Company's affairs which shall be accessible for inspection by
the Company at the Advisor's principal office in Australia or at the
offices of its Related Entities in the United States and at any time
during business hours on giving reasonable notice.
3. BANK ACCOUNTS
The Advisor may establish and maintain one or more bank accounts in its
own name, and may collect and deposit into such account or accounts,
and disburse from any such account or accounts, any money on behalf of
the Company, under such terms and conditions as the Board may approve.
No funds in any such account shall be commingled with funds of the
Advisor or another party; and the Advisor shall from time to time
render appropriate accounting of such collections and payments to the
Board and to the auditors of the Company.
<PAGE> 4
4
4. BOND
4.1 The Advisor will maintain a fidelity bond with a responsible surety
company or a reputable bank in such amount as may be required by the
Board from time to time, covering all directors, officers, employees,
and agents of the Advisor handling funds of the Company and any
investment documents or records relating to investments of the Company.
4.2 The bond is for the benefit of the Company in respect of losses
arising from acts of directors, officers, employees, and agents
through theft, embezzlement, fraud, negligence, error, or omission or
otherwise.
4.3 The premium for the bond is to be at the expense of the Company. If
any director of the Company is an Affiliate of the Advisor, the
approval of a majority of the Board who are not so affiliated is
required for the Company to require such a bond for the Advisor.
5. INFORMATION FURNISHED TO ADVISOR
The Board has the right to change a Business Plan at any time. The
Board must promptly furnish a copy of any changes to any Business Plan
to the Advisor. The Company shall furnish the Advisor with a certified
copy of all financial statements, a signed copy of each report prepared
by independent certified chartered accountants, and such other
information with regard to the Company's affairs as the Advisor may
from time to time reasonably request.
6. CONSULTATION AND ADVICE
6.1 In addition to the services described above, the Advisor shall consult
with the Board and at the request of the Board will furnish advice and
recommendations with respect to any aspect of the business and affairs
of the Company, including any factors that in the Advisor's best
judgment should influence the policies of the Company.
6.2 The Advisor and the Company will confer as required concerning the
Advisor's staffing and personnel assigned to perform the services of
the Advisor hereunder, with the goal that the Advisor will employ
highly qualified professional staff, in whom both the Advisor and the
Company repose confidence and trust.
7. ANNUAL BUSINESS PLAN AND BUDGET
7.1 The Advisor will assist the Company in the preparation of a Business
Plan for each financial year of the Company for submission to the
Board. Such Business Plan must include: a twelve-month projection of
operations and cash flow with explicit assumptions and a general plan
for asset sales or acquisitions, leasing, lending, enforcement and
borrowing activity, other investments or ventures and proposed
securities offerings or repurchases or any proposed restructuring of
the Company.
<PAGE> 5
5
7.2 To the extent possible, the Business Plan shall set out the Advisor's
recommendations and the basis therefor with respect to all material
investments of the Company. Upon approval by the Board, the Advisor
shall advise and assist in the conduct of the business of the Company
in accordance with the explicit provisions of the Business Plan,
specifically including the borrowing, leasing, maintenance, capital
improvements, renovations and sale of investments set forth in the
Business Plan.
7.3 Within forty five (45) days of the end of each calendar quarter, the
Advisor must provide the Board of Directors of the Company with a
report comparing the Company's actual performance for such quarter
against the Business Plan.
8. DEFINITIONS
8.1 The following terms will have the meanings set out below:
(a) "Adjusted Consolidated Net Income" means for any fiscal period the
consolidated net income for the Company and its consolidated
subsidiaries, (i) increased by (x) the amount of income allowable to
such fiscal period from zero-coupon investments or similar deferred
payment investments and (y) the amount of any increase in appraisal
write-up valuation of assets of the Company and its consolidated
subsidiaries as reported in annual valuations for such fiscal period
and decreased by the amount of any reduction in appraisal of assets
of the Company and its consolidated subsidiaries as reported in
annual valuations for such fiscal period.
(b) "Aggregate Book Value of Invested Assets" means the Book Value of
Invested Assets for all of the following as a group:
(i) the Company;
(ii) each Person that is a Related Entity of the Company; and
(iii) Securitisation Entity.
(c) "Board" means the board of directors of the Company as constituted
from time to time.
(d) "Book Value" of an asset or assets means the value of such asset or
assets as recorded on the books of any Person:
(i) before any appraisal write-up in accordance with Australian GAAP;
(ii) before provision for amortisation, depreciation, depletion or
valuation reserves; and
(iii) deducting any indebtedness or other liability in respect thereof.
(e) "Book Value of Invested Assets" means the Book Value of the total
assets of any nature or description owned, leased, managed or
operated by any Person (without deduction of any liabilities), but
excluding:
<PAGE> 6
6
(i) goodwill and other intangible assets;
(ii) cash; and
(iii) cash equivalent investments with terms which mature in one year or
less, and increased by the amount of any increase in appraisal
write-up of assets of the Company and its consolidated subsidiaries
as reported in annual valuations for such fiscal period and
decreased by the amount of any reduction in appraisal of assets of
the Company and its consolidated subsidiaries as reported in annual
valuations for such fiscal period.
(f) "Business Plan" means the Company's investment policies and
objectives and the capital and operating budget based thereon for the
relevant fiscal year of the Company as approved by the Board, as
modified or amended.
(g) "Change of Control" means, as to the Advisor:
(i) the election to the board of directors of the Advisor in a
contested election of directors of individuals comprising a
majority of directors who, immediately prior to the contested
election, were not members of the board of directors of the
Advisor; or
(ii) a change in the duties of the chairman and/or the chief executive
officer of the Advisor, which change prejudices the active
involvement of such officer or officers of the Advisor in the
performance of the Advisor's services under this Agreement.
(h) "Earnings per Share" means the Adjusted Consolidated Net Income of
the Company for any fiscal period, divided by the weighted average
number of ordinary shares outstanding for such fiscal period.
(i) "Health Care Operator" means an operator or manager of healthcare
facilities, (including aged care, nursing and/or residential care for
the aged, mentally infirm, chronically ill, intellectually or
physically disabled, hospitals and medical surgeries)
(j) "Invested Assets" shall mean the assets of any Person which are
managed by the Advisor.
(k) "Leases" means all leases and subleases from the Company and its
Related Entities to third party lessees and sublessees.
(l) "Mortgage Loans" means mortgages, debentures, bonds, and other
evidence of indebtedness or obligations, whether negotiable or
non-negotiable, and which are secured or collateralised by mortgages,
including first, wraparound, construction and development and second
or subordinated mortgages.
(m) "Person" means individuals, corporations, partnerships, joint stock
companies or associations, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts, or
other entities and governments and agencies and political
subdivisions thereof.
<PAGE> 7
7
(n) "Real Property" means land, interests in land, leasehold interests
(including but not limited to interests of a lessor or lessee
therein), and any buildings, structures, improvements, fixtures, and
equipment located on or used in connection with land, leasehold
interests, and rights in land or interests therein.
(o) "Related Entity" has the same meaning as is given to that
expression in the Corporation's Law and references to a body
corporate include a reference to a trust
(p) "Securitisation Entity" means any Person formed or availed of for the
purposes of financing and/or acquiring assets now owned, leased,
managed and/or operated by or to be owned, leased, managed and/or
operated by the Company or any Related Entity of the Company.
(q) "Trust" means the trust known as the Principal Healthcare Finance
Trust constituted by deed of trust dated 11 August 1995, as amended
from time to time.
8.2 All calculations made pursuant to this Agreement shall be based on
statements (which may be unaudited, except as provided herein) prepared
on an accrual basis consistent with Australian generally accepted
accounting principals, regardless of whether the Company may also
prepare statements on a different basis.
9. INVESTED ASSETS FEE: INCENTIVE FEE
9.1 On or before the twenty-eighth day of each month during the term of
this Agreement, the Company must pay to the Advisor, as compensation
for the management and advisory services rendered to the Company, a
fee at the rate of 0.075% per month of the average of the Aggregate
Book Value of the Invested Assets ("Invested Assets Fee") at the
beginning and at the end of the next preceding calendar month.
9.2 The annual rate of the Invested Assets Fee shall be 0.90% per annum.
Notwithstanding the foregoing, to the extent that Invested Assets
include assets held by a Securitisation Entity, the Invested Assets
Fee with respect to such assets shall accrue monthly and be paid
semi-annually on the date the Securitisation Entity makes a regularly
scheduled payment of interest and/or principal. The Invested Assets
Fee allowable to such assets, when paid, shall include a pro-rata
payment of interest and investment earnings earned by such
Securitisation Entity since the preceding payment date.
9.3 On or before the first day of the third calendar month following
receipt by the Company of its audited financial statements for the
prior year, the Company's auditors (or other third party acceptable to
the Advisor and the Company) shall determine whether the Earnings Per
Share for the financial year then ended based on weighted shares
outstanding, exceeded by at least fifteen percent (15%) the Earnings
Per Share for the preceding financial year (the "Target Earnings Per
Share")
9.4 In the event the Company shall have achieved Target Earnings Per Share
for any financial year, then the Company shall pay to the Advisor
within fourteen days after each determination referred to in clause
10.3, an incentive fee equal to two-tenths of one
<PAGE> 8
8
percent (0.02%) of the average of Aggregate Book Value of Invested
Assets (Incentive Fee). For purposes of the Incentive Fee, the
average of Aggregate Book Value of Invested Assets shall be determined
as the average of the Aggregate Book Value of Invested Assets on the
first day of the financial year and the Aggregate Book Value of
Invested Assets on the last day of the financial year.
9.5 Certain expenses and reimbursements described in Sections 13 and 14 of
this Agreement may be allocated in part to the account of the Advisor
and in part to the account of the Company, as may be agreed by the
parties.
10. STATEMENTS
Upon request, the Advisor must furnish to the Company not later than
the tenth (10th) day of each calendar month, beginning with the second
(2nd) calendar month of the term of this Agreement, a statement
showing the computation of the fees, if any, payable in respect to the
next preceding calendar month.
11. COMPENSATION FOR ADDITIONAL SERVICES
To the extent that the Company requests the Advisor or any director,
officer, partner, or employee of the Advisor or Related Entities of
the Advisor to render services for the Company other than those
required to be rendered by the Advisor hereunder, such additional
services, if performed, will be compensated separately on terms to be
agreed upon between such party and the Company from time to time.
12. EXPENSES OF THE ADVISOR
The Advisor will bear the following expenses, (subject to the
allocation provisions of Section 10):
(a) employment expenses of the personnel employed by the Advisor
including, but not limited to, fees, salaries, wages, payroll taxes,
travel expenses, and the cost of employee benefit plans and temporary
help expenses (including fees, salaries, and expenses paid to
directors, officers, and employees of the Advisor who are also
directors, officers or employees of the Company, when acting in such
capacity as directors, officers or employees of the Advisor);
(b) advertising and promotional expenses incurred in seeking investments
for the Company;
(c) rent, telephone, utilities, office furniture and furnishings, and
other office expenses of the Advisor;
(d) the cost of any internal accounting, statistical, bookkeeping or
computer equipment or computer time necessary for maintaining the
books and records of the Company; and
<PAGE> 9
9
(e) miscellaneous administrative expenses relating to performance by
the Advisor of its functions under this Agreement.
13. EXPENSES OF THE COMPANY
The Company must pay all of its expenses not assumed by or allocated to
the Advisor, including without limitation, the following expenses:
(a) the cost of money borrowed by the Company;
(b) income taxes, taxes and assessments on real property, and all other
taxes applicable to the Company;
(c) legal, auditing, accounting (other than internal accounting),
preparing all tax returns, underwriting, brokerage, listing,
registration and other fees, printing, engraving and other expenses,
and taxes incurred in connection with the insurance, distribution,
transfer, registration, and stock exchange listing of the Company's
securities;
(d) fees, salaries and expenses paid to directors, officers, and employees
of the Company;
(e) fees and expenses paid to independent advisors, independent
contractors, mortgage services, consultants, managers, local property
managers or management firms, accountants, attorneys and other agents
employed by or on behalf of the Company;
(f) expenses directly connected with the origination or purchase of
Mortgage Loans and with the acquisition, disposition, and ownership
of real estate equity interests, Leases or other property, including
the costs of enforcement, insurance, legal, protective, brokerage,
maintenance, repair, and property improvement services;
(g) expenses of maintaining and managing real estate equity interests;
(h) insurance, as required by the Board (including liability insurance);
(i) the expenses of organising, revising, amending, converting, modifying,
or terminating the Company;
(j) expenses connected with payments of dividends or interest or
distributions in cash or any other form made or caused to be made by
the Board of Directors of the Company to holders of securities of the
Company;
(k) All expenses connected with communications to holders of securities
of the Company and the other bookkeeping and clerical work necessary
in maintaining relations with holders of securities, including the
cost of printing and mailing certificates for securities and proxy
solicitation materials and reports to holders of the Company's
securities;
<PAGE> 10
9
(l) the cost of any outside auditing necessary for maintaining the
books and records of the Company and the costs for preparing and filing
all required tax returns;
(m) transfer agent's, registrar's and trustee's fees and charges;
(n) legal, accounting, investment banking, and auditing fees and expenses
charged by independent parties for services provided to the Company;
(o) out of pocket expenses incurred by the Advisor, arising from the
sales of Company properties, including those expenses related to
carrying out foreclosure and lease termination proceedings;
(p) costs and expenses associated with risk management (ie., insurance
relating to the Company's assets);
(q) loan refinancing compensation; and
(r) expenses associated with special services requested by the Board
pursuant to Section 12 hereof.
14. OTHER ACTIVITIES OF ADVISOR
14.1 Unless otherwise provided for in this Agreement, the Advisor, its
officers, directors, or employees or any of its Related Entities (and
such Related Entities officers, directors or employees) may engage in
other business activities relating to real estate investments or act as
advisor to any other Person, including those with investment policies
similar to the Company, and the Advisor and its officers, directors, or
employees and any of its Related Entities (and such Related Entities
officers, directors or employees) shall be free from any obligation to
present to the Company any particular investment opportunity that comes
to the Advisor or such persons, regardless of whether such opportunity
is in accordance with the Company's Business Plans.
14.2 Nothing in this Agreement shall prevent any director, officer or
employee of the Advisor, or any Related Entity (and such Related
Entities officers, directors, or employees) from engaging in any other
business or from rendering services of any kind to any other Person
(including competitive business activities).
14.3 Neither the Company nor its Related Entities, nor their respective
directors, officers, or employees, shall act as an advisor to, or agree
to act as an advisor to, any other Person with respect to real property
located in Australia and used for health care purposes, without the
prior written consent of the Board.
14.4 Directors, officers, employees and agents of the Advisor of its
Related Entities may serve as directors, employees, agents, nominees
or signatories of the Company. When executing documents or otherwise
acting in such capacities for the Company, such persons shall use
their respective titles in the Company.
<PAGE> 11
11
15. TERM; TERMINATION OF AGREEMENT
15.1 This Agreement shall commence on the date hereof ("the Effective
Date") and, subject to the automatic extension and early termination
provisions of this Agreement, shall continue for a period of seven
years ("Termination Date") and continue thereafter unless terminated
by either party as set forth below.
15.2 Beginning on the Termination Date and continuing as of each 1 January
thereafter, the term of this Agreement will automatically be extended
for one additional year unless either party exercises the early
termination rights described in the following sentence referred to in
subclause 16.3.
15.3 By written notice delivered to the other party not later than
15 November of any calendar year, either party may elect to avoid the
automatic extension of the term. For example, if a party gives notice
on or before 15 November 2005 of its election to avoid the automatic
extension provision of this Agreement, the term of this Agreement
would end on 31 December 2005.
15.4 During the ninety (90) day period following a Change in Control, the
Company shall have the right to elect to terminate this Agreement, by
notice given to the Advisor. Such termination shall be effective one
hundred eighty (180) days following the Advisor's receipt of notice of
termination from the Company.
15.5 If any director of the Company is an Related Entity of the Advisor,
the approval of a majority of the Board not so Related Entity shall be
required for the Company to make the election described in subclause
16.4.
15.6 If this Agreement is terminated pursuant to this Section 16, such
termination shall be without further liability or obligation of either
party to the other as of the Termination Date, except as provided in
Section 20. In no event shall such termination limit the Advisor's
right to indemnification pursuant to Section 21 hereof with respect to
any acts or omissions undertaken by Advisor prior to such termination.
16. AMENDMENTS
This Agreement shall not be changed, modified, terminated or discharged
in whole or in part except by an instrument in writing signed by both
parties hereto, or their respective successors or assigns, or otherwise
as provided herein. If any director of the Company is an Related Entity
of the Advisor, the approval of a majority of the Board who are not
Related Entity shall be required for the Company to amend this
Agreement.
17. DEFAULT, BANKRUPTCY, ETC
17.1 At the option solely of the Board, this Agreement shall be terminated
immediately upon written notice of termination from the Board to the
Advisor if any of the following events shall occur:
<PAGE> 12
12
(a) if the Advisor breaches any provision of this Agreement, and after
notice of breach does not remedy such default within thirty (30)
days, or, such longer period as may be appropriate if not susceptible
of being remedied within the thirty (30) days; or
(b) if the Advisor shall be adjudged or insolvent by a court of competent
jurisdiction, or an order is made by a court of competent
jurisdiction for the appointment of a receiver, liquidator, or
trustee of the Advisor or of all or substantially all of its property
by reorganisation, and such adjudication or order shall remain in
force or unstayed for a period of sixty (60) days; or
(c) if the Advisor is placed under administrationor for relief under any
law for the relief of debtors, or shall consent to the appointment of
a receiver of itself or of all or substantially all its property, or
shall make a general assignment for the benefit of its creditors, or
shall admit in writing its inability to pay its debts generally, as
they become due.
17.2 The Advisor agrees that if any of the events specified in subsections
(b) and (c) of this Section 18.1 occurs, it will give written notice
thereof to the Board within seven (7) days after such occurrence. If
any director of the Company is an Related Entity of the Advisor, the
approval of a majority of the Board who are not so Related Entity
shall be required for the Company to give any notice described in this
Section.
18. ASSIGNMENT
18.1 The Advisor may assign this Agreement to any Related Entity of the
Advisor, provided that at the time of the assignment the assignee (a)
assumes and agrees to be bound by this Agreement; and (b) is controlled
by a board of directors, a majority of whom are members of the Board of
Directors of the Advisor and (c) has as its chief executive officer the
individual who is chief executive officer or chairman of the Advisor.
Such an assignment or any other assignment of this Agreement by the
Advisor shall bind the assignee thereunder in the same manner as the
Advisor is bound hereunder.
18.2 The Advisor may also assign this Agreement to a corporation,
association, trust, or other successor organisation which may take over
the property and carry on the affairs of the Advisor, provided that
following such assignment the persons who controlled the operations of
the Advisor immediately prior to the assignment shall control the
operation of the successor organisation, including the performance of
its duties under this Agreement and they shall be bound by the same
restrictions by which they were bound to such assignment.
18.3 This Agreement shall not otherwise be assignable by the Advisor
without the prior written consent of the Company. This Agreement shall
not be assignable by the Company without the prior written consent of
the Advisor, except in the case of any assignment by the Company to a
corporation or other organisation which is the successor to the
Company, in which case such successor shall be bound hereby and by the
terms of said assignment in the same manner and to the same extent as
the Company is bound hereby.
<PAGE> 13
13
19. ACTION UPON TERMINATION
19.1 From the effective date of termination of this Agreement, pursuant to
Sections 16, 18 and 19 the Advisor shall not be entitled to
compensation for further services but shall be paid all compensation
accruing to the date of termination. The Advisor shall be deemed to
have earned one-twelfth of the Incentive Fee of each full calendar
month during which it provides services to the Company under this
Agreement. The Advisor shall forthwith upon such termination:
(a) pay over to the Company all moneys collected and held for the account
of the Company pursuant to this Agreement;
(b) deliver to the Board a full accounting, including a statement showing
all payments collected by it and a statement of any moneys held by
it, covering the period following the date of the last accounting
furnished to the Board; and
(c) deliver to the Board all property and documents of the Company then in
the custody of the Advisor.
19.2 For a period of one year following the date of termination of this
Agreement, neither the Company nor any Related Entity of the Company
shall, directly or indirectly, offer employment (including, but not
limited to consulting arrangements) to any employee of the Advisor or
any Related Entity of the Advisor without the prior written consent of
the Advisor, which consent may be freely withheld.
20. LIMITS OF ADVISOR RESPONSIBILITY
20.1 The Advisor assumes no responsibility other than to render the
services described herein in good faith and shall not be responsible
for any action of the Company in following or declining to follow any
advice or recommendation of the Advisor. The Advisor, its
shareholders, directors, officers, agents, employees and Related
Entities will not be liable to the Company, its shareholders, or
others, except by reason of acts constituting bad faith, wilful or
wanton misconduct or gross negligence.
20.2 The Company shall reimburse, indemnify and hold harmless the Advisor,
its shareholders, directors, officers, agents and employees and its
Related Entities for and from any and all expenses, losses, damages,
liabilities, demands, charges and claims of any nature whatsoever in
respect to or arising from any acts or omissions of the Advisor
undertaken in good faith and in accordance with the standard set forth
above pursuant to the authority granted to it by this Agreement.
<PAGE> 14
14
21. NOTICES
21.1 Any notice, report, or other communication required or permitted to be
given hereunder shall be in writing unless some other method of giving
such notice, report, or other communication is accepted by the party
to whom it is given, and shall be effectively when transmitted by
telecopier, delivered or, in the case of mailed notice or notice sent
by overnight courier, upon receipt thereof as conclusively evidenced
by the signed receipt thereafter by being delivered at the end
addresses of the parties thereto:
THE BOARD AND/OR THE COMPANY:
Principal Healthcare Finance Pty Limited
c/o Phillips Fox
255 Elizabeth Street
Sydney, New South Wales
Attention: Kevin Moss/ Bill Chapman
Telephone: (02) 9286 8000
Fax: (02) 9283 4144
THE ADVISOR:
Omega (Australia) Pty Limited
c/o Phillips Fox
255 Elizabeth Street
Sydney, New South Wales
Attention: Kevin Moss/Bill Chapman
Facsimile: (612) 9283 4144
with a copy, in the case of both the Company and the Advisor,
to:
Omega Worldwide, Inc,
900 Victors Way, Suite 345
Ann Arbor, MI 48103
Attention: Essel W Bailey, Jr - President
Telephone: (313) 747-9790
Fax: (734) 887 0301
and to:
Omega (UK) Limited
145 Cannon Street, London, EC4N 5 BP
Attention: James P. Flaherty
Telephone: (171) 929 3444
Facsimile: (171) 929 3555
<PAGE> 15
15
21.2 Each party may at any time give notice in writing to the other party
of a change of its address for the purpose of this Section 22.
22. HEADINGS
The section headings hereof have been inserted for convenience of
reference only and shall not be construed to affect the meaning,
construction, or effect of this Agreement.
23. GOVERNING LAW; CONSENT TO JURISDICTION
This agreement shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all other
respects by the statutes, laws and decisions of New South Wales. The
Company consents to in personam jurisdiction before the state and
federal courts in New South Wales and agrees that all disputes
concerning this agreement may be litigated, in Advisor's sole
discretion and at Advisor's sole election, only in courts located in
New South Wales. The company agrees that service of process may be
effected upon in under any method permissible under the laws of New
South Wales and irrevocably waives any objection to venue in the state
or federal courts of New South Wale].
24. JOINDER
The Company shall cause each Related Entity and Securitisation Entity
to join in this Agreement for purposes of determining the Invested
Assets Fees and Incentive Fees payable to the Advisor under this
Agreement.
25. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties hereto
with respect to the subject matter hereof and supersedes and cancels
any pre-existing agreements with respect to such subject matter.
<PAGE> 16
16
EXECUTED AS AN AGREEMENT
Signed for and on behalf of PRINCIPAL HEALTHCARE FINANCE PTY LIMITED in the
presence of:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signature of witness Signature of authorised person
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Name of witness (print) Name of authorised person (print)
Signed for and on behalf of OMEGA (AUSTRALIA) PTY LIMITED in the presence of:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signature of witness Signature of authorised person
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Name of witness (print) Name of authorised person (print)
<PAGE> 17
17
<PAGE> 18
18
-----------------------------------------------------------------------
ADVISORY AGREEMENT
PRINCIPAL HEALTHCARE FINANCE PTY LIMITED
OMEGA (AUSTRALIA) PTY LIMITED
-----------------------------------------------------------------------
[GRAPHIC OMITTED]
255 Elizabeth Street Sydney NSW 2000 Australia
Tel +61 2 9286 8000 Fax +61 2 9283 4144 DX 107 SYDNEY
Email: [email protected]
WWW site: http://www.PhillipsFox.com.au
<PAGE> 19
19
Ref:WGC:940906
<PAGE> 20
20
CONTENTS
1. DUTIES OF THE ADVISOR 1
2. NO PARTNERSHIP OR JOINT VENTURE 3
3. RECORDS 4
4. BANK ACCOUNTS 4
5. BOND 4
6. INFORMATION FURNISHED TO ADVISOR 4
7. CONSULTATION AND ADVICE 5
8. ANNUAL BUSINESS PLAN AND BUDGET 5
9. DEFINITIONS 5
10. INVESTED ASSETS FEE: INCENTIVE FEE 8
11. STATEMENTS 9
12. COMPENSATION FOR ADDITIONAL SERVICES 9
13. EXPENSES OF THE ADVISOR 9
14. EXPENSES OF THE COMPANY 10
15. OTHER ACTIVITIES OF ADVISOR 11
16. TERM; TERMINATION OF AGREEMENT 12
17. AMENDMENTS 13
18. DEFAULT, BANKRUPTCY, ETC 13
19. ASSIGNMENT 14
20. ACTION UPON TERMINATION 14
21. LIMITS OF ADVISOR RESPONSIBILITY 15
22. NOTICES 16
23. HEADINGS 17
<PAGE> 21
21
24. GOVERNING LAW; CONSENT TO JURISDICTION 17
25. JOINDER 17
26. ENTIRE AGREEMENT 17
<PAGE> 1
EXHIBIT 10.7
================================================================================
LOAN AGREEMENT
BY AND AMONG
OMEGA WORLDWIDE, INC.,
THE BANKS SIGNATORY HERETO
AND
FLEET BANK, N.A.,
AS AGENT FOR SUCH BANKS
NOVEMBER 20, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
Article 1. Definitions . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Defined Terms. . . . . . . . . . . . . . . .1
Section 1.2 GAAP . . . . . . . . . . . . . . . . . . . 13
Article 2. Commitments; Loans. . . . . . . . . . . . . . . . . . .14
Section 2.1 Loans. . . . . . . . . . . . . . . . . . . 14
Section 2.2 Intentionally Omitted. . . . . . . . . . .14
Section 2.3 Notices Relating to Loans. . . . . . . . . 14
Section 2.4 Disbursement of Loan Proceeds. . . . . . . 15
Section 2.5 Notes. . . . . . . . . . . . . . . . . . . 15
Section 2.6 Payment of Loans; Voluntary
Changes in Commitment. . . . . . . . . . .15
Section 2.7 Interest . . . . . . . . . . . . . . . . . 16
Section 2.8 Fees . . . . . . . . . . . . . . . . . . . 17
Section 2.9 Use of Proceeds of Loans . . . . . . . . . 18
Section 2.10 Computations . . . . . . . . . . . . . . . 18
Section 2.11 Minimum Amounts of Borrowings,
Conversions and Repayments . . . . . . . . 18
Section 2.12 Time and Method of Payments. . . . . . . . 18
Section 2.13 Lending Offices. . . . . . . . . . . . . . 19
Section 2.14 Several Obligations. . . . . . . . . . . . 19
Section 2.15 Pro Rata Treatment Among Banks . . . . . . 19
Section 2.16 Non-Receipt of Funds by the Agent. . . . . 19
Section 2.17 Sharing of Payments
and Set-Off Among Banks. . . . . . . . . 20
Section 2.18 Conversion of Loans. . . . . . . . . . . . 20
Section 2.19 Additional Costs; Capital Requirements . . 21
Section 2.20 Limitation on Types of Loans . . . . . . . 23
Section 2.21 Illegality . . . . . . . . . . . . . . . . 23
Section 2.22 Certain Conversions pursuant
to Sections 2.19 and 2.21. . . . . . . . 24
Section 2.23 Indemnification. . . . . . . . . . . . . . 24
Section 2.24 Guaranty . . . . . . . . . . . . . . . . . 25
Article 3. Representations and Warranties . . . . . . . . . . . . 26
Section 3.1 Organization . . . . . . . . . . . . . . . 26
Section 3.2 Power, Authority, Consents . . . . . . . . 26
Section 3.3 No Violation of Law or Agreements. . . . . 27
Section 3.4 Due Execution, Validity, Enforceability. . 27
Section 3.5 Title to Properties. . . . . . . . . . . . 27
Section 3.6 Judgments, Actions, Proceedings. . . . . . 27
Section 3.7 No Defaults, Compliance With Laws. . . . . 28
Section 3.8 Burdensome Documents . . . . . . . . . . . 28
Section 3.9 Intentionally Omitted. . . . . . . . . . . 28
Section 3.10 Tax Returns. . . . . . . . . . . . . . . . 28
Section 3.11 Intangible Assets. . . . . . . . . . . . . 29
Section 3.12 Regulation U . . . . . . . . . . . . . . . 29
Section 3.13 Name Changes, Mergers, Acquisitions. . . . 29
Section 3.14 Full Disclosure. . . . . . . . . . . . . . 29
Section 3.15 Licenses and Approvals . . . . . . . . . . 29
Section 3.16 ERISA. . . . . . . . . . . . . . . . . . . 30
Article 4. Conditions to the Loans . . . . . . . . . . . . . . . 31
Section 4.1 Conditions to Initial Loan(s). . . . . . . 31
Section 4.2 Conditions to Subsequent Loans . . . . . . 32
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Article 5. Delivery of Financial Reports,
Documents and Other Information . . . . . 33
Section 5.1 Annual Financial Statements. . . . . . . . 33
Section 5.2 Quarterly Financial Statements . . . . . . 33
Section 5.3 Compliance Information . . . . . . . . . . 34
Section 5.4 No Default Certificate . . . . . . . . . . 34
Section 5.5 Intentionally Omitted. . . . . . . . . . . 34
Section 5.6 Business Plan and Budget . . . . . . . . . 34
Section 5.7 Accountants' Reports . . . . . . . . . . . 35
Section 5.8 Copies of Documents. . . . . . . . . . . . 35
Section 5.9 Notices of Defaults. . . . . . . . . . . . 35
Section 5.10 ERISA Notices and Requests . . . . . . . . 35
Section 5.11 Additional Information . . . . . . . . . . 36
Article 6. Affirmative Covenants . . . . . . . . . . . . . . . . 37
Section 6.1 Books and Records. . . . . . . . . . . . . 37
Section 6.2 Inspections and Audits . . . . . . . . . . 37
Section 6.3 Maintenance and Repairs. . . . . . . . . . 37
Section 6.4 Continuance of Business. . . . . . . . . . 37
Section 6.5 Copies of Corporate Documents. . . . . . . 37
Section 6.6 Perform Obligations. . . . . . . . . . . . 38
Section 6.7 Notice of Litigation . . . . . . . . . . . 38
Section 6.8 Insurance. . . . . . . . . . . . . . . . . 38
Section 6.9 Financial Covenants. . . . . . . . . . . . 38
Section 6.10 Notice of Certain Events . . . . . . . . . 39
Section 6.11 Comply with ERISA. . . . . . . . . . . . . 39
Section 6.12 Environmental Compliance . . . . . . . . . 39
Section 6.13 Year 2000 Compatibility. . . . . . . . . . 39
Article 7. Negative Covenants. . . . . . . . . . . . . . . . . . 40
Section 7.1 Indebtedness . . . . . . . . . . . . . . . 40
Section 7.2 Liens. . . . . . . . . . . . . . . . . . . 40
Section 7.3 Guaranties . . . . . . . . . . . . . . . . 41
Section 7.4 Mergers, Acquisitions. . . . . . . . . . . 41
Section 7.5 Redemptions; Distributions . . . . . . . . 41
Section 7.6 Changes in Structure . . . . . . . . . . . 42
Section 7.7 Intentionally Omitted. . . . . . . . . . . 42
Section 7.8 Fiscal Year. . . . . . . . . . . . . . . . 42
Section 7.9 ERISA Obligations. . . . . . . . . . . . . 42
Section 7.10 Use of Cash. . . . . . . . . . . . . . . . 42
Article 8. Events of Default. . . . . . . . . . . . . . . . . . . 43
Section 8.1 Payments . . . . . . . . . . . . . . . . . 43
Section 8.2 Certain Covenants. . . . . . . . . . . . . 43
Section 8.3 Other Covenants. . . . . . . . . . . . . . 43
Section 8.4 Other Defaults . . . . . . . . . . . . . . 43
Section 8.5 Representations and Warranties . . . . . . 44
Section 8.6 Bankruptcy . . . . . . . . . . . . . . . . 44
Section 8.7 Judgments. . . . . . . . . . . . . . . . . 45
Section 8.8 ERISA. . . . . . . . . . . . . . . . . . . 45
Section 8.9 Material Adverse Effect. . . . . . . . . . 45
Section 8.10 Ownership. . . . . . . . . . . . . . . . . 45
Section 8.11 Ratings. . . . . . . . . . . . . . . . . . 46
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Article 9. The Agent . . . . . . . . . . . . . . . . . . . . . . 47
Section 9.1 Appointment, Powers and Immunities . . . . 47
Section 9.2 Reliance by Agent. . . . . . . . . . . . . 47
Section 9.3 Events of Default. . . . . . . . . . . . . 48
Section 9.4 Rights as a Bank . . . . . . . . . . . . . 48
Section 9.5 Indemnification. . . . . . . . . . . . . . 48
Section 9.6 Non-Reliance on Agent and other Banks. . . 49
Section 9.7 Failure to Act . . . . . . . . . . . . . . 49
Section 9.8 Resignation or Removal of Agent. . . . . . 49
Section 9.9 Sharing of Payments. . . . . . . . . . . . 50
Article 10. Miscellaneous Provisions . . . . . . . . . . . . . . . 52
Section 10.1 Fees and Expenses; Indemnity . . . . . . . 52
Section 10.2 Taxes. . . . . . . . . . . . . . . . . . . 53
Section 10.3 Payments . . . . . . . . . . . . . . . . . 54
Section 10.4 Survival of Agreements and
Representations; Construction. . . . . . 54
Section 10.5 Lien on and Set-off of Deposits. . . . . . 54
Section 10.6 Modifications, Consents and
Waivers; Entire Agreement. . . . . . . . 55
Section 10.7 Remedies Cumulative; Counterclaims . . . . 55
Section 10.8 Further Assurances . . . . . . . . . . . . 56
Section 10.9 Notices. . . . . . . . . . . . . . . . . . 56
Section 10.10 Counterparts . . . . . . . . . . . . . . . 57
Section 10.11 Severability . . . . . . . . . . . . . . . 57
Section 10.12 Binding Effect; No Assignment
or Delegation by Borrower. . . . . . . . 58
Section 10.13 Assignments and Participations by Banks. . 58
Section 10.14 Delivery of Tax Forms. . . . . . . . . . . 60
Section 10.15 GOVERNING LAW; CONSENT TO JURISDICTION;
WAIVER OF TRIAL BY JURY. . . . . . . . . 61
EXHIBITS
A Form of Note
B Form of Assignment and Acceptance
SCHEDULES
3.1 States of Incorporation and Qualification, and Capitalization of
Borrower
3.2 Consents, Waivers, Approvals; Violation of Agreements
3.6 Judgments, Actions, Proceedings
3.7 Defaults; Compliance with Laws, Regulations, Agreements
3.8 Burdensome Documents
3.13 Name Changes, Mergers, Acquisitions
3.15 Licenses and Approvals
3.16 Employee Benefit Plans
7.1 Permitted Indebtedness and Guaranties
7.2 Permitted Security Interests, Liens and Encumbrances
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LOAN AGREEMENT
AGREEMENT, made this 20th day of November, 1998, by and among:
OMEGA WORLDWIDE, INC., a Maryland corporation (the "Borrower");
The Banks that have executed the signature pages hereto (individually,
a "BANK" and collectively, the "BANKS"); and
FLEET BANK, N.A., a national banking association, as agent for the
Banks (in such capacity, together with its successors in such capacity, the
"AGENT");
W I T N E S S E T H:
WHEREAS, the Borrower wishes to obtain loans from the Banks in the
aggregate principal sum of up to Twenty Five Million ($25,000,000) Dollars, and
the Banks are willing to make such loans to the Borrower in the aggregate
principal amount of up to such sum on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS.
SECTION 1.1 DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"ADDITIONAL COSTS" - as defined in subsection 2.19(b) hereof.
"AFFECTED LOANS" - as defined in Section 2.22 hereof.
"AFFECTED TYPE" - as defined in Section 2.22 hereof.
"ALTERNATE BASE RATE" - for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16th of 1%) equal to the greater of (a) the
Prime Rate in effect on such day, and (b) 0.5% plus the Federal Funds Rate in
effect on such day.
"APPLICABLE MARGIN" - on any date, with respect to LIBOR Loans,
the applicable percentage set forth below based upon the Ratings in effect on
such date:
Category 1
Both of the following Ratings:
BBB or higher by S&P; and
Baa2 or higher by Moody's 1.0625%
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Category 2
Both of the following Ratings:
BBB- by S&P
Baa3 by Moody's 1.1875%
If any Rating shall be changed (other than as a result of a change in the rating
system of the applicable Rating Agency), such change shall be effective as of
the date on which it is first announced by the Rating Agency making such change.
Each such change in the Applicable Margin shall apply to all outstanding LIBOR
Loans during the period commencing on the effective date of such change and
ending on the date immediately preceding the effective date of the next such
change. If the rating system of any Rating Agency shall change, the parties
hereto shall negotiate in good faith to amend the references to specific ratings
in this definition to reflect such changed rating system.
"ARRANGEMENT FEE" - as defined in subsection 2.8(c) hereof.
"ASSESSMENT RATE" - at any time, the rate (rounded upwards, if
necessary, to the nearest 1/100 of one (1%) percent) then charged by the Federal
Deposit Insurance Corporation (or any successor) to the Reference Bank for
deposit insurance for Dollar time deposits with the Reference Bank at the
Principal Office as determined by the Reference Bank.
"ASSIGNMENT AND ACCEPTANCE" - an agreement in the form of
Exhibit B hereto.
"BORROWING NOTICE" - as defined in Section 2.3 hereof.
"BUSINESS DAY" - any day other than Saturday, Sunday or any other
day on which commercial banks in New York City are authorized or required to
close under the laws of the State of New York.
"CASH" - as to any Person, such Person's cash and cash
equivalents, as defined in accordance with GAAP consistently applied.
"CERCLA" - the Comprehensive Environmental Response Compensation
and Liability Act of 1980, 42 U.S.C. ss.9601, et seq.
"CODE" - the Internal Revenue Code of 1986, as it may be amended
from time to time, and the regulations promulgated thereunder.
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"COMMITMENT FEE" - as defined in subsection 2.8(b) hereof.
"COMMITMENT FEE PERCENTAGE" - on any date, the applicable
percentage set forth below based upon the Ratings in effect on such date:
Category 1
Both of the following Ratings:
BBB or higher by S&P; and
Baa2 or higher by Moody's .250%
Category 2
Both of the following Ratings:
BBB- by S&P
Baa3 by Moody's .300%
If any Rating shall be changed (other than as a result of a change in the rating
system of the applicable Rating Agency), such change shall be effective as of
the date on which it is first announced by the Rating Agency making such change.
Each such change shall apply at any time during the period commencing on the
effective date of such change and ending on the date immediately preceding the
effective date of the next such change. If the rating system of any Rating
Agency shall change, the parties hereto shall negotiate in good faith to amend
the references to specific ratings in this definition to reflect such changed
rating system.
"COMPLIANCE CERTIFICATE" - a certificate executed by the chief
executive officer or chief financial officer of the Borrower to the effect that:
(a) as of the effective date of the certificate, no Default or Event of Default
under this Agreement exists or would exist after giving effect to the action
intended to be taken by the Borrower as described in such certificate,
including, without limitation, that the covenants set forth in Section 6.9
hereof would not be breached after giving effect to such action, together with a
calculation in reasonable detail, and in form and substance satisfactory to the
Agent, of such compliance, and (b) the representations and warranties contained
in Article 3 hereof are true and with the same effect as though such
representations and warranties were made on the date of such certificate, except
for changes in the ordinary course of business none of which, either singly or
in the aggregate, have had a Material Adverse Effect.
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"CONTROLLED GROUP" - all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414(b), 414(c) or 414(m) of the Code and Section
4001(a)(2) of ERISA.
"CREDIT PERIOD" - the period commencing on the date of this
Agreement and ending on the Revolving Credit Commitment Termination Date.
"DEBT INSTRUMENT" - as defined in subsection 8.4(a) hereof.
"DEFAULT" - an event which with notice or lapse of time, or both,
would constitute an Event of Default.
"DOLLARS" and "$" - lawful money of the United States of America.
"ELIGIBLE ASSIGNEE" - a commercial bank or other financial
institution organized under the laws of the United States of America or any
state and having a combined capital and surplus of at least One Hundred Million
($100,000,000) Dollars.
"EMPLOYEE BENEFIT PLAN" - any employee benefit plan within the
meaning of Section 3(3) of ERISA which is subject to ERISA and (a) is maintained
for employees of the Borrower, or (b) with respect to which any Loan Party has
any liability.
"ENVIRONMENTAL LAWS AND REGULATIONS" - all federal, state and
local environmental laws, regulations, ordinances, orders, judgments and decrees
applicable to the Borrower or any other Loan Party, or any of their respective
assets or properties.
"ENVIRONMENTAL LIABILITY" - any liability under any applicable
Environmental Laws and Regulations for any disposal, release or threatened
release of a hazardous substance pollutant or contaminant as those terms are
defined under CERCLA, and any liability which would require a removal, remedial
or response action, as those terms are defined under CERCLA, by any person or by
any environmental regulatory body having jurisdiction over the Borrower and/or
any liability arising under any Environmental Laws and Regulations for the
Borrower's failure to comply with such laws and regulations, including without
limitation, the failure to comply with or obtain any applicable environmental
permit.
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<PAGE> 9
"ENVIRONMENTAL PROCEEDING" - any judgment, action, proceeding or
investigation pending before any court or governmental authority, with respect
to the Borrower and arising under or relating to any Environmental Laws and
Regulations.
"ERISA" - the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time, and the regulations promulgated thereunder.
"ERISA AFFILIATE" - as applied to any Loan Party, any corporation,
person or trade or business which is a member of a group which is under common
control with any Loan Party, who together with any Loan Party, is treated as a
single employer within the meaning of Section 414(b) - (o) of the Code and, if
applicable, Section 4001(a)(14) and (b) of ERISA.
"EVENT OF DEFAULT" - as defined in Article 8 hereof.
"FEDERAL FUNDS RATE" - for any day, the weighted average of the
rates on overnight federal funds transactions with member banks of the Federal
Reserve System arranged by federal funds brokers as published by the Federal
Reserve Bank of New York for such day, or if such day is not a Business Day, for
the next preceding Business Day (or, if such rate is not so published for any
such day, the average rate charged to the Agent on such day on such transactions
as reasonably determined by the Agent).
"FEE(S)" - as defined in subsection 2.8(d) hereof.
"FLEET" - Fleet Bank, N.A., a national banking association, in its
capacity as a Bank hereunder.
"GAAP" - generally accepted accounting principles, as in effect in
the United States.
"GUARANTOR" - as defined in Section 2.24 hereof.
"GUARANTY" - as defined in Section 2.24 hereof.
"HAZARDOUS MATERIALS" - any toxic chemical, hazardous substances,
contaminants or pollutants, medical wastes, infectious wastes, or hazardous
wastes.
"INDEBTEDNESS" - with respect to any Person, all: (a) liabilities
or obligations, direct and contingent, which in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of a
balance sheet of such Person at the date as of which Indebtedness is to be
determined, including, without limitation, contingent liabilities that in
accordance with such principles, would be set forth in a
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<PAGE> 10
specific Dollar amount on the liability side of such balance sheet, and
capitalized lease obligations of such Person; (b)liabilities or obligations of
others for which such Person is directly or indirectly liable, by way of
guaranty (whether by direct guaranty, suretyship, discount, endorsement,
take-or-pay agreement, agreement to purchase or advance or keep in funds or
other agreement having the effect of a guaranty) or otherwise; (c) liabilities
or obligations secured by Liens on any assets of such Person, whether or not
such liabilities or obligations shall have been assumed by it; and (d)
liabilities or obligations of such Person, direct or contingent, with respect to
letters of credit issued for the account of such Person and bankers acceptances
created for such Person.
"INTEREST PERIOD" - with respect to any LIBOR Loan, each period
commencing on the date such Loan is made or converted from a Loan or Loans of
another Type into a LIBOR Loan, or the last day of the next preceding Interest
Period with respect to such Loan, and ending on the same day 1, 2, 3 or 6 months
thereafter, as the Borrower may select as provided in Section 2.3 hereof, except
that each such Interest Period which commences on the last LIBOR Business Day of
a calendar month (or on any day for which there is no numerically corresponding
day in the appropriate subsequent calendar month) shall end on the last LIBOR
Business Day of the appropriate subsequent calendar month. Notwithstanding the
foregoing: (a) each Interest Period that would otherwise end on a day which is
not a LIBOR Business Day shall end on the next succeeding LIBOR Business Day
(or, if such next succeeding LIBOR Business Day falls in the next succeeding
calendar month, on the next preceding LIBOR Business Day); (b) no more than four
(4) Interest Periods shall be in effect at the same time; (c) any Interest
Period relating to a Loan that commences before the Revolving Credit Commitment
Termination Date shall end no later than the Revolving Credit Commitment
Termination Date; and (d) notwithstanding clause (c) above, no Interest Period
shall have a duration of less than one month. In the event that the Borrower
fails to select the duration of any Interest Period for any LIBOR Loan within
the time period and otherwise as provided in Section 2.3 hereof, such LIBOR
Loans will be automatically converted into a Prime Rate Loan on the last day of
the preceding Interest Period for such LIBOR Loan.
"INTEREST RATE CONTRACTS" - interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
insurance and other agreements or arrangements designed to provide protection
against fluctuation in interest rates, in each case, in form and substance
satisfactory to the Agent and, in each case, with counterparties satisfactory to
the Agent.
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"LENDING OFFICE" - with respect to each Bank, with respect to each
Type of Loan, the Lending Office as designated for such Type of Loan below its
name on the signature pages hereof or such other office of such Bank or of an
affiliate of such Bank as it may from time to time specify to the Agent and the
Borrower as the office at which its Loans of such Type are to be made and
maintained.
"LIBOR BASE RATE" - with respect to any LIBOR Loan, for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of one (1%) percent) quoted by the Reference Bank at
approximately 11:00 a.m. London time (or as soon thereafter as practicable) two
(2) LIBOR Business Days prior to the first day of such Interest Period as the
rate at which the Reference Bank is offered Dollar deposits in the London
interbank market where the LIBOR and foreign currency and exchange operations of
the Reference Bank are customarily conducted, having terms of one (1), two (2),
three (3) or six (6) months and in an amount comparable to the principal amount
of the LIBOR Loan to be made by the Banks to which such Interest Period relates.
"LIBOR BUSINESS DAY" - a Business Day on which dealings in Dollar
deposits are carried out in the London interbank market.
"LIBOR LOAN(S)" - any Loan the interest on which is determined on
the basis of rates referred to in the definition of "LIBOR Base Rate" in this
Article 1.
"LIBOR RATE" - for any LIBOR Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of one (1%) percent) determined by the Agent to be equal to: (a) the LIBOR
Base Rate for such Loan for such Interest Period; divided by (b) one (1) minus
the Reserve Requirement for such Loan for such Interest Period. The Agent shall
use its best efforts to advise the Borrower of the LIBOR Rate as soon as
practicable after each change in the LIBOR Rate; provided, however, that the
failure of the Agent to so advise the Borrower on any one or more occasions
shall not affect the rights of the Banks or the Agent or the obligations of the
Borrower hereunder.
"LIEN" - any mortgage, deed of trust, pledge, security interest,
encumbrance, lien, claim or charge of any kind (including any agreement to give
any of the foregoing), any conditional sale or other title retention agreement,
any lease in the nature of any of the foregoing, and the filing of or agreement
to give any financing statement under the Uniform Commercial Code of any
jurisdiction.
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"LOAN(S)" - as defined in Section 2.1 hereof. Loans of different
Types made or converted from Loans of other Types on the same day (or of the
same Type but having different Interest Periods) shall be deemed to be separate
Loans for all purposes of this Agreement.
"LOAN DOCUMENTS" - this Agreement, the Notes, the Guaranty and all
other documents executed and delivered in connection herewith or therewith,
including all amendments, modifications and supplements of or to all such
documents.
"LOAN PARTY" - the Borrower, the Guarantor and any other Person
(other than the Banks and the Agent) which now or hereafter executes and
delivers to any Bank or the Agent any Loan Document.
"MATERIAL ADVERSE EFFECT" - any fact or circumstance which (a)
materially and adversely affects the business, operation, property or financial
condition of the Borrower, or (b) has a material adverse effect on the ability
of the Borrower to perform its obligations under this Agreement, the Notes or
the other Loan Documents.
"MOODY'S" - Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" - a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which any Loan Party or any ERISA Affiliate is
making, or is accruing an obligation to make, contributions or has made, or been
obligated to make, contributions within the preceding six (6) years.
"NEW TYPE LOANS" - as defined in Section 2.22 hereof.
"NOTE(S)" - as defined in subsection 2.5(b) hereof.
"OBLIGATIONS" - collectively, all of the Indebtedness, liabilities
and obligations of the Borrower to the Banks and the Agent, whether now existing
or hereafter arising, whether or not currently contemplated, including, without
limitation, those arising under the Loan Documents.
"OMEGA" - Omega Healthcare Investors, Inc., a Maryland
corporation.
"OMEGA LOAN AGREEMENT" - the Second Amended and Restated Loan
Agreement dated September 30, 1997 by and among Omega and certain of its
Subsidiaries, the banks signatory thereto, and Fleet, as Agent, as it may be
amended, modified and supplemented from time to time.
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"ORIGINATION FEE" - as defined in subsection 2.8(a) hereof.
"PAYOR" - as defined in Section 2.16 hereof.
"PBGC" - Pension Benefit Guaranty Corporation.
"PERMITTED LIENS" - as to any Person: (a) pledges or deposits by
such Person under workers' compensation laws, unemployment insurance laws,
social security laws, or similar legislation, or good faith deposits in
connection with bids, tenders, contracts (other than for the payment of
Indebtedness of such Person), or leases to which such Person is a party, or
deposits to secure public or statutory obligations of such Person or deposits of
Cash or United States Government Bonds to secure surety, appeal, performance or
other similar bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent; (b) liens imposed
by law, including without limitation, carriers', warehousemen's, materialmen's
and mechanics' liens, or liens arising out of judgments or awards or judicial
attachment liens against such Person with respect to which such Person at the
time shall currently be prosecuting an appeal or proceedings for review; (c)
liens for taxes not yet subject to penalties for non-payment and liens for taxes
the payment of which is being contested as permitted by Section 6.6 hereof; (d)
non-consensual liens that have been bonded within thirty (30) days after notice
of such lien(s) by a Person (not an Affiliate of the Borrower) reasonably
satisfactory to the Required Banks in an aggregate amount secured by all such
liens not in excess of $500,000; and (e) minor survey exceptions, minor
encumbrances, easements or reservations of, or rights of, others for rights of
way, highways and railroad crossings, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real properties, or Liens incidental to the conduct of the
business of such Person or to the ownership of such Person's property that were
not incurred in connection with Indebtedness of such Person, all of which Liens
referred to in this clause (e) do not in the aggregate materially impair the
value of the properties to which they relate or materially impair their use in
the operation of the business taken as a whole of such Person, and as to all the
foregoing only to the extent arising and continuing in the ordinary course of
business.
"PERSON" - an individual, a corporation, a partnership, a limited
liability company, a joint venture, a trust or unincorporated organization, a
joint stock company or other similar organization, a government or any political
subdivision thereof, a court, or any other legal entity, whether acting in an
individual, fiduciary or other capacity.
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"PLAN" - at any time an employee pension benefit plan that is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either: (a) maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower, or by the Borrower
for any other member of such Controlled Group, or (b) maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which the Borrower or any member of the
Controlled Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions.
"POST-DEFAULT RATE" - (a) in respect of any Loans, a rate per
annum equal to: (i) if such Loans are Prime Rate Loans, two (2%) percent above
the Alternate Base Rate as in effect from time to time for Prime Rate Loans, or
(ii) if such Loans are LIBOR Loans, two (2%) percent above the rate of interest
in effect thereon at the time of the Event of Default that resulted in the
Post-Default Rate being instituted until the end of the then current Interest
Period therefor and, thereafter, two (2%) above the Alternate Base Rate as in
effect from time to time; and (b) in respect of other amounts payable by the
Borrower hereunder (other than interest), equal to two (2%) above the Alternate
Base Rate as in effect from time to time.
"PRIME RATE" - the variable per annum rate of interest so
designated from time to time by Fleet as its prime rate. Notwithstanding the
foregoing, the Borrower acknowledges that the Prime Rate is a reference rate and
Fleet may regularly make domestic commercial loans at rates of interest less
than the rate of interest referred to in the preceding sentence. Each change in
any interest rate provided for herein based upon the Prime Rate resulting from a
change in the Prime Rate shall take effect at the time of such change in the
Prime Rate.
"PRIME RATE LOANS" - Loans that bear interest at a rate based upon
the Alternate Base Rate.
"PRINCIPAL OFFICE" - the principal office of Fleet presently
located at 10 Exchange Place, Jersey City, New Jersey 07302.
"PROPERTY" - any estate or interest in any kind of property or
asset, whether real, personal or mixed, and whether tangible or intangible.
"QUARTERLY DATES" - the first day of each October, January, April
and July, the first of which shall be the first such day after the date of this
Agreement, provided that, if any such date is not a LIBOR Business Day, the
relevant Quarterly Date shall be the next succeeding LIBOR Business Day (or, if
the
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<PAGE> 15
next succeeding LIBOR Business Day falls in the next succeeding calendar month,
then on the next preceding LIBOR Business Day).
"RATINGS" - shall mean the ratings from time to time established
by the Rating Agencies for senior, unsecured, non-credit enhanced long-term
debt of Omega.
"RATINGS AGENCIES" - Moody's and S&P.
"REFERENCE BANK" - a bank appearing on the display designated as
page "LIBOR" on the Reuters Monitor Money Rates Service (or such other page as
may replace the LIBOR page on that service for the purpose of displaying London
interbank offered rates of major banks); provided, that, if no such offered rate
shall appear on such display, "Reference Bank" shall mean a bank in the London
interbank market as selected by the Agent.
"REGULATION D" - Regulation D of the Board of Governors of the
Federal Reserve System, as the same may be amended or supplemented from time to
time.
"REGULATORY CHANGE" - as to any Bank, any change after the date of
this Agreement in United States federal, or state, or foreign, laws or
regulations (including Regulation D and the laws or regulations that designate
any assessment rate relating to certificates of deposit or otherwise (including
the "Assessment Rate" if applicable to any Loan)) or the adoption or making
after such date of any interpretations, directives or requests applying to a
class of banks, including such Bank, of or under any United States federal, or
state, or foreign laws or regulations (whether or not having the force of law)
by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"REQUIRED BANKS" - at any time, Banks having at least 66 2/3% of
the Total Commitment hereunder, or if the Total Commitment has been terminated
at such time, Banks having at least 66 2/3% of the aggregate principal amount of
Loans outstanding.
"REQUIRED PAYMENT" - as defined in Section 2.16 hereof.
"RESERVE REQUIREMENT" - for any LIBOR Loans for any quarterly
period (or, as the case may be, shorter period) as to which interest is payable
hereunder, the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during such
period under Regulation D by member banks of the Federal Reserve System in New
York City with deposits exceeding One Billion ($1,000,000,000) Dollars against
"Eurocurrency liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing,
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<PAGE> 16
the Reserve Requirement shall reflect any other reserves required to be
maintained by such member banks by reason of any Regulatory Change against: (a)
any category of liabilities which includes deposits by references to which the
LIBOR Rate for LIBOR Loans is to be determined as provided in the definition of
"LIBOR Base Rate" in this Article 1, or (b) any category of extensions of credit
or other assets which include LIBOR Loans.
"REVOLVING CREDIT COMMITMENT" - as to each Bank, the amount set
forth opposite such Bank's name on the signature pages hereof under the caption
"Revolving Credit Commitment" as such amount is subject to reduction in
accordance with the terms hereof.
"REVOLVING CREDIT COMMITMENT TERMINATION DATE" - October 1, 2000.
"S&P" - Standard and Poor's Corporation.
"SUBSIDIARY" - with respect to any Person, any corporation,
partnership, joint venture, limited liability company or other entity, whether
now existing or hereafter organized or acquired: (a) in the case of a
corporation, of which a majority of the securities having ordinary voting power
for the election of directors (other than securities having such power only by
reason of the happening of a contingency) are at the time owned by such Person
and/or one or more Subsidiaries of such Person, (b) in the case of a partnership
or limited liability company or other entity, in which such Person is a general
partner, managing member or of which a majority of the partnership or other
equity interests are at the time owned by such Person and/or one or more of its
Subsidiaries, or (c) in the case of a joint venture, in which such Person is a
joint venturer and of which a majority of the ownership interests are at the
time owned by such Person and/or one or more of its Subsidiaries. Unless the
context otherwise requires, references in this Agreement to "Subsidiary" or
"Subsidiaries" shall be deemed to be references to a Subsidiary or Subsidiaries
of the Borrower.
"TANGIBLE NET WORTH" - the sum of capital surplus, earned surplus
and capital stock, minus deferred charges, intangibles and treasury stock, all
as determined in accordance with GAAP consistently applied.
"TOTAL COMMITMENT" - the aggregate obligation of the Banks to make
Loans hereunder up to the aggregate amount of Twenty-Five Million ($25,000,000)
Dollars, as such amount may be reduced in accordance with the terms hereof.
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<PAGE> 17
"TYPE" - refers to the characteristics of a Loan as a Prime Rate
Loan or a LIBOR Loan for a particular Interest Period. All LIBOR Loans are of
the same Type. All LIBOR Loans with identical interest rates and Interest
Periods are of the same Type. All other Loans are of different Types. Interest
Periods are identical if they begin and end on the same days.
"UNUSED COMMITMENT" - as at any date, for each Bank, the
difference, if any, between: (a) the amount of such Bank's Revolving Credit
Commitment as in effect on such date, and (b) the then aggregate outstanding
principal amount of all Loans made by such Bank.
SECTION 1.2 GAAP. Any accounting terms used in this Agreement that
are not specifically defined herein shall have the meanings customarily given to
them in accordance with GAAP as in effect on the date of this Agreement, except
that references in Article 5 to such principles shall be deemed to refer to such
principles as in effect on the date of the financial statements delivered
pursuant thereto.
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<PAGE> 18
ARTICLE 2. COMMITMENTS; LOANS.
SECTION 2.1 LOANS. Each Bank hereby severally agrees, on the terms
and subject to the conditions of this Agreement, to make loans (individually a
"Loan", collectively, the "Loans") to the Borrower during the Credit Period to
and including the Revolving Credit Commitment Termination Date in an aggregate
principal amount at any one time outstanding up to, but not exceeding, the
Revolving Credit Commitment of such Bank as then in effect. Subject to the terms
of this Agreement, during the Credit Period the Borrower may borrow, repay and
reborrow Credit Loans.
SECTION 2.2 INTENTIONALLY OMITTED.
SECTION 2.3 NOTICES RELATING TO LOANS.
The Borrower shall give the Agent written notice of each
termination or reduction of the Revolving Credit Commitments, each borrowing,
conversion and repayment of each Loan and of the duration of each Interest
Period applicable to each LIBOR Loan (in each case, a "BORROWING NOTICE"). Each
such written notice shall be irrevocable and shall be effective only if received
by the Agent not later than 11 a.m., New York City time, on the date that is:
(a) In the case of each notice of termination or reduction of the
Revolving Credit Commitments, five (5) Business Days prior to the date of the
related termination or reduction;
(b) In the case of each notice of borrowing and repayment of, or
conversion into, Prime Rate Loans, the same Business Day of the related
borrowing or repayment or conversion; and
(c) In the case of each notice of borrowing or repayment of, or
conversion into, LIBOR Loans, or the duration of an Interest Period for LIBOR
Loans, three (3) LIBOR Business Days prior to the date of the related borrowing,
repayment or conversion or the first day of such Interest Period.
Each such notice of termination or reduction shall specify the
amount thereof. Each such notice of borrowing, conversion or repayment shall
specify the amount (subject to Section 2.1 hereof) and Type of Loans to be
borrowed, converted or repaid (and, in the case of a conversion, the Type of
Loans to result from such conversion), the date of borrowing, conversion or
repayment (which shall be: (i) a Business Day in the case of each borrowing or
repayment of Prime Rate Loans, and (ii) a LIBOR Business Day in the case of each
borrowing or repayment of LIBOR Loans and each conversion of or into a LIBOR
Loan). Each such notice of the duration of an Interest Period shall specify the
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<PAGE> 19
Loans to which such Interest Period is to relate. The Agent shall notify the
Banks of the content of each such Borrowing Notice promptly after its receipt
thereof.
SECTION 2.4 DISBURSEMENT OF LOAN PROCEEDS.
The Borrower shall give the Agent notice of each borrowing
hereunder as provided in Section 2.3 hereof and the Agent shall promptly notify
the Banks thereof. Not later than 11:00 a.m., New York City time, on the date
specified for each borrowing hereunder, each Bank shall transfer to the Agent,
by wire transfer or otherwise, but in any event in immediately available funds,
the amount of the Loan to be made by it on such date, and the Agent, upon its
receipt thereof, shall disburse such sum to the Borrower by depositing the
amount thereof in an account of the Borrower designated by the Borrower
maintained with the Agent.
SECTION 2.5 NOTES.
(a) The Loans made by each Bank shall be evidenced by a single
promissory note of the Borrower in substantially the form of Exhibit A hereto
(each, a "Note" and collectively, the Notes"). Each Note shall be dated the date
hereof, shall be payable to the order of such Bank in a principal amount equal
to such Bank's Revolving Credit Commitment as originally in effect, and shall
otherwise be duly completed. The Notes shall be payable as provided in Section
2.6 hereof.
(b) Each Bank shall enter on a schedule with respect to its Note a
notation with respect to each Loan made hereunder of: (i) the date and principal
amount thereof and (ii) each repayment of principal thereof. The failure of any
Bank to make a notation on any such schedule as aforesaid shall not limit or
otherwise affect the obligation of the Borrower to repay the Loans in accordance
with their respective terms as set forth herein.
SECTION 2.6 PAYMENT OF LOANS; VOLUNTARY
CHANGES IN COMMITMENT.
(a) All outstanding Loans shall be paid in full not later than the
Revolving Credit Commitment Termination Date.
(b) The Borrower shall be entitled to terminate or reduce the
Total Commitment and repay the principal amount of the Loans provided that the
Borrower shall give notice of such termination, reduction or repayment to the
Agent as provided in Section 2.3 hereof and that any repayment or partial
reduction of the Total Commitment shall be in the minimum aggregate amount of
One Million ($1,000,000) Dollars and multiples of One Million ($1,000,000)
Dollars in excess thereof. Any such termination or
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<PAGE> 20
reduction shall be permanent and irrevocable. Any repayment of a LIBOR Loan
shall be on the last day of the relevant Interest Period and all repayments of
principal (whether mandatory or voluntary) shall be applied first to Prime Rate
Loans and then to the fewest number of Types of LIBOR Loans as possible.
SECTION 2.7 INTEREST.
(a) The Borrower shall pay to the Agent for the account of each
Bank interest on the unpaid principal amount of each Loan made by such Bank for
the period commencing on the date of such Loan until such Loan shall be paid in
full, at the following rates per annum:
(i) During such periods that such Loan is a Prime Rate Loan,
the Alternate Base Rate; and
(ii) During such periods that such Loan is a LIBOR Loan, for
each Interest Period relating thereto, the LIBOR Rate for such Loan for such
Interest Period plus the Applicable Margin.
(b) Notwithstanding the foregoing, the Borrower shall pay interest
on any Loan or any installment thereof, and on any other amount payable by the
Borrower hereunder (to the extent permitted by law) that shall not be paid in
full when due (whether at stated maturity, by acceleration or otherwise) for the
period commencing on the due date thereof until the same is paid in full at the
applicable Post-Default Rate.
(c) Except as provided in the next sentence, accrued interest on
each Loan shall be payable: (i) in the case of each Prime Rate Loan, quarterly
on the Quarterly Dates, (ii) in the case of a LIBOR Loan, on the last day of
each Interest Period for such Loan (and, if such Interest Period exceeds three
months' duration, quarterly, commencing on the first quarterly anniversary of
the first day of such Interest Period), and (iii) in the case of any Loan, upon
the payment or repayment thereof or the conversion thereof into a Loan of
another Type (but only on the principal so paid, repaid or converted). Interest
that is payable at the Post-Default Rate shall be payable from time to time on
demand of the Agent. Promptly after the establishment of any interest rate
provided for herein or any change therein, the Agent will notify the Banks and
the Borrower thereof, provided that the failure of the Agent to so notify the
Banks and the Borrower shall not affect the obligations of the Borrower
hereunder or under any of the Notes in any respect.
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<PAGE> 21
(d) Anything in this Agreement or any of the Notes to the contrary
notwithstanding, the obligation of the Borrower to make payments of interest
shall be subject to the limitation that payments of interest shall not be
required to be made to any Bank to the extent that such Bank's receipt thereof
would not be permissible under the law or laws applicable to such Bank limiting
rates of interest that may be charged or collected by such Bank. Any such
payments of interest that are not made as a result of the limitation referred to
in the preceding sentence shall be made by the Borrower to such Bank on the
earliest interest payment date or dates on which the receipt thereof would be
permissible under the laws applicable to such Bank limiting rates of interest
that may be charged or collected by such Bank. Such deferred interest shall not
bear interest.
SECTION 2.8 FEES.
(a) Simultaneously with the execution and delivery of this
Agreement, the Borrower shall pay to the Agent, for the benefit of the Banks pro
rata according to their respective Revolving Credit Commitments, a
non-refundable origination fee (the "ORIGINATION FEE") in an amount equal to
.125% of the Total Commitment.
(b) The Borrower shall pay to the Agent for the account of the
Banks, pro rata according to their respective Revolving Credit Commitments, a
commitment fee (the "COMMITMENT FEE") on the daily average amount of such Bank's
Unused Commitment, for the period from the date hereof to and including the
earlier of (i) the date such Bank's Revolving Credit Commitment is terminated,
and (ii) the Revolving Credit Commitment Termination Date, at the rate per annum
equal to the Commitment Fee Percentage from time to time in effect on the amount
of the Total Commitment. The accrued Commitment Fee shall be payable on the
Quarterly Dates, and on the earlier of (i) the date the Total Commitment is
terminated, or (ii) the Revolving Credit Commitment Termination Date, and in the
event the Borrower reduces the Total Commitment as provided in subsection 2.6(b)
hereof, on the effective date of such reduction.
(c) The Borrower shall pay to the Agent, for its own account, an
arrangement fee (the "ARRANGEMENT FEE"), as set forth in a separate written
agreement between the Borrower and the Agent.
(d) The Origination Fee, the Commitment Fee and the Arrangement
Fee are hereinafter sometimes referred to individually as a "FEE" and
collectively as the "FEES".
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SECTION 2.9 USE OF PROCEEDS OF LOANS.
The proceeds of the Loans hereunder may be used by the Borrower
solely for working capital and general corporate purposes.
SECTION 2.10 COMPUTATIONS.
Interest on all Loans and each Fee shall be computed on the basis
of a year of 360 days and actual days elapsed (including the first day but
excluding the last) occurring in the period for which payable.
SECTION 2.11 MINIMUM AMOUNTS OF BORROWINGS,
CONVERSIONS AND REPAYMENTS.
Except for borrowings, conversions and repayments that exhaust the
full remaining amount of the Total Commitment (in the case of borrowings) or
result in the conversion or repayment of all Loans of a particular Type (in the
case of conversions or repayments) or conversions made pursuant to Section 2.20
or Section 2.21 hereof, each borrowing from each Bank, each conversion of Loans
of one Type into Loans of another Type and each repayment of principal of Loans
hereunder shall be in a minimum amount of One Million ($1,000,000) Dollars and
if in excess thereof, in integral multiples of One Hundred Thousand ($100,000)
Dollars (borrowings, conversions and repayments of different Types of Loans at
the same time hereunder to be deemed separate borrowings, conversions and
repayments for purposes of the foregoing, one for each Type).
SECTION 2.12 TIME AND METHOD OF PAYMENTS.
All payments of principal, interest, Fees and other amounts
(including indemnities) payable by the Borrower hereunder shall be made in
Dollars, in immediately available funds, to the Agent at the Principal Office
not later than 11:00 a.m., New York City time, on the date on which such payment
shall become due (and the Agent or any Bank for whose account any such payment
is to be made may, but shall not be obligated to, debit the amount of any such
payment that is not made by such time to any ordinary deposit account of the
Borrower, with the Agent or such Bank, as the case may be). Additional
provisions relating to payments are set forth in Section 10.3 hereof. Each
payment received by the Agent hereunder for the account of a Bank shall be paid
promptly to such Bank, in like funds, for the account of such Bank's Lending
Office for the Loan in respect of which such payment is made.
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<PAGE> 23
SECTION 2.13 LENDING OFFICES.
The Loans of each Type made by each Bank shall be made and
maintained at such Bank's applicable Lending Office for Loans of such Type.
SECTION 2.14 SEVERAL OBLIGATIONS.
The failure of any Bank to make any Loan to be made by it on the
date specified therefor shall not relieve the other Banks of their respective
obligations to make their Loans on such date, but no Bank shall be responsible
for the failure of the other Banks to make Loans to be made by such other Banks.
SECTION 2.15 PRO RATA TREATMENT AMONG BANKS.
Except as otherwise provided herein: (a) each borrowing from the
Banks under Section 2.1 hereof will be made from the Banks and each payment of
each Fee (other than the Arrangement Fee) shall be made for the account of the
Banks pro rata according to their respective Revolving Credit Commitments; (b)
each partial reduction of the Total Commitment shall be applied to the Revolving
Credit Commitments of the Banks pro rata according to each Bank's respective
Revolving Credit Commitment; (c) each repayment of principal of or interest on
Loans will be made to the Agent for the account of the Banks pro rata in
accordance with the respective unpaid principal amounts of the Loans held by
such Banks; and (d) each conversion of Loans of a particular Type shall be made
pro rata among the Banks holding Loans of such type according to the respective
principal amounts of such Loans held by such Banks.
SECTION 2.16 NON-RECEIPT OF FUNDS BY THE AGENT.
Unless the Agent shall have been notified by a Bank or the
Borrower (the "PAYOR") prior to the date on which such Bank is to make payment
to the Agent of the proceeds of a Loan to be made by it hereunder or the
Borrower is to make a payment to the Agent for the account of one or more of the
Banks, as the case may be (such payment being herein called the "REQUIRED
PAYMENT"), which notice shall be effective upon receipt, that the Payor does not
intend to make the Required Payment to the Agent, the Agent may assume that the
Required Payment has been made and may, in reliance upon such assumption (but
shall not be required to), make the amount thereof available to the intended
recipient on such date and, if the Payor has not in fact made the Required
Payment to the Agent, the recipient of such payment shall, on demand, repay to
the Agent the amount made available to it together with interest thereon in
respect of each day during the period commencing on the date such amount was so
made available by the Agent until the date the Agent recovers such amount at a
rate per annum equal (i) when the recipient is a Bank, the Federal Funds Rate
for such day, or (ii) the rate of interest applicable to such Loan (when the
recipient is the Borrower).
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<PAGE> 24
SECTION 2.17 SHARING OF PAYMENTS AND SET-OFF AMONG BANKS.
The Borrower hereby agrees that, in addition to (and without
limitation of) any right of setoff, banker's lien or counterclaim a Bank may
otherwise have, each Bank shall be entitled, at its option, to offset balances
held by it at any of its offices against any principal of or interest on any of
its Loans hereunder or any Fee payable to it, that is not paid when due
(regardless of whether such balances are then due to the Borrower), in which
case it shall promptly notify the Borrower and the Agent thereof, provided that
its failure to give such notice shall not affect the validity thereof. If a Bank
shall effect payment of any principal of or interest or Fee on Loans held by it
under this Agreement through the exercise of any right of set-off, banker's
lien, counterclaim or similar right, it shall promptly purchase from the other
Banks participations in the Loans held by the other Banks in such amounts, and
make such other adjustments from time to time as shall be equitable, to the end
that all the Banks shall share the benefit of such payment pro rata in
accordance with the unpaid amount of principal and interest or Fee on the Loans
held by each of them. To such end all the Banks shall make appropriate
adjustments among themselves (by the resale of participations sold or otherwise)
if such payment is rescinded or must otherwise be restored. The Borrower agrees
that any Bank so purchasing a participation in the Loans held by the other Banks
may, to the fullest extent permitted by law, exercise all rights of payment
(including the rights of set-off, banker's lien, counterclaim or similar rights)
with respect to such participation as fully as if such Bank were a direct holder
of Loans in the amount of such participation. Nothing contained herein shall
require any Bank to exercise any such right or shall affect the right of any
Bank to exercise and retain the benefits of exercising, any such right with
respect to any other indebtedness or obligation of the Borrower.
SECTION 2.18 CONVERSION OF LOANS.
The Borrower shall have the right to convert Loans of one Type
into Loans of another Type from time to time, provided that: (i) the Borrower
shall give the Agent notice of each such conversion as provided in Section 2.3
hereof; (ii) LIBOR Loans may be converted only on the last day of an Interest
Period for such Loans; (iii) no LIBOR Loan shall be continued as or converted
into another LIBOR Loan, or Prime Rate Loan converted into a LIBOR Loan for a
new Interest Period, if the principal amount (determined as of the date of any
proposed conversion or continuation thereof) of the aggregate Loans outstanding
after giving effect to such continuation or conversion would exceed the Total
Commitment then in effect; and (iv) no Prime Rate Loan may be converted into a
LIBOR Loan or LIBOR Loan continued as or converted into another LIBOR Loan if on
the proposed date of conversion a Default or an Event of Default exists. The
Agent shall use its best efforts to notify the Borrower of the effec-
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tiveness of such conversion, and the new interest rate to which the converted
Loans are subject, as soon as practicable after the conversion; provided,
however, that any failure to give such notice shall not affect the Borrower's
obligations, or the Agent's or the Banks' rights and remedies, hereunder in any
way whatsoever.
SECTION 2.19 ADDITIONAL COSTS; CAPITAL REQUIREMENTS.
(a) In the event that any existing or future law or regulation,
guideline or interpretation thereof, by any court or administrative or
governmental authority (foreign or domestic) charged with the administration
thereof, or compliance by any Bank with any request or directive (whether or not
having the force of law) of any such authority shall impose, modify or deem
applicable or result in the application of, any capital maintenance, capital
ratio or similar requirement against loan commitments or other obligations
entered into by any Bank hereunder, and the result of any event referred to
above is to impose upon any Bank or increase any capital requirement applicable
as a result of the making or maintenance of such Bank's Revolving Credit
Commitment or the obligation of such Bank hereunder with respect to such
Revolving Credit Commitment or otherwise (which imposition of capital
requirements may be determined by each Bank's reasonable allocation of the
aggregate of such capital increases or impositions), then, upon demand made by
such Bank as promptly as practicable after it obtains knowledge that such law,
regulation, guideline, interpretation, request or directive exists and
determines to make such demand, the Borrower shall immediately pay to such Bank
from time to time as specified by such Bank additional amounts which shall be
sufficient to compensate such Bank for such imposition of or increase in capital
requirements together with interest on each such amount from the date demanded
until payment in full thereof at the Post-Default Rate. A certificate setting
forth in reasonable detail the amount necessary to compensate such Bank as a
result of an imposition of or increase in capital requirements submitted by such
Bank to the Borrower shall be conclusive, absent manifest error, as to the
amount thereof. All references to any "Bank" shall be deemed to include any
participant in such Bank's Revolving Credit Commitment.
(b) In the event that any Regulatory Change shall: (i) change the
basis of taxation of any amounts payable to any Bank under this Agreement or the
Notes in respect of any Loans including, without limitation, LIBOR Loans (other
than taxes imposed on the overall net income of such Bank for any such Loans by
the United States of America or the jurisdiction in which such Bank has its
principal office); or (ii) impose or modify any reserve, Federal Deposit
Insurance Corporation premium or assessment, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of, such Bank (including any of such Loans or
any deposits referred to in the definition of "LIBOR Base
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Rate" in Article 1 hereof); or (iii) impose any other conditions affecting this
Agreement in respect of Loans, including, without limitation, LIBOR Loans (or
any of such extensions of credit, assets, deposits or liabilities); and the
result of any event referred to in clause (i), (ii) or (iii) above shall be to
increase such Bank's costs of making or maintaining any Loans including, without
limitation, LIBOR Loans, or its Revolving Credit Commitment, or to reduce any
amount receivable by such Bank hereunder in respect of its Revolving Credit
Commitment (such increases in costs and reductions in amounts receivable are
hereinafter referred to as "ADDITIONAL COSTS") in each case, only to the extent,
with respect to LIBOR Loans, that such Additional Costs are not included in the
LIBOR Base Rate applicable to LIBOR Loans, then, upon demand made by such Bank
as promptly as practicable after it obtains knowledge that such a Regulatory
Change exists and determines to make such demand (a copy of which demand shall
be delivered to the Agent), the Borrower shall pay to such Bank from time to
time as specified by such Bank, additional amounts which shall be sufficient to
compensate such Bank for such increased cost or reduction in amounts receivable
by such Bank from the date of such change, together with interest on each such
amount from the date demanded until payment in full thereof at the Post-Default
Rate. All references to any "Bank" shall be deemed to include any participant in
such Bank's Revolving Credit Commitment.
(c) Without limiting the effect of the foregoing provisions of
this Section 2.19, in the event that, by reason of any Regulatory Change, any
Bank either: (i) incurs Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of such Bank which includes deposits by reference to which the
interest rate on LIBOR Loans is determined as provided in this Agreement or a
category of extensions of credit or other assets of such Bank which includes
LIBOR Loans, or (ii) becomes subject to restrictions on the amount of such a
category of liabilities or assets that it may hold, then, if such Bank so elects
by notice to the Borrower (with a copy to the Agent), the obligation of such
Bank to make, and to convert Loans of any other Type into, Loans of such Type
hereunder shall be suspended until the date such Regulatory Change ceases to be
in effect (and all Loans of such Type then outstanding shall be converted into
Prime Rate Loans or into LIBOR Loans of another duration as the case may be, in
accordance with Sections 2.18 and 2.22).
(d) Determinations by any Bank for purposes of this Section 2.19
of the effect of any Regulatory Change on its costs of making or maintaining
Loans or on amounts receivable by it in respect of Loans, and of the additional
amounts required to compensate such Bank in respect of any Additional Costs,
shall be set forth in writing in reasonable detail and shall be conclusive,
absent manifest error.
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SECTION 2.20 LIMITATION ON TYPES OF LOANS.
Anything herein to the contrary notwithstanding, if, on or prior
to the determination of an interest rate for any LIBOR Loans for any Interest
Period therefor, the Required Banks determine (which determination shall be
conclusive):
(a) by reason of any event affecting the money markets in the
United States of America or the London interbank market, quotations of interest
rates for the relevant deposits are not being provided in the relevant amounts
or for the relevant maturities for purposes of determining the rate of interest
for such Loans under this Agreement; or
(b) the rates of interest referred to in the definition of "LIBOR
Base Rate" in Article 1 hereof upon the basis of which the rate of interest on
any LIBOR Loans for such period is determined, do not accurately reflect the
cost to the Banks of making or maintaining such Loans for such period;
then the Agent shall give the Borrower and each Bank prompt notice
thereof (and shall thereafter give the Borrower and each Bank prompt notice of
the cessation, if any, of such condition), and so long as such condition remains
in effect, the Banks shall be under no obligation to make Loans of such Type or
to convert Loans of any other Type into Loans of such Type and the Borrower
shall, on the last day(s) of the then current Interest Period(s) for the
outstanding Loans of the affected Type either repay such Loans in accordance
with Section 2.6 hereof or convert such Loans into Loans of another Type.
SECTION 2.21 ILLEGALITY.
Notwithstanding any other provision in this Agreement, in the
event that it becomes unlawful for any Bank or its applicable Lending Office to:
(a) honor its obligation to make any Type of LIBOR Loans hereunder, or (b)
maintain any Type of LIBOR Loans hereunder, then such Bank shall promptly notify
the Borrower thereof (with a copy to the Agent), describing such illegality in
reasonable detail (and shall thereafter promptly notify the Borrower and the
Agent of the cessation, if any, of such illegality), and such Bank's obligation
to make such Type of LIBOR Loans and to convert Prime Rate Loans into LIBOR
Loans hereunder shall, upon written notice given by such Bank to the Borrower,
be suspended until such time as such Bank may again make and maintain such type
of LIBOR Loans and such Bank's outstanding LIBOR Loans of such Type shall be
converted into Prime Rate Loans, in accordance with Sections 2.18 and 2.22
hereof.
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SECTION 2.22 CERTAIN CONVERSIONS PURSUANT
TO SECTIONS 2.19 AND 2.21.
If the Loans of any Bank of a particular Type (Loans of such Type
are hereinafter referred to as "AFFECTED LOANS" and such Type is hereinafter
referred to as the "AFFECTED TYPE") are to be converted pursuant to Section 2.19
or 2.21 hereof, such Bank's Affected Loans shall be converted into Prime Rate
Loans, or LIBOR Loans of another Type, as the case may be (the "NEW TYPE
LOANS"), on the last day(s) of the then current Interest Period(s) for the
Affected Loans (or, in the case of a conversion required by subsection 2.19(b)
or Section 2.21 hereof, on such earlier date as such Bank may specify to the
Borrower with a copy to the Agent) and, until such Bank gives notice as provided
below that the circumstances specified in Section 2.19 or 2.21 hereof which gave
rise to such conversion no longer exist:
(a) to the extent that such Bank's Affected Loans have been so
converted, all payments and repayments of principal which would otherwise be
applied to such Affected Loans shall be applied instead to its New Type Loans;
and
(b) all Loans which would otherwise be made by such Bank as Loans
of the Affected Type shall be made instead as New Type Loans and all Loans of
such Bank which would otherwise be converted into Loans of the Affected Type
shall be converted instead into (or shall remain as) New Type Loans.
SECTION 2.23 INDEMNIFICATION.
The Borrower shall pay to the Agent for the account of each Bank,
upon the request of such Bank through the Agent, such amount or amounts as shall
compensate such Bank for any loss (including loss of profit), cost or expense
incurred by such Bank (as reasonably determined by such Bank) as a result of:
(a) any payment or repayment or conversion of a LIBOR Loan held by
such Bank on a date other than the last day of an Interest Period for such LIBOR
Loan except pursuant to Sections 2.19 or 2.21 hereof; or
(b) any failure by the Borrower to borrow a LIBOR Loan held by
such Bank on the date for such borrowing specified in the relevant Borrowing
Notice under Section 2.3 hereof,
such compensation to include, without limitation, an amount equal to: (i) any
loss or expense suffered by such Bank during the period from the date of receipt
of such early payment or repayment or the date of such conversion to the last
day of such Interest Period if the rate of interest obtainable by such Bank upon
the redeployment of an amount of funds equal to such Bank's pro rata share of
such payment, repayment or conversion or failure to
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borrow or convert is less than the rate of interest applicable to such LIBOR
Loan for such Interest Period, or (ii) any loss or expense suffered by such Bank
in liquidating LIBOR deposits prior to maturity which correspond to such Bank's
pro rata share of such payment, repayment, conversion, failure to borrow or
failure to convert. The determination by each such Bank of the amount of any
such loss or expense, when set forth in a written notice to the Borrower,
containing such Bank's calculation thereof in reasonable detail, shall be
presumed correct, in the absence of manifest error.
SECTION 2.24 GUARANTY.
The due payment and performance of the Obligations shall be
guaranteed to the Banks and the Agent by Omega (hereinafter referred to as the
"GUARANTOR"), by the execution and delivery to the Agent, simultaneously with
the execution and delivery of this Agreement, of a Guaranty in form and
substance satisfactory to the Agent (the "GUARANTY").
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ARTICLE 3. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to the Banks and the
Agent that:
SECTION 3.1 ORGANIZATION.
(a) The Borrower is duly organized and validly existing under
the laws of its state of organization and has the power to own its assets and to
transact the business in which it is presently engaged and in which it proposes
to be engaged. Schedule 3.1 hereto accurately and completely lists: (i) the
state of incorporation of the Borrower, and (ii) the classes and number of its
authorized and outstanding shares of capital stock. All of the foregoing shares
or other equity interests that are issued and outstanding have been duly and
validly issued and are fully paid and non-assessable. Except as set forth on
Schedule 3.1, the Borrower has no Subsidiary.
(b) The Borrower is in good standing in its state of
organization and in each state in which it is qualified to do business. There
are no jurisdictions other than as set forth on Schedule 3.1 hereto in which the
character of the properties owned or proposed to be owned by the Borrower or in
which the transaction of the business of the Borrower as now conducted or as
proposed to be conducted requires or will require the Borrower to qualify to do
business and as to which failure so to qualify could have a Material Adverse
Effect.
SECTION 3.2 POWER, AUTHORITY, CONSENTS.
The Borrower has the power to execute, deliver and perform
the Loan Documents to be executed by it. The Borrower has the power to borrow
hereunder and has taken all necessary corporate action to authorize the
borrowing hereunder on the terms and conditions of this Agreement. The Borrower
has taken all necessary action, corporate or otherwise, to authorize the
execution, delivery and performance of the Loan Documents to be executed by it.
No consent or approval of any Person (including, without limitation, any
stockholder of the Borrower), no consent or approval of any landlord or
mortgagee, no waiver of any Lien or right of distraint or other similar right
and no consent, license, certificate of need, approval, authorization or
declaration of any governmental authority, bureau or agency, is or will be
required in connection with the execution, delivery or performance by the
Borrower or any other Loan Party, or the validity or enforcement of the Loan
Documents, except as set forth on Schedule 3.2 hereto, each of which either has
been duly and validly obtained on or prior to the date hereof and is now in full
force and effect, or is designated on Schedule 3.2 as waived by the Required
Banks.
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SECTION 3.3 NO VIOLATION OF LAW OR AGREEMENTS.
The execution and delivery by the Borrower of each Loan
Document to which it is a party and performance by it hereunder and thereunder,
will not violate any provision of law and will not conflict with or result in a
breach of any order, writ, injunction, ordinance, resolution, decree, or other
similar document or instrument of any court or governmental authority, bureau or
agency, domestic or foreign, or its certificate of incorporation or by-laws, or
create (with or without the giving of notice or lapse of time, or both) a
default under or breach of any agreement, bond, note or indenture to which it is
a party, or by which it is bound or any of its properties or assets is affected,
except for such defaults and breaches which in the aggregate could not have a
Material Adverse Effect, or result in the imposition of any Lien of any nature
whatsoever upon any of the properties or assets owned by or used in connection
with the business of the Borrower.
SECTION 3.4 DUE EXECUTION, VALIDITY, ENFORCEABILITY.
This Agreement and each other Loan Document to which the
Borrower is a party has been duly executed and delivered by the Borrower and
each constitutes the valid and legally binding obligation of the Borrower,
enforceable in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
other similar laws, now or hereafter in effect, relating to or affecting the
enforcement of creditors' rights generally and except that the remedy of
specific performance and other equitable remedies are subject to judicial
discretion.
SECTION 3.5 TITLE TO PROPERTIES.
The Borrower has good and marketable title in fee simple to,
or valid leasehold interests in, all Property necessary or used in the ordinary
course of its business, except for such defects in title as could not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.6 JUDGMENTS, ACTIONS, PROCEEDINGS.
Except as set forth on Schedule 3.6 hereto, there are no
outstanding judgments, actions or proceedings, including, without limitation,
any Environmental Proceeding, pending before any court or governmental
authority, bureau or agency, with respect to or, to the best of the Borrower's
knowledge, threatened against or affecting the Borrower involving, (i) in the
case of any court proceeding, a claim in excess of Two Hundred Fifty Thousand
($250,000) Dollars, and (ii) in the case of any outstanding judgments, in excess
of Five Hundred Thousand ($500,000) Dollars, nor, to the best of the Borrower's
knowledge, is there any reasonable basis for the institution of any such
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action or proceeding that is probable of assertion, nor are there any such
actions or proceedings in which the Borrower is a plaintiff or complainant.
SECTION 3.7 NO DEFAULTS, COMPLIANCE WITH LAWS.
Except as set forth on Schedule 3.7 hereto, the Borrower is
not in default under any agreement, ordinance, resolution, decree, bond, note,
indenture, order or judgment to which it is a party or by which it is bound, or
any other agreement or other instrument by which any of the properties or assets
owned by it or used in the conduct of its business is affected, which default
could have a Material Adverse Effect. The Borrower has complied and is in
compliance in all respects with all applicable laws, ordinances and regulations,
resolutions, ordinances, decrees and other similar documents and instruments of
all courts and governmental authorities, bureaus and agencies, domestic and
foreign, including, without limitation, all applicable provisions of the
Americans with Disabilities Act (42 U.S.C. Section 12101-12213) and the
regulations issued thereunder and all applicable Environmental Laws and
Regulations, non-compliance with which could have a Material Adverse Effect.
SECTION 3.8 BURDENSOME DOCUMENTS.
Except as set forth on Schedule 3.8 hereto, the Borrower is
not a party to or bound by, nor are any of the properties or assets owned by the
Borrower used in the conduct of its business affected by, any agreement,
ordinance, resolution, decree, bond, note, indenture, order or judgment,
including, without limitation, any of the foregoing relating to any
Environmental Liability, that materially and adversely affects its business,
assets or condition, financial or otherwise.
SECTION 3.9 INTENTIONALLY OMITTED.
SECTION 3.10 TAX RETURNS.
The Borrower has filed all federal, state and local tax
returns required to be filed by it and has not failed to pay any taxes, or
interest and penalties relating thereto, on or before the due dates thereof.
There are no material federal, state or local tax liabilities of the Borrower,
due or to become due for any tax year ended on or prior to the date hereof,
whether incurred in respect of or measured by the Borrower, and (ii) there are
no material claims pending or, to the knowledge of the Borrower, proposed or
threatened against the Borrower for past federal, state or local taxes.
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SECTION 3.11 INTANGIBLE ASSETS.
The Borrower possesses all patents, trademarks, service
marks, trade names, and copyrights, and rights with respect to the foregoing,
necessary to conduct its business as now conducted and as proposed to be
conducted, without any conflict with the patents, trademarks, service marks,
trade names, and copyrights and rights with respect to the foregoing, of any
other Person.
SECTION 3.12 REGULATION U.
No part of the proceeds received by the Borrower from the
Loans will be used directly or indirectly for: (a) any purpose other than as set
forth in Section 2.9 hereof, or (b) the purpose of purchasing or carrying, or
for payment in full or in part of Indebtedness that was incurred for the
purposes of purchasing or carrying, any "margin stock", as such term is defined
in Section 221.3 of Regulation U of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II, Part 221.
SECTION 3.13 NAME CHANGES, MERGERS, ACQUISITIONS.
Except as set forth on Schedule 3.13 hereto, the Borrower has
not within the six-year period immediately preceding the date of this Agreement
changed its name, been the surviving entity of a merger or consolidation, or
acquired all or substantially all of the assets of any Person.
SECTION 3.14 FULL DISCLOSURE.
No certificate, opinion, or any other statement made or
furnished in writing to the Agent or any Bank by or on behalf of the Borrower or
the Guarantor in connection with this Agreement or the transactions contemplated
herein, contains any untrue statement of a material fact, or omits to state a
material fact necessary in order to make the statements contained therein or
herein not misleading, as of the date such statement was made. There is no fact
known to the Borrower that has, or would in the now foreseeable future have, a
Material Adverse Effect, which fact has not been set forth herein or any
certificate, opinion or other written statement so made or furnished to the
Agent or the Banks.
SECTION 3.15 LICENSES AND APPROVALS.
The Borrower has all necessary licenses, permits and
governmental authorizations, including, without limitation, licenses, permits
and authorizations arising under or relating to Environmental Laws and
Regulations, to own and operate its properties and to carry on its business as
now conducted, the absence of which would have a Material Adverse Effect.
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SECTION 3.16 ERISA.
(a) Except as set forth on Schedule 3.16 hereto, no Employee
Benefit Plan is maintained or has ever been maintained by any Loan Party or any
ERISA Affiliate, nor has any Loan Party or any ERISA Affiliate ever contributed
to a Multiemployer Plan.
(b) There are no agreements which will provide payments to
any officer, employee, shareholder or highly compensated individual which will
be "parachute payments" under 280G of the Code that are nondeductible to any
Loan Party and which will be subject to tax under Section 4999 of the Code which
could have a Material Adverse Effect.
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ARTICLE 4. CONDITIONS TO THE LOANS.
SECTION 4.1 CONDITIONS TO INITIAL LOAN(S).
The obligation of each Bank to execute and deliver this
Agreement shall be subject to the fulfillment (to the satisfaction of the Agent)
of the following conditions precedent:
(a) The Borrower shall have executed and delivered to each
Bank its Note.
(b) (i) The Borrower shall have paid to the Agent, for the
benefit of the Banks, the Origination Fee.
(ii) The Borrower shall have paid to the Agent, the
Arrangement Fee.
(c) The Guarantor shall have executed and delivered to the
Agent its Guaranty.
(d) Counsel to the Borrower shall have delivered its opinion
to, and in form and substance satisfactory to, the Agent.
(e) The Agent shall have received copies of the following:
(i) All of the consents, approvals and waivers referred
to on Schedule 3.2 hereto (except only those which, as stated on Schedule 3.2,
shall not be delivered);
(ii) The certificate of incorporation of the Borrower,
certified by the Secretary of State of its state of incorporation;
(iii) The by-laws of the Borrower, certified by its
secretary;
(iv) All corporate action taken by each of the Borrower
and the Guarantor to authorize the execution, delivery and performance of each
of the Loan Documents to which it is a party and the transactions contemplated
thereby, certified by their respective secretaries;
(v) Good standing certificates as of a recent date,
with respect to the Borrower from the Secretary of State of its state of
incorporation and each state in which it is qualified to do business;
(vi) An incumbency certificate (with specimen
signatures) with respect to the Borrower; and
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(vii) A certificate from the Secretary or an Assistant
Secretary of Omega to the effect that the certificate of incorporation, by-laws
and incumbency certificate of Omega delivered to the Agent pursuant to the Loan
Agreement dated July 17, 1995 among Omega and certain of its Subsidiaries, the
Agent and the banks party thereto have not been amended since the date of such
delivery and that such documents are in full force and effect and are true and
correct as of the date hereof; and
(f) (i) The Borrower shall have complied and shall then be
in compliance with all of the terms, covenants and conditions of this Agreement;
(ii) After giving effect to the initial Loan, there
shall exist no Default or Event of Default hereunder; and
(iii) The representations and warranties contained in
Article 3 hereof shall be true and correct on the date hereof;
and the Agent shall have received a Compliance Certificate dated the date hereof
certifying, inter alia, that the conditions set forth in this subsection 4.1(f)
are satisfied on such date.
(g) All legal matters incident to the initial Loans shall be
satisfactory to counsel to the Agent.
SECTION 4.2 CONDITIONS TO SUBSEQUENT LOANS.
The obligation of the Banks to make each Loan subsequent to
the date hereof shall be subject to the fulfillment (to the satisfaction of the
Agent) of the following conditions precedent:
(a) The Agent shall have received a Borrowing Notice in
accordance with Section 2.3 hereof.
(b) The Agent shall have received a Compliance Certificate
dated the date of such Loan and effective as of such date, and the matters
certified therein, including, without limitation, the absence of any Default or
Event of Default, shall be true as of such date.
(c) All legal matters incident to such Loan shall be
satisfactory to counsel for the Agent.
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ARTICLE 5. DELIVERY OF FINANCIAL REPORTS,
DOCUMENTS AND OTHER INFORMATION.
While the Revolving Credit Commitments are outstanding, and,
in the event any Loan remains outstanding, so long as the Borrower is indebted
to the Banks or the Agent and until payment in full of the Notes and full and
complete performance of all of its other obligations arising hereunder, the
Borrower shall deliver to each Bank:
SECTION 5.1 ANNUAL FINANCIAL STATEMENTS.
Annually, as soon as available, but in any event within
ninety (90) days after the last day of each of its fiscal years, a consolidated
and consolidating balance sheet of the Borrower and its Subsidiaries as at such
last day of the fiscal year, and consolidated and consolidating statements of
income and retained earnings and statements of cash flow, for such fiscal year,
each prepared in accordance with generally accepted accounting principles
consistently applied, in reasonable detail, and, as to the consolidated
statements, certified without qualification by Ernst & Young or another
nationally recognized independent public accounting firm or by any other
certified public accounting firm satisfactory to the Agent, or certified, as to
the consolidating statements, by the chief financial officer of the Borrower, as
fairly presenting the financial position and results of operations of the
Borrower and its Subsidiaries as at and for the year ending on its date and as
having been prepared in accordance with GAAP; provided, however, the Borrower
may satisfy its obligations to deliver the consolidated financial statements
described in this Section 5.1 by furnishing to the Banks a copy of its annual
report on Form 10-K in respect of such fiscal year together with the financial
statements required to be attached thereto, provided the Borrower is required to
file such annual report on Form 10-K with the Securities and Exchange Commission
and such filing is actually made.
SECTION 5.2 QUARTERLY FINANCIAL STATEMENTS.
As soon as available, but in any event within forty-five (45)
days after the end of each of the Borrower's fiscal quarters, a consolidated and
consolidating balance sheet of the Borrower and the Subsidiaries as of the last
day of such quarter and consolidated and consolidating statements of income and
retained earnings and statements of cash flow, for such quarter, and on a
comparative basis figures for the corresponding period of the immediately
preceding fiscal year, all in reasonable detail, each such statement to be
certified in a certificate of the chief financial officer of the Borrower as
accurately presenting the financial position and the results of operations of
the Borrower and its Subsidiaries as at its date and for such
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quarter and as having been prepared in accordance with GAAP (subject to year-end
audit adjustments); provided, however, the Borrower may satisfy its obligations
to deliver the consolidated financial statements described in this Section 5.2
by furnishing to the Banks a copy of its quarterly report on Form 10-Q in
respect of such fiscal quarter together with the financial statements required
to be attached thereto, provided the Borrower is required to file such quarterly
report on Form 10-Q with the Securities and Exchange Commission and such filing
is actually made.
SECTION 5.3 COMPLIANCE INFORMATION.
Promptly after a written request therefor, such other
financial data or information evidencing compliance with the requirements of
this Agreement, the Notes and the other Loan Documents, as any Bank may
reasonably request from time to time.
SECTION 5.4 NO DEFAULT CERTIFICATE.
At the same time as it delivers the financial statements
required under the provisions of Sections 5.1 and 5.2 hereof, a certificate of
the chief executive officer or chief financial officer of the Borrower to the
effect that no Event of Default hereunder and that no default under any other
material agreement to which the Borrower is a party or by which it is bound, or
by which, to the best knowledge of the Borrower, any of its properties or
assets, taken as a whole, may be materially affected, and no event which, with
the giving of notice or the lapse of time, or both, would constitute such an
Event of Default or default, exists, or, if such cannot be so certified,
specifying in reasonable detail the exceptions, if any, to such statement. Such
certificate shall be accompanied by a detailed calculation indicating compliance
with the covenants contained in Section 6.9 hereof.
SECTION 5.5 INTENTIONALLY OMITTED.
SECTION 5.6 BUSINESS PLAN AND BUDGET.
Not later than November 30th in each fiscal year, copies of
the Borrower's business plan and budget for such fiscal year (together with a
copy in writing of the assumptions on which such business plan and budget were
based), each prepared by the Borrower's chief financial officer and illustrating
the projected income statements, balance sheets and statements of changes in
cash flow on a consolidated basis.
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SECTION 5.7 ACCOUNTANTS' REPORTS.
Promptly upon receipt thereof, copies of all other reports
submitted to the Borrower by its independent accountants in connection with any
annual or interim audit or review of its books made by such accountants.
SECTION 5.8 COPIES OF DOCUMENTS.
Promptly upon their becoming available, copies of any: (i)
financial statements, non-routine reports, notices (other than routine
correspondence), requests for waivers and proxy statements, in each case,
delivered by the Borrower or any of its Subsidiaries to any of their respective
existing lending institutions or creditors; (ii) correspondence or notices
received by the Borrower from any federal, state or local govern mental
authority that regulates its operations, relating to an actual or threatened
change or development that would be materially adverse to the Borrower; (iii)
registration statements and any amendments and supplements thereto, and any
regular and periodic reports, if any, filed by the Borrower or any of its
Subsidiaries with any securities exchange or with the Securities and Exchange
Commission or any governmental authority succeeding to any or all of the
functions of the said Commission; (iv) letters of comment or correspondence sent
to the Borrower or any of its Subsidiaries by any such securities exchange or
such Commission in relation to the Borrower or any of its Subsidiaries and its
affairs; (v) written reports submitted by the Borrower or any of its
Subsidiaries to its independent accountants in connection with any annual or
interim audit of the books of the Borrower or its Subsidiaries made by such
accountants; and (vi) any appraisals received by the Borrower or any of its
Subsidiaries with respect to the properties or assets of the Borrower or its
Subsidiaries during the term of this Agreement.
SECTION 5.9 NOTICES OF DEFAULTS.
Promptly, notice of the occurrence of any Default or Event of
Default, or any event that would constitute or cause a Material Adverse Effect
in the condition, financial or otherwise, or the operations of the Borrower.
SECTION 5.10 ERISA NOTICES AND REQUESTS.
(a) Concurrently with such filing, a copy of each Form 5500
that is filed with respect to each Plan with the IRS; and
(b) Promptly, upon their becoming available, copies of: (i)
all correspondence with the PBGC, the Secretary of Labor or any representative
of the IRS with respect to any Plan, relating to an actual or threatened change
or development that would be materially adverse to the Borrower; (ii) all
actuarial valuations received by the Borrower with respect to any
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<PAGE> 40
Plan; and (iii) any notices of Plan termination filed by any Plan Administrator
(as those terms are used in ERISA) with the PBGC and of any notices from the
PBGC to the Borrower with respect to the intent of the PBGC to institute
involuntary termination proceedings.
SECTION 5.11 ADDITIONAL INFORMATION.
Such other material additional information regarding the
business, affairs and condition of the Borrower as the Agent may from time to
time reasonably request.
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ARTICLE 6. AFFIRMATIVE COVENANTS.
While the Revolving Credit Commitments are outstanding, and, in the
event any Loan remains outstanding, so long as the Borrower is indebted to the
Banks or the Agent, and until payment in full of the Notes and full and complete
performance of all of its other obligations arising hereunder, the Borrower
shall:
SECTION 6.1 BOOKS AND RECORDS.
Keep proper books of record and account in a manner
reasonably satisfactory to the Agent in which full and true entries shall be
made of all dealings or transactions in relation to its business and activities.
SECTION 6.2 INSPECTIONS AND AUDITS.
Permit the Banks to make or cause to be made (prior to an
Event of Default, at the Banks' expense and after the occurrence of and during
the continuance of an Event of Default, at the Borrower's expense), inspections
and audits of any books, records and papers of the Borrower and to make extracts
therefrom and copies thereof, or to make appraisals, inspections and
examinations of any properties and facilities of the Borrower on reasonable
notice, at all such reasonable times and as often as any Bank may reasonably
require, in order to assure that the Borrower is and will be in compliance with
its obligations under the Loan Documents or to evaluate the Banks' investment in
the then outstanding Notes.
SECTION 6.3 MAINTENANCE AND REPAIRS.
Cause to be maintained in good repair, working order and
condition, subject to normal wear and tear, all material properties and assets
from time to time owned by the Borrower and used in or necessary for the
operation of its business, and make or cause to be made all reasonable repairs,
replacements, additions and improvements thereto.
SECTION 6.4 CONTINUANCE OF BUSINESS.
Do, or cause to be done, all things reasonably necessary to
preserve and keep in full force and effect its corporate existence and all
permits, rights and privileges necessary for the proper conduct of its business,
and continue to engage in the same line of business and comply in all material
respects with all applicable laws, regulations and orders.
SECTION 6.5 COPIES OF CORPORATE DOCUMENTS.
Subject to the prohibitions set forth in Section 7.6 hereof,
promptly deliver to the Agent copies of any amendments or modifications to its
certificate of incorporation and by-laws, certified with respect to the
certificate of
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incorporation by the Secretary of State of its state of incorporation and, with
respect to the by-laws, by its secretary or assistant secretary.
SECTION 6.6 PERFORM OBLIGATIONS.
Pay and discharge all of its obligations and liabilities,
including, without limitation, all taxes, assessments and governmental charges
upon its income and properties when due, unless and to the extent only that such
obligations, liabilities, taxes, assessments and governmental charges shall be
contested in good faith and by appropriate proceedings and that, to the extent
required by generally accepted accounting principles then in effect, proper and
adequate book reserves relating thereto are established by the Borrower, and
then only to the extent that a bond is filed in cases where the filing of a bond
is necessary to avoid the creation of a Lien against any of its properties.
SECTION 6.7 NOTICE OF LITIGATION.
Promptly notify the Agent in writing of any litigation, legal
proceeding or dispute, other than disputes in the ordinary course of business
or, whether or not in the ordinary course of business, involving amounts in
excess of Five Hundred Thousand ($500,000) Dollars, affecting the Borrower,
whether or not fully covered by insurance, and regardless of the subject matter
thereof (excluding, however, any actions relating to workers' compensation
claims or negligence claims relating to use of motor vehicles, if fully covered
by insurance, subject to deductibles).
SECTION 6.8 INSURANCE.
(a) (i) Maintain with responsible insurance companies
acceptable to the Agent such insurance on such of its properties, in such
amounts and against such risks as is customarily maintained by similar
businesses; (ii) file with the Agent upon its request a detailed list of the
insurance then in effect, stating the names of the insurance companies, the
amounts and rates of the insurance, the dates of the expiration thereof and the
properties and risks covered thereby; and (iii) within ten (10) days after
notice in writing from the Agent, obtain such additional insurance as the Agent
may reasonably request; and
(b) Carry all insurance available through the PBGC or any
private insurance companies covering its obligations to the PBGC.
SECTION 6.9 FINANCIAL COVENANTS.
Have or maintain, on a consolidated basis, as at the last day
of each fiscal quarter, Tangible Net Worth of not less than $50,000,000.
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SECTION 6.10 NOTICE OF CERTAIN EVENTS.
(a) Promptly notify the Agent in writing of the occurrence of
any Reportable Event, as defined in Section 4043 of ERISA, if a notice of such
Reportable Event is required under ERISA to be delivered to the PBGC within 30
days after the occurrence thereof, together with a description of such
Reportable Event and a statement of the action the Borrower or the ERISA
Affiliate intends to take with respect thereto, together with a copy of the
notice thereof given to the PBGC.
(b) Promptly notify the Agent in writing if the Borrower or
ERISA Affiliate receives an assessment of withdrawal liability in connection
with a complete or partial withdrawal with respect to any Multiemployer Plan,
together with a statement of the action that the Borrower or ERISA Affiliate
intends to take with respect thereto.
(c) Promptly notify the Agent in writing if the Borrower
receives: (i) any notice of any violation or administrative or judicial
complaint or order having been filed or about to be filed against the Borrower
alleging violations of any Environmental Law and Regulation, or (ii) any notice
from any governmental body or any other Person alleging that the Borrower is or
may be subject to any Environmental Liability; and promptly upon receipt
thereof, provide the Agent with a copy of such notice together with a statement
of the action the Borrower intends to take with respect thereto.
SECTION 6.11 COMPLY WITH ERISA.
Materially comply with all applicable provisions of ERISA and
the Code now or hereafter in effect.
SECTION 6.12 ENVIRONMENTAL COMPLIANCE.
Operate all property owned, operated or leased by it in
compliance with all Environmental Laws and Regulations, such that no
Environmental Liability arises under any Environmental Laws and Regulations,
which would result in a Lien on any property of the Borrower.
SECTION 6.13 YEAR 2000 COMPATIBILITY.
Take all action necessary to assure that its computer based
systems, hardware and software used in the Borrower's business and operations
are able to operate and effectively receive, transmit, process, store, retrieve
or retransmit data including dates on and after January 1, 2000, and, at the
request of the Agent, the Borrower shall provide evidence to the satisfaction of
the Agent of such year 2000 compatibility.
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ARTICLE 7. NEGATIVE COVENANTS.
While the Revolving Credit Commitments are outstanding, and, in
the event any Loan remains outstanding, so long as the Borrower is indebted to
the Banks or the Agent and until payment in full of the Notes and full and
complete performance of all of its other obligations arising hereunder, the
Borrower shall not and shall not permit any of its Subsidiaries to do, agree to
do, or permit to be done, any of the following:
SECTION 7.1 INDEBTEDNESS.
Create, incur, permit to exist or have outstanding any
Indebtedness, except:
(a) Indebtedness of the Borrower to the Banks and the Agent
and under this Agreement and the Notes;
(b) Taxes, assessments and governmental charges, non-interest
bearing accounts payable and accrued liabilities, in any case not more than 90
days past due from the original due date thereof, and non-interest bearing
deferred liabilities other than for borrowed money (e.g., deferred compensation
and deferred taxes), in each case incurred and continuing in the ordinary course
of business;
(c) Indebtedness secured by the security interests referred
to in subsection 7.2(b) hereof;
(d) Indebtedness consisting of contingent obligations
permitted by Section 7.3 hereof; and
(e) As set forth on Schedule 7.1 hereto.
SECTION 7.2 LIENS.
Create, or assume or permit to exist, any Lien on any of its
properties or assets, whether now owned or hereafter acquired, except:
(a) Permitted Liens;
(b) Purchase money Liens on Property acquired in the ordinary
course of business, securing Indebtedness incurred or assumed for the purpose of
financing all or any part of the cost of acquiring such Property; provided, that
(i) any such Lien attaches to such Property concurrently with or within twenty
(20) days after the acquisition thereof, (ii) such Lien attaches solely to the
Property so acquired in such transaction, and (iii) the principal amount of the
debt secured thereby does not exceed 100% of the cost of such Property; and
(c) As set forth on Schedule 7.2 hereto.
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SECTION 7.3 GUARANTIES.
Assume, endorse, be or become liable for, or guarantee, the
obligations of any Person, except by the endorsement of negotiable instruments
for deposit or collection in the ordinary course of business and as set forth on
Schedule 7.1 hereof. For the purposes hereof, the term "guarantee" shall include
any agreement, whether such agreement is on a contingency or otherwise, to
purchase, repurchase or otherwise acquire Indebtedness of any other Person, or
to purchase, sell or lease, as lessee or lessor, property or services, in any
such case primarily for the purpose of enabling another person to make payment
of Indebtedness, or to make any payment (whether as an advance, capital
contribution, purchase of an equity interest or otherwise) to assure a minimum
equity, asset base, working capital or other balance sheet or financial
condition, in connection with the Indebtedness of another Person, or to supply
funds to or in any manner invest in another Person in connection with such
Person's Indebtedness.
SECTION 7.4 MERGERS, ACQUISITIONS.
Except as expressly permitted by this Agreement, merge or
consolidate with any Person, or, acquire all or substantially all of the assets
or any of the capital stock of any Person unless (a) the Borrower is the
surviving entity and (b) no Default or Event of Default exists or will occur
after giving effect thereto.
SECTION 7.5 REDEMPTIONS; DISTRIBUTIONS.
(a) Purchase, redeem, retire or otherwise acquire, directly
or indirectly, or make any sinking fund payments with respect to, any shares of
any class of stock of the Borrower or any Subsidiary now or hereafter
outstanding or set apart any sum for any such purpose if a Default or Event of
Default exists or would occur as a result of any such action; or
(b) Declare or pay any dividends or make any distribution of
any kind on the Borrower's outstanding stock, or set aside any sum for any such
purpose, except that:
(i) the Borrower may declare and make dividend payments
or other distributions payable solely in its common stock; and
(ii) the Borrower may pay cash dividends if, and only
if: (x) at the time of such payment and after giving effect thereto, no Default
or Event of Default shall exist hereunder, and (y) after giving effect to such
dividend payment, the aggregate amount of all dividends paid and declared during
any period of four (4) consecutive fiscal quarters of the Borrower in which such
payment is proposed to be made would not exceed an amount equal to fifty percent
(50%) of the consolidated
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net income of the Borrower for such period (as shown on the financial statements
of the Borrower for such fiscal period furnished to the Agent in accordance with
Section 5.1 or Section 5.2 hereof).
SECTION 7.6 CHANGES IN STRUCTURE.
Except for supplemental issuance of Omega's authorized common
stock and preferred stock and as otherwise expressly permitted under Section
7.5, make any changes in the equity capital structure of the Borrower or any
Subsidiary, or amend its certificate of incorporation or by-laws in a manner
which would be reasonably likely to cause a Material Adverse Effect.
SECTION 7.7 INTENTIONALLY OMITTED.
SECTION 7.8 FISCAL YEAR.
Change its fiscal year.
SECTION 7.9 ERISA OBLIGATIONS.
Permit the establishment of any Employee Benefit Plan or
amend any Employee Benefit Plan which establishment or amendment could result in
liability to any Loan Party or increase the obligation for post-retirement
welfare benefits of any Loan Party which liability or increase, individually or
together with all similar liabilities and increases, has a Material Adverse
Effect on any Loan Party.
SECTION 7.10 USE OF CASH.
Use, or permit to be used, in any manner or to any extent,
the Borrower's Cash from operations for the benefit of any Person, except: (a)
in connection with the payment or prepayment of expenses directly incurred for
the benefit of the Borrower in the maintenance and operation of its business, in
each case only in the ordinary course of its business, (b) for the payment of
scheduled, required payments of principal and interest on Indebtedness of the
Borrower permitted to exist hereunder, and (c) for uses that are otherwise
specifically permitted by this Agreement.
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ARTICLE 8. EVENTS OF DEFAULT.
If any one or more of the following events ("EVENTS OF DEFAULT")
shall occur and be continuing, the Revolving Credit Commitments shall terminate
and the entire unpaid balance of the principal of and interest on the Notes
outstanding and all other obligations and Indebtedness of the Borrower to the
Banks and the Agent arising hereunder and under the other Loan Documents shall
immediately become due and payable upon written notice to that effect given to
the Borrower by the Agent (except that in the case of the occurrence of any
Event of Default described in Section 8.6 no such notice shall be required),
without present- ment or demand for payment, notice of non-payment, protest or
further notice or demand of any kind, all of which are expressly waived by the
Borrower:
SECTION 8.1 PAYMENTS.
Failure by the Borrower to make any payment of principal or
interest upon any Note or to make any payment of any Fee when due; or
SECTION 8.2 CERTAIN COVENANTS.
Failure by the Borrower to perform or observe any of its
agreements contained in Section 6.9 or Article 7 hereof; or
SECTION 8.3 OTHER COVENANTS.
(a) Failure by the Borrower to perform or observe any other
term, condition or covenant of this Agreement or of any of the other Loan
Documents to which it is a party, which shall remain unremedied for a period of
thirty (30) days after notice thereof shall have been given to the Borrower by
the Agent; or
(b) Failure by any Loan Party other than the Borrower to
perform or observe any term, condition or covenant of any of the Loan Documents
to which it or he is a party, which shall remain unremedied for a period of
thirty (30) days after notice thereof shall have been given to the Borrower by
the Agent; or
SECTION 8.4 OTHER DEFAULTS.
(a) Failure by the Borrower or the Guarantor to perform or
observe any term, condition or covenant of any bond, note, debenture, loan
agreement, indenture, guaranty, trust agreement, mortgage or similar instrument
to which it is a party or by which it is bound, or by which any of its
properties or assets may be affected, including, without limitation, the Omega
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Loan Agreement(a "DEBT INSTRUMENT"), so that, as a result of any such failure to
perform, the Indebtedness included therein or secured or covered thereby may be
declared due and payable prior to the date on which such Indebtedness would
otherwise become due and payable (without giving effect to any period of grace,
cure or waiver with respect thereto); or
(b) Any event or condition referred to in any Debt Instrument
shall occur or fail to occur, so that, as a result thereof, the Indebtedness
included therein or secured or covered thereby may be declared due and payable
prior to the date on which such Indebtedness would otherwise become due and
payable (without giving effect to any period of grace, cure or waiver with
respect thereto); or
(c) Failure to pay any Indebtedness for borrowed money due at
final maturity or pursuant to demand under any Debt Instrument (without giving
effect to any period of grace, cure or waiver with respect thereto);
provided, however, that the provisions of this Section 8.4 shall not be
applicable to any Debt Instrument that on the date this Section 8.4 would
otherwise be applicable thereto, relates to or evidences Indebtedness in a
principal amount of less than $500,000; or
SECTION 8.5 REPRESENTATIONS AND WARRANTIES.
Any representation or warranty made in writing to the Banks
or the Agent in any of the Loan Documents or in connection with the making of
the Loans, or any certificate, statement or report made or delivered in
compliance with this Agreement, shall have been false or misleading in any
material respect when made or delivered, which in any event results in a
Material Adverse Effect; or
SECTION 8.6 BANKRUPTCY.
(a) The Borrower or the Guarantor shall make an assignment
for the benefit of creditors, file a petition in bankruptcy, be adjudicated
insolvent, petition or apply to any tribunal for the appointment of a receiver,
custodian, or any trustee for it or a substantial part of its assets, or shall
commence any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or the Borrower or the
Guarantor shall take any corporate action to authorize any of the foregoing
actions; or there shall have been filed any such petition or application, or any
such proceeding shall have been commenced against it, that remains undismissed
for a period of thirty (30) days or more; or any order for relief shall be
entered in any such proceeding; or the Borrower or the Guarantor by any act or
omission shall indicate
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its consent to, approval of or acquiescence in any such petition, application or
proceeding or the appointment of a custodian, receiver or any trustee for it or
any substantial part of any of its properties, or shall suffer any
custodianship, receivership or trusteeship to continue undischarged for a period
of thirty (30) days or more; or
(b) The Borrower or the Guarantor shall generally not pay its
debts as such debts become due; or
(c) The Borrower or the Guarantor shall have concealed,
removed, or permitted to be concealed or removed, any part of its property, with
intent to hinder, delay or defraud its creditors or any of them or made or
suffered a transfer of any of its property that may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or shall have made any
transfer of its property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid; or shall have suffered or
permitted, while insolvent, any creditor to obtain a Lien upon any of its
property through legal proceedings or distraint that is not vacated within
thirty (30) days from the date thereof; or
SECTION 8.7 JUDGMENTS.
Any judgment against the Borrower or any attachment, levy or
execution against any of its properties for any amount in excess of $500,000
shall remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed
for a period of thirty (30) days or more; or
SECTION 8.8 ERISA.
(a) The termination of any Plan or the institution by the
PBGC of proceedings for the involuntary termination of any Plan, in either case,
by reason of, or that results or could result in, a "material accumulated
funding deficiency" under Section 412 of the Code; or
(b) Failure by the Borrower to make required contributions,
in accordance with the applicable provisions of ERISA, to each of the Plans
hereafter established or assumed by it; or
SECTION 8.9 MATERIAL ADVERSE EFFECT.
There shall occur a Material Adverse Effect; or
SECTION 8.10 OWNERSHIP.
(i) Any Person, or a group of related Persons, shall acquire
beneficial ownership in excess of 25% of the outstanding stock of the Borrower
or other voting interest having
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ordinary voting powers to elect a majority of the directors, managers or
trustees of the Borrower (irrespective of whether at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency), or (ii) a majority of the Board of Directors of
the Borrower, at any time, shall be composed of Persons other than (a) Persons
who were members of the Board of Directors on the date of this Agreement, or (b)
Persons who subsequently become members of the Board of Directors on the date of
this Agreement, or (c) Persons who subsequently become members of the Board of
Directors and who either (x) are appointed or recommended for election with the
affirmative vote of a majority of the directors in office as of the date of this
Agreement or (y) are appointed or recommended for election with the affirmative
vote of a majority of the Board of Directors of the Borrower then in office; or
SECTION 8.11 RATINGS.
Failure by Omega to maintain an investment grade Rating from
both Moody's and S&P.
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ARTICLE 9. THE AGENT.
SECTION 9.1 APPOINTMENT, POWERS AND IMMUNITIES.
Each Bank hereby irrevocably appoints and authorizes the
Agent to act as its agent hereunder and the other Loan Documents with such
powers as are specifically delegated to the Agent by the terms of this Agreement
and the other Loan Documents together with such other powers as are reasonably
incidental thereto. The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement and the other Loan Documents and
shall not be a trustee for any Bank. The Agent shall not be responsible to the
Banks for any recitals, statements, representations or warranties contained in
this Agreement or the other Loan Documents in any certificate or other document
referred to or provided for in, or received by any of them under, this Agreement
or the other Loan Documents, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or the other Loan
Documents or any other document referred to or provided for herein or therein or
for the collectibility of the Loans or for any failure by the Borrower to
perform any of its obligations hereunder or under the other Loan Documents. The
Agent may employ agents and attorneys-in-fact and shall not be answerable,
except as to money or securities received by it or its authorized agents, for
the negligence or misconduct of any such agents or attorneys-in-fact selected by
it with reasonable care. Neither the Agent nor any of its directors, officers,
employees or agents shall be liable or responsible for any action taken or
omitted to be taken by it or them hereunder or the other Loan Documents or in
connection herewith or therewith, except for its or their own gross negligence
or willful misconduct.
SECTION 9.2 RELIANCE BY AGENT.
The Agent shall be entitled to rely upon any certification,
notice or other communication (including any thereof by telephone, telex,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper person or persons, and upon advice
and statements of legal counsel, independent accountants and other experts
selected by the Agent. As to any matters not expressly provided for by this
Agreement or the other Loan Documents, the Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder or the other Loan
Documents in accordance with instructions signed by the Required Banks, and such
instructions of the Required Banks and any action taken or failure to act
pursuant thereto shall be binding on all of the Banks.
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SECTION 9.3 EVENTS OF DEFAULT.
The Agent shall not be deemed to have knowledge of the
occurrence of a Default (other than the non-payment of principal of or interest
on Loans) unless the Agent has received notice from a Bank or the Borrower
specifying such Default and stating that such notice is a "Notice of Default".
In the event that the Agent receives such a notice of the occurrence of a
Default, the Agent shall give notice thereof to the Banks (and shall give each
Bank notice of each such non-payment). The Agent shall (subject to Section 9.7
hereof) take such action with respect to such Default as shall be directed by
the Required Banks.
SECTION 9.4 RIGHTS AS A BANK.
With respect to its Revolving Credit Commitment and the Loans
made by it, the Agent in its capacity as a Bank hereunder shall have the same
rights and powers hereunder as any other Bank and may exercise the same as
though it were not acting as the Agent, and the term "Bank" or "Banks" shall,
unless the context otherwise indicates, include the Agent in its individual
capacity. The Agent and its affiliates may (without having to account therefor
to any Bank) accept deposits from, lend money to and generally engage in any
kind of banking, trust or other business with the Borrower or its affiliates, as
if it were not acting as the Agent, and the Agent may accept fees and other
consideration from the Borrower or its affiliates, for services in connection
with this Agreement or any of the other Loan Documents or otherwise without
having to account for the same to the Banks.
SECTION 9.5 INDEMNIFICATION.
The Banks shall indemnify the Agent (to the extent not
reimbursed by the Borrower under Sections 10.1 and 10.2 hereof), ratably in
accordance with the aggregate principal amount of the Loans made by the Banks
(or, if no Loans are at the time outstanding, ratably in accordance with their
respective Revolving Credit Commitments), for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever that may be imposed
on, incurred by or asserted against the Agent in any way relating to or arising
out of this Agreement or any of the other Loan Documents or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated by or referred to herein or therein or the transactions
contemplated hereby and thereby (including, without limitation, the costs and
expenses that the Borrower is obligated to pay under Sections 10.1 and 10.2
hereof, but excluding, unless a Default has occurred and is continuing, normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or of any such
other documents, provided that no Bank shall be liable for any of the foregoing
to the extent they arise from the gross negligence or willful misconduct of the
party to be indemnified.
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SECTION 9.6 NON-RELIANCE ON AGENT AND OTHER BANKS.
Each Bank agrees that it has, independently and without
reliance on the Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Borrower and decision to enter into this Agreement and that it will,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under this Agreement or the other Loan Documents. The Agent shall not be
required to keep itself informed as to the performance or observance by the
Borrower of this Agreement or the other Loan Documents or any other document
referred to or provided for herein or therein or to inspect the properties or
books of the Borrower. Except for notices, reports and other documents and
information expressly required to be furnished to the Banks by the Agent
hereunder or the other Loan Documents, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Borrower, that
may come into the possession of the Agent or any of its affiliates.
SECTION 9.7 FAILURE TO ACT.
Except for action expressly required of the Agent hereunder,
the Agent shall in all cases be fully justified in failing or refusing to act
hereunder or thereunder unless it shall be indemnified to its satisfaction by
the Banks against any and all liability and expense that may be incurred by it
by reason of taking or continuing to take any such action.
SECTION 9.8 RESIGNATION OR REMOVAL OF AGENT.
Subject to the appointment and acceptance of a successor
Agent as provided below, the Agent may resign at any time by giving not less
than 10 days' prior written notice thereof to the Banks and the Borrower and the
Agent may be removed at any time with or without cause by the Required Banks.
Upon any such resignation or removal, the Required Banks shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed by
the Required Banks and shall have accepted such appointment within 30 days after
the retiring Agent's giving of notice of resignation or the Required Banks'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Banks, after consultation with the Borrower, appoint a successor Agent which
shall be a bank that has an office in New York, New York with a combined capital
and surplus of at least $100,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring Agent's resigna-
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tion or removal hereunder as Agent, the provisions of this Article 9 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as the Agent.
SECTION 9.9 SHARING OF PAYMENTS.
(a) Prior to any acceleration by the Agent and the Banks of
the Obligations:
(i) in the event that any Bank shall obtain payment in
respect of its Note, or interest thereon, whether voluntarily or involuntarily,
and whether through the exercise of a right of banker's lien, set-off or
counterclaim against the Borrower or otherwise, in a greater proportion than any
such payment obtained by any other Bank in respect of the corresponding Note
held by it, then the Bank so receiving such greater proportionate payment shall
purchase for cash from the other Bank or Banks such portion of each such other
Bank's or Banks' Loan as shall be necessary to cause such Bank receiving the
proportionate overpayment to share the excess payment with each Bank; and
(ii) in the event that any Bank shall obtain payment in
respect of any Interest Rate Contract to which such Bank is a party, whether
voluntarily or involuntarily, and whether through the exercise of a right of
banker's lien, set-off or counterclaim against the Borrower or otherwise, such
Bank shall be permitted to retain the full amount of such payment and shall not
be required to share such payment with any other Bank.
(b) Upon or following any acceleration by the Agent and the
Banks of the Obligations, in the event that any Bank shall obtain payment in
respect of a Note, or interest or Fees thereon, or in respect of an Interest
Rate Contract to which such Bank is a party, whether voluntarily or
involuntarily, and whether through the exercise of a right of banker's lien,
set-off or counterclaim against the Borrower or otherwise, in a greater
proportion than any such payment obtained by any other Bank in respect of the
aggregate amount of the corresponding Note held by such Bank and any Interest
Rate Contract to which such Bank is a party, then the Bank so receiving such
greater proportionate payment shall purchase for cash from the other Bank or
Banks such portion of each such other Bank's or Banks' Loan. For the purposes of
this subsection 9.9(b), payments on Notes received by each Bank shall be in the
same proportion as the proportion of: (A) the sum of: (x) the Obligations owing
to such Bank in respect of the Note held by such Bank, plus (y) the Obligations
owing to such Bank in respect of Interest Rate Contracts to which such Bank is
party, if any, to (B) the sum of: (x) the Obligations owing to all of the Banks
in respect of all of the Notes,
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plus (y) the Obligations owing to all of the Banks in respect of all Interest
Rate Contracts to which any Bank is a party; provided, however, that, with
respect to subsections 9.9(a)(i) and (b) above, if all or any portion of such
excess payment or benefits is thereafter recovered from the Bank that received
the proportionate overpayment, such purchase of Loans or payment of benefits, as
the case may be, shall be rescinded, and the purchase price and benefits
returned, to the extent of such recovery, but without interest.
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ARTICLE 10. MISCELLANEOUS PROVISIONS.
SECTION 10.1 FEES AND EXPENSES; INDEMNITY.
The Borrower will promptly pay all costs of the Agent in
preparing the Loan Documents and all costs and expenses of the issue of the
Notes and of the Borrower's performance of and compliance with all agreements
and conditions contained herein on its part to be performed or complied with and
the reasonable fees and expenses and disbursements of counsel to the Agent in
connection with the preparation, execution and delivery, administration,
interpretation and enforcement of this Agreement, the other Loan Documents and
all other agreements, instruments and documents relating to this transaction,
the consummation of the transactions contemplated by all such documents, the
preservation of all rights of the Banks and the Agent, the negotiation,
preparation, execution and delivery of any amendment, modification or supplement
of or to, or any consent or waiver under, any such document (or any such
instrument that is proposed but not executed and delivered) and with any claim
or action threatened, made or brought against any of the Banks or the Agent
arising out of or relating to any extent to this Agreement, the other Loan
Documents or the transactions contemplated hereby or thereby (other than a claim
or action resulting from the gross negligence, willful misconduct, or
intentional violation of law by the Agent and or the Banks). In addition, the
Borrower will promptly pay all costs and expenses (including, without
limitation, reasonable fees and disbursements of counsel) suffered or incurred
by each Bank in connection with its enforce ment of the payment of the Notes
held by it or any other sum due to it under this Agreement or any of the other
Loan Documents or any of its other rights hereunder or thereunder. In addition
to the foregoing, the Borrower shall indemnify each Bank and the Agent and each
of their respective directors, officers, employees, attorneys, agents and
affiliates against, and hold each of them harmless from, any loss, liabilities,
damages, claims, costs and expenses (including reasonable attorneys' fees and
disbursements) suffered or incurred by any of them arising out of, resulting
from or in any manner connected with, the execution, delivery and performance of
each of the Loan Documents, the Loans and any and all transactions related to or
consummated in connection with the Loans (other than as a result of the gross
negligence, willful misconduct or intentional violation of law by the party
seeking indemnification), including, without limitation, losses, liabilities,
damages, claims, costs and expenses suffered or incurred by any Bank or the
Agent or any of their respective directors, officers, employees, attorneys,
agents or affiliates arising out of or related to any Environmental Liability or
Environmental Proceeding, or in investigating, preparing for, defending against,
or providing evidence, producing documents or taking any other action in respect
of any commenced or threatened litigation, administrative proceeding or
investigation under any federal securities law or any other statute of any
jurisdiction,
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or any regulation, or at common law or otherwise against the Agent, the Banks or
any of their officers, directors, affiliates, or agents, that is alleged to
arise out of or is based upon: (i) any untrue statement or alleged untrue
statement of any material fact of the Borrower and its affiliates in any
document or schedule filed with the Securities and Exchange Commission or any
other governmental body; (ii) any omission or alleged omission to state any
material fact required to be stated in such document or schedule, or necessary
to make the statements made therein, in light of the circumstances under which
made, not misleading; (iii) any acts, practices or omission or alleged acts,
practices or omissions of the Borrower or its agents related to the making of
any acquisition, purchase of shares or assets pursuant thereto, financing of
such purchases or the consummation of any other transactions contemplated by any
such acquisitions that are alleged to be in violation of any federal securities
law or of any other statute, regulation or other law of any jurisdiction
applicable to the making of any such acquisition, the purchase of shares or
assets pursuant thereto, the financing of such purchases or the consummation of
the other transactions contemplated by any such acquisition; or (iv) any
withdrawals, termination or cancellation of any such proposed acquisition for
any reason whatsoever. The indemnity set forth herein shall be in addition to
any other obligations or liabilities of the Borrower to the Agent and the Banks
hereunder or at common law or otherwise. The provisions of this Section 10.1
shall survive the payment of the Notes and the termination of this Agreement.
SECTION 10.2 TAXES.
If, under any law in effect on the date of the closing of any
Loan hereunder, or under any retroactive provision of any law subsequently
enacted, it shall be determined that any Federal, state or local tax is payable
in respect of the issuance of any Note, or in connection with the filing or
recording of any assignments, mortgages, financing statements, or other
documents (whether measured by the amount of Indebtedness secured or otherwise)
as contemplated by this Agreement, then the Borrower will pay any such tax and
all interest and penalties, if any, and will indemnify the Banks and the Agent
against and save each of them harmless from any loss or damage resulting from or
arising out of the nonpayment or delay in payment of any such tax. If any such
tax or taxes shall be assessed or levied against any Bank or any other holder of
a Note, such Bank, or such other holder, as the case may be, may notify the
Borrower and make immediate payment thereof, together with interest or penalties
in connection therewith, and shall thereupon be entitled to and shall receive
immediate reimbursement therefor from the Borrower. Notwithstanding any other
provision contained in this Agreement, the covenants and agreements of the
Borrower in this Section 10.2 shall survive payment of the Notes and the
termination of this Agreement.
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SECTION 10.3 PAYMENTS.
As set forth in Article 2 hereof, all payments by the
Borrower on account of principal, interest, fees and other charges (including
any indemnities) shall be made to the Agent at the Principal Office of the
Agent, in lawful money of the United States of America in immediately available
funds, by wire transfer or otherwise, not later than 11:00 A.M. New York City
time on the date such payment is due. Any such payment made on such date but
after such time shall, if the amount paid bears interest, be deemed to have been
made on, and interest shall continue to accrue and be payable thereon until, the
next succeeding Business Day. If any payment of principal or interest becomes
due on a day other than a Business Day, such payment may be made on the next
succeeding Business Day and such extension shall be included in computing
interest in connection with such payment. All payments hereunder and under the
Notes shall be made without set-off or counterclaim and in such amounts as may
be necessary in order that all such payments shall not be less than the amounts
otherwise specified to be paid under this Agreement and the Notes (after
withholding for or on account of: (i) any present or future taxes, levies,
imposts, duties or other similar charges of whatever nature imposed by any
government or any political subdivision or taxing authority thereof, other than
any tax (except those referred to in clause (ii) below) on or measured by the
net income of the Bank to which any such payment is due pursuant to applicable
federal, state and local income tax laws, and (ii) deduction of amounts equal to
the taxes on or measured by the net income of such Bank payable by such Bank
with respect to the amount by which the payments required to be made under this
sentence exceed the amounts otherwise specified to be paid in this Agreement and
the Notes). Upon payment in full of any Note issued to any Bank and/or
termination of any Bank's Revolving Credit Commitment, the Bank holding such
Note shall mark the Note "Paid" and return it to the Borrower specified on such
Note.
SECTION 10.4 SURVIVAL OF AGREEMENTS AND
REPRESENTATIONS; CONSTRUCTION.
All agreements, representations and warranties made herein
shall survive the delivery of this Agreement and the Notes. The headings used in
this Agreement and the table of contents are for convenience only and shall not
be deemed to constitute a part hereof. All uses herein of the masculine gender
or of singular or plural terms shall be deemed to include uses of the feminine
or neuter gender, or plural or singular terms, as the context may require.
SECTION 10.5 LIEN ON AND SET-OFF OF DEPOSITS.
As security for the due payment and performance of all the
Obligations, the Borrower hereby grants to Agent for the ratable benefit of the
Banks a Lien on any and all deposits or
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other sums at any time credited by or due from the Agent or any Bank to the
Borrower, whether in regular or special depository accounts or otherwise, and
any and all monies, securities and other property of the Borrower, and the
proceeds thereof, now or hereafter held or received by or in transit to any Bank
or the Agent from or for the Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, and any such deposits, sums, monies,
securities and other property, may at any time after the occurrence and during
the continuance of any Event of Default be set-off, appropriated and applied by
any Bank or the Agent against any of the Obligations, whether or not any of such
Obligations is then due or is secured by any collateral.
SECTION 10.6 MODIFICATIONS, CONSENTS AND
WAIVERS; ENTIRE AGREEMENT.
No modification, amendment or waiver of or with respect to
any provision of this Agreement, any Notes, or any of the other Loan Documents
and all other agreements, instruments and documents delivered pursuant hereto or
thereto, nor consent to any departure by the Borrower from any of the terms or
conditions thereof, shall in any event be effective unless it shall be in
writing and signed by the Agent and each Bank except that: (i) any modification
or amendment of, or waiver or consent with respect to, Article 4 shall be
required to be signed only by the Agent and the Required Banks (provided,
however, that the consummation of a Loan by a Bank shall be deemed, with respect
to such Loan only, to have the effect of the execution by such Bank of a waiver
of, or consent to a departure from, any term or provision of Article 4 that has
not been satisfied as of the date of the consummation of such Loan); and (ii)
any modification or amendment of, or waiver or consent with respect to, Articles
1 (other than the definition of "Required Banks"), 5, 6, 7, 8 (other than the
preamble to Article 8 or Section 8.1 hereof) and 10 (other than this Section
10.6) may be signed only by the Agent and the Required Banks. Any such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No consent to or demand on the Borrower in any case shall, of
itself, entitle it to any other or further notice or demand in similar or other
circumstances. This Agreement and the other Loan Documents embody the entire
agreement and understanding among the Banks, the Agent and the Borrower and
supersede all prior agreements and understandings relating to the subject matter
hereof.
SECTION 10.7 REMEDIES CUMULATIVE; COUNTERCLAIMS.
Each and every right granted to the Agent and the Banks
hereunder or under any other document delivered hereunder or in connection
herewith, or allowed it by law or equity, shall be cumulative and may be
exercised from time to time. No failure on the part of the Agent or any Bank or
the holder of any Note to
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<PAGE> 60
exercise, and no delay in exercising, any right shall operate as a waiver
thereof, nor shall any single or partial exercise of any right preclude any
other or future exercise thereof or the exercise of any other right. The due
payment and performance of the Obligations shall be without regard to any
counterclaim, right of offset or any other claim whatsoever that the Borrower
may have against any Bank or the Agent and without regard to any other
obligation of any nature whatsoever that any Bank or the Agent may have to the
Borrower, and no such counterclaim or offset shall be asserted by the Borrower
(unless such counterclaim or offset would, under applicable law, be permanently
and irrevocably lost if not brought in such action) in any action, suit or
proceeding instituted by any Bank or the Agent for payment or performance of the
Obligations.
SECTION 10.8 FURTHER ASSURANCES.
At any time and from time to time, upon the request of the
Agent, the Borrower shall execute, deliver and acknowledge or cause to be
executed, delivered and acknowledged, such further documents and instruments and
do such other acts and things as the Agent may reasonably request in order to
fully effect the purposes of this Agreement, the other Loan Documents and any
other agreements, instruments and documents delivered pursuant hereto or in
connection with the Loans.
SECTION 10.9 NOTICES.
All notices, requests, reports and other communications
pursuant to this Agreement shall be in writing, either by letter (delivered by
hand or commercial messenger service or sent by certified mail, return receipt
requested, except for routine reports delivered in compliance with Article 5
hereof which may be sent by ordinary first-class mail) or telegram or telecopy,
addressed as follows:
(a) If to the Borrower:
c/o Omega Healthcare Investors, Inc.
900 Victors Way, Suite 350
Ann Arbor, Michigan 48108
Attention: Mr. Essel W. Bailey, Jr.,
President
Telecopier No: 734-887-0201
(b) If to any Bank:
To its address set forth below its
name on the signature pages hereof,
with a copy to the Agent; and
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(c) If to the Agent:
Fleet Bank, N.A., as Agent
1185 Avenue of the Americas
New York, New York 10036
Attention: Mr. Robert A. Isaksen
Telecopier No.: (212) 819-4142
with a copy (other than in the case of
Borrowing Notices and reports and other
documents delivered in compliance with
Article 5 hereof) to:
Winston & Strawn
200 Park Avenue
New York, New York 10166
Attention: Richard S. Talesnick, Esq.
Telecopier No.: (212) 294-4700
Any notice, request, demand or other communication hereunder shall be deemed to
have been given on: (x) the day on which it is telecopied to such party at its
telecopier number specified above (provided such notice shall be effective only
if followed by one of the other methods of delivery set forth herein) or
delivered by receipted hand or such commercial messenger service to such party
at its address specified above, or (y) on the third Business Day after the day
deposited in the mail, postage prepaid, if sent by mail, or (z) on the day it is
delivered to the telegraph company, addressed as aforesaid, if sent by
telegraph. Any party hereto may change the Person, address or telecopier number
to whom or which notices are to be given hereunder, by notice duly given
hereunder; provided, however, that any such notice shall be deemed to have been
given hereunder only when actually received by the party to which it is
addressed.
SECTION 10.10 COUNTERPARTS.
This Agreement may be signed in any number of counterparts
with the same effect as if the signatures thereto and hereto were upon the same
instrument.
SECTION 10.11 SEVERABILITY.
The provisions of this Agreement are severable, and if any
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision in this Agreement in any
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jurisdiction. Each of the covenants, agreements and conditions contained in this
Agreement is independent and compliance by the Borrower with any of them shall
not excuse non-compliance by the Borrower with any other. All covenants
hereunder shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitations of, another
covenant shall not avoid the occurrence of a Default or an Event of Default if
such action is taken or condition exists.
SECTION 10.12 BINDING EFFECT; NO ASSIGNMENT
OR DELEGATION BY BORROWER.
This Agreement shall be binding upon and inure to the benefit
of the Borrower and its successors and to the benefit of the Banks and the Agent
and their respective successors and assigns. The rights and obligations of the
Borrower under this Agreement shall not be assigned or delegated without the
prior written consent of the Agent and the Required Banks, and any purported
assignment or delegation without such consent shall be void.
SECTION 10.13 ASSIGNMENTS AND PARTICIPATIONS BY BANKS.
(a) Each Bank may assign to one or more banks or other
entities all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Revolving Credit
Commitment, the Loans owing to it, and the Note(s) held by it); provided,
however, that: (i) the Borrower (so long as no Event of Default then exists and
is continuing) and the Agent must give prior written consent to such assignment
(unless such assignment is to an affiliate of such Bank), which consent shall
not be unreasonably withheld, (ii) the parties to each such assignment shall
execute and deliver to the Agent an Assignment and Acceptance, and a processing
fee of $3,500.00, (iii) each such assignment shall be of a constant, and not a
varying, percentage of all of the assigning Bank's rights and obligations under
this Agreement, (iv) the amount of the Revolving Credit Commitment of the
assigning Bank being assigned pursuant to each such assignment (determined as of
the date of the Assignment and Acceptance with respect to such assignment) shall
in no event be less than $5,000,000 and shall be an integral multiple of
$1,000,000, and (v) each such assignment shall be to an Eligible Assignee. Upon
such execution, delivery and acceptance, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least five (5) Business Days after the execution thereof: (x) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights
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and obligations of a Bank hereunder, and (y) the Bank assignor thereunder shall,
to the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Bank's rights and obligations under this Agreement, such Bank shall cease to be
a party hereto).
(b) By executing and delivering an Assignment and Acceptance,
the Bank assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Bank makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of such financial statements and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (iv) such
assignee will, independently and without reliance upon the Agent, such assigning
Bank or any other Bank and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement as are delegated to the Agent by the terms hereof, together
with such powers as are reasonably incidental thereto; and (vii) such assignee
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Bank.
(c) Upon its receipt of an Assignment and Acceptance executed
by an assigning Bank and an assignee representing that it is an Eligible
Assignee, together with any Note subject to such assignment, the Agent shall:
(i) accept such Assignment and Acceptance, and (ii) give prompt notice thereof
to the Borrower. Within five Business Days after its receipt of such notice, the
Borrower, at its own expense, shall execute and deliver to the Agent in exchange
for the surrendered Note(s) a
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new Note(s) to the order of such Eligible Assignee in an amount equal to the
Revolving Credit Commitment assumed by it pursuant to such Assignment and
Acceptance and, if the assigning Bank has retained a Revolving Credit Commitment
hereunder, a new Note to the order of the assigning Bank in an amount equal to
the Revolving Credit Commitment retained by it hereunder. Such new Note shall be
in an aggregate principal amount equal to the aggregate principal amount of such
surrendered Note(s), shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of Exhibit A hereto.
(d) Each Bank may, without the prior consent of the Agent,
the other Banks or the Borrower, sell participations to one or more banks or
other entities in all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Revolving
Credit Commitment, the Loans owing to it, and the Note(s) held by it; provided,
however, that: (i) such Bank's obligations under this Agreement (including,
without limitation, its Revolving Credit Commitment hereunder) shall remain
unchanged, (ii) such Bank shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) such Bank shall remain the
holder of any such Note(s) for all purposes of this Agreement, and the Borrower,
the Agent and the other Banks shall continue to deal solely and directly with
such Bank in connection with such Bank's rights and obligations under this
Agreement.
(e) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
10.13, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Bank by
or on behalf of the Borrower; provided that, prior to any such disclosure, the
assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any confidential information relating to the
Borrower received by it from such Bank.
(f) Anything in this Section 10.13 to the contrary
notwithstanding, any Bank may assign and pledge all or any portion of its Loans
and its Notes to any Federal Reserve Bank (and its transferees) as collateral
security pursuant to Regulation A of the Board of Governors of the Federal
Reserve System and any Operating Circular issued by such Federal Reserve Bank.
No such assignment shall release the assigning Bank from its obligations
hereunder.
SECTION 10.14 DELIVERY OF TAX FORMS.
Each Bank that is not organized under the laws of the United
States or a state thereof shall:
(a) deliver to the Borrower and the Agent, on or prior to the
date of the execution and delivery of this Agreement or the date on which it
becomes a Bank hereunder, (i) two
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<PAGE> 65
accurate and duly completed executed copies of United States IRS Form 1001 or
4224, or successor applicable form, as the case may be, and (ii) an accurate and
complete IRS Form W-8 or W-9, or successor applicable form, as the case may be;
(b) deliver to the Borrower and the Agent two further
accurate and complete executed copies of any such form or certification on or
before the date that any such form or certification expires or becomes obsolete
and after the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower; and
(c) obtain such extensions of time for filing and completing
such forms or certifications as may reasonably be requested by the Borrower or
the Agent;
unless in any such case under clause (b) above an event (including, without
limitation, any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Bank from duly completing
and delivering any such form with respect to it and such Bank so advises the
Borrower and the Agent. Such Bank shall certify (i) in the case of a Form 1001
or 4224 that is provided pursuant to Section 10.14(a), that it is entitled to
receive payments under this Agreement without deduction or withholding of any
United States Federal income taxes; (ii) in the case of an IRS Form 1001 or 4224
that is provided pursuant to subsection 10.14(b), to the extent legally entitled
to do so, that it is entitled to receive payments under this Agreement without,
or at a reduced rate of, deduction or withholding of any United States Federal
income taxes; and (iii) and in the case of a Form W-8 or W-9, that it is
entitled to an exemption from United States backup withholding tax. Each Person
not organized under the laws of the United States or a state thereof that is an
assignee hereunder shall, prior to the effectiveness of the related transfer, be
required to provide all of the forms and statements required pursuant to this
Section 10.14.
Section 10.15 GOVERNING LAW; CONSENT TO JURISDICTION;
WAIVER OF TRIAL BY JURY.
(a) THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL OTHER
DOCUMENTS AND INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION HEREWITH AND
THEREWITH, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS RULES PERTAINING
TO CONFLICTS OF LAWS.
(b) THE BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION
OR PROCEEDING AGAINST IT UNDER, ARISING OUT OF OR IN ANY MANNER RELATING TO THIS
AGREEMENT, AND EACH OTHER LOAN DOCUMENT MAY BE BROUGHT IN ANY COURT OF THE STATE
OF NEW YORK, COUNTY OF NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR
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<PAGE> 66
THE SOUTHERN DISTRICT OF NEW YORK. THE BORROWER, BY THE EXECUTION AND DELIVERY
OF THIS AGREEMENT, EXPRESSLY AND IRREVOCABLY ASSENTS AND SUBMITS TO THE PERSONAL
JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING. THE
BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY COMPLAINT, SUMMONS,
NOTICE OR OTHER PROCESS RELATING TO ANY SUCH ACTION OR PROCEEDING BY DELIVERY
THEREOF TO IT BY HAND OR BY MAIL IN THE MANNER PROVIDED FOR IN SECTION 10.9
HEREOF. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR
DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR BASIS. THE
BORROWER SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY
DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF NEW
YORK UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF
NEW YORK. NOTHING IN THIS SECTION 10.15 SHALL AFFECT OR IMPAIR IN ANY MANNER OR
TO ANY EXTENT THE RIGHT OF ANY BANK TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST THE BORROWER IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW.
(c) THE BORROWER, THE BANKS AND THE AGENT WAIVE TRIAL BY JURY
IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING
OUT OF, THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, OR ANY INSTRUMENT OR
DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT, OR THE VALIDITY, PERFECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date first above written.
OMEGA WORLDWIDE, INC.
By /s/ Essel W. Bailey, Jr.
________________________
President Title
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<PAGE> 67
REVOLVING CREDIT COMMITMENT:
$15,000,000 FLEET BANK, N.A., AS AGENT
AND AS A BANK
BY /s/ Robert A. Isaksen
__________________________
Vice President TITLE
Lending Office for Prime Rate Loans
and LIBOR Loans:
1185 Avenue of the Americas
New York, New York 10036
Attention: Mr. Robert A. Isaksen
Address for Notices:
Fleet Bank, N.A.
1185 Avenue of the Americas
New York, New York 10036
Attention: Mr. Robert A. Isaksen
Telecopier: (212) 819-4142
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<PAGE> 68
REVOLVING CREDIT COMMITMENT:
$10,000,000 HARRIS TRUST AND SAVINGS BANK
BY /s/ Kirby M. Law
___________________________
Vice President TITLE
Lending Office for Prime Rate Loans
and LIBOR Loans:
111 West Monroe Street/10th Floor West
Chicago, Illinois 60603
Attention: Mr. Kirby M. Law
Address for Notices:
Harris Trust and Savings Bank
111 West Monroe Street/10th Floor West
Chicago, Illinois 60603
Attention: Mr. Kirby M. Law
Telecopier: (312) 461-5225
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<PAGE> 69
EXHIBITS AND SCHEDULES TO
LOAN AGREEMENT
BY AND AMONG
OMEGA WORLDWIDE, INC.,
THE BANKS SIGNATORY HERETO
AND
FLEET BANK, N.A., AS AGENT
EXHIBITS
A Form of Note
B Form of Assignment and Acceptance
SCHEDULES
3.1 States of Incorporation and Qualification, and
Capitalization of Borrower
3.2 Consents, Waivers, Approvals; Violation of Agreements
3.6 Judgments, Actions, Proceedings
3.7 Defaults; Compliance with Laws, Regulations, Agreements
3.8 Burdensome Documents
3.13 Name Changes, Mergers, Acquisitions
3.15 Licenses and Approvals
3.16 Employee Benefit Plans
7.1 Permitted Indebtedness and Guaranties
7.2 Permitted Security Interests, Liens and Encumbrances
<PAGE> 70
EXHIBIT A
TO LOAN AGREEMENT
BY AND AMONG
OMEGA WORLDWIDE, INC.,
THE BANKS SIGNATORY HERETO
AND
FLEET BANK, N.A., AS AGENT
FORM OF NOTE
<PAGE> 71
EXHIBIT B
TO LOAN AGREEMENT
BY AND AMONG
OMEGA WORLDWIDE, INC.,
THE BANKS SIGNATORY HERETO
AND
FLEET BANK, N.A., AS AGENT
FORM OF ASSIGNMENT AND ACCEPTANCE
<PAGE> 72
SCHEDULE 3.1
TO LOAN AGREEMENT
BY AND AMONG
OMEGA WORLDWIDE, INC.,
THE BANKS SIGNATORY HERETO
AND
FLEET BANK, N.A., AS AGENT
STATES OF INCORPORATION AND QUALIFICATION,
AND CAPITALIZATION OF BORROWER
(i) State of Incorporation: Maryland
(ii) Capitalization: 12,258,000 shares of common stock
outstanding as of November 4, 1998 out of 60,000,000 authorized
shares of capital stock (50,000,000 common and 10,000,000
preferred)
(iii) Business: Omega Worldwide, Inc. provides investment and
management advisory services and invests in providers of capital
finance to the healthcare industry primarily outside the United
States
(iv) States of Qualification: Michigan and Maryland
(v) Subsidiaries:
Omega (UK) Ltd.
Omega (Australia) Pty Ltd.
Rocla B.V.
Dilava B.V.
Principal Healthcare Finance Pty Limited
Principal Healthcare Finance Trust
Principal Healthcare Finance Unit Trust No. 1
Principal Healthcare Finance Unit Trust No. 2
Principal Healthcare Finance Unit Trust No. 3
Principal Healthcare Finance Unit Trust No. 4
PHF No. 1 Pty Limited
PHF No. 2 Pty Limited
<PAGE> 73
SCHEDULE 3.2
TO LOAN AGREEMENT
BY AND AMONG
OMEGA WORLDWIDE, INC.,
THE BANKS SIGNATORY HERETO
AND
FLEET BANK, N.A., AS AGENT
CONSENTS, WAIVERS, APPROVALS;
VIOLATION OF AGREEMENTS
None
<PAGE> 74
SCHEDULE 3.6
TO LOAN AGREEMENT
BY AND AMONG
OMEGA WORLDWIDE, INC.,
THE BANKS SIGNATORY HERETO
AND
FLEET BANK, N.A., AS AGENT
JUDGMENTS, ACTIONS, PROCEEDINGS
None
<PAGE> 75
SCHEDULE 3.7
TO LOAN AGREEMENT
BY AND AMONG
OMEGA WORLDWIDE, INC.,
THE BANKS SIGNATORY HERETO
AND
FLEET BANK, N.A., AS AGENT
DEFAULTS; COMPLIANCE WITH LAWS,
REGULATIONS, AGREEMENTS
None
<PAGE> 76
SCHEDULE 3.8
TO LOAN AGREEMENT
BY AND AMONG
OMEGA WORLDWIDE, INC.,
THE BANKS SIGNATORY HERETO
AND
FLEET BANK, N.A., AS AGENT
BURDENSOME DOCUMENTS
Opportunity Agreement between Omega Worldwide, Inc. and Omega Healthcare
Investors, Inc.
Services Agreement between Omega Worldwide, Inc. and Omega Healthcare Investors,
Inc.
<PAGE> 77
SCHEDULE 3.13
TO LOAN AGREEMENT
BY AND AMONG
OMEGA WORLDWIDE, INC.,
THE BANKS SIGNATORY HERETO
AND
FLEET BANK, N.A., AS AGENT
NAME CHANGES, MERGERS, ACQUISITIONS
None
<PAGE> 78
SCHEDULE 3.15
TO LOAN AGREEMENT
BY AND AMONG
OMEGA WORLDWIDE, INC.,
THE BANKS SIGNATORY HERETO
AND
FLEET BANK, N.A., AS AGENT
LICENSES AND APPROVALS
None
<PAGE> 79
SCHEDULE 3.16
TO LOAN AGREEMENT
BY AND AMONG
OMEGA WORLDWIDE, INC.,
THE BANKS SIGNATORY HERETO
AND
FLEET BANK, N.A., AS AGENT
EMPLOYEE BENEFIT PLANS
None
<PAGE> 80
SCHEDULE 7.1
TO LOAN AGREEMENT
BY AND AMONG
OMEGA WORLDWIDE, INC.,
THE BANKS SIGNATORY HERETO
AND
FLEET BANK, N.A., AS AGENT
PERMITTED INDEBTEDNESS AND GUARANTIES
Deed of Guarantee and Indemnity dated 19 June 1998 in favor of ABN AMRO
Facilities Australia Limited
Mortgage of Deposit dated 19 June 1998 in favor of ABN AMRO Facilities Australia
Limited
Any guaranty by Borrower at any time of any Indebtedness of any direct or
indirect Subsidiary of the Borrower
<PAGE> 81
SCHEDULE 7.2
TO LOAN AGREEMENT
BY AND AMONG
OMEGA WORLDWIDE, INC.,
THE BANKS SIGNATORY HERETO
AND
FLEET BANK, N.A., AS AGENT
PERMITTED SECURITY INTERESTS,
LIENS AND ENCUMBRANCES
Mortgage of Deposit dated 19 June 1998 in favor of ABN AMRO Facilities Australia
Limited
Any mortgage or other lien granted to any Person by any direct or indirect
Subsidiary of the Borrower on any of the Property of such Subsidiary
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS
<TABLE>
<CAPTION>
FOR PERIOD ENDED
SEPTEMBER 30, 1998
------------------
<S> <C>
Net earnings available to common .................................. $ 1,851,000
===========
Average share outstanding ......................................... 12,254,809
Basic net earnings per-share ......................................... $ 0.15
===========
Average shares outstanding ........................................ 12,254,809
Stock option incremental shares ................................... 518
-----------
Average shares outstanding, diluted ............................ 12,255,327
Diluted net earnings per-share ....................................... $ 0.15
===========
Diluted net earnings per share assuming conversion of preferred stock:
Net earnings ...................................................... $ 1,851,000
Preferred stock dividends for the period .......................... $ 104,000
-----------
Net earnings before preferred stock dividend ...................... $ 1,955,000
===========
Average shares outstanding ........................................ 12,254,809
Assume conversion of preferred stock .............................. 260,000
Stock option incremental shares ................................... 518
-----------
Total .......................................................... 12,515,327
===========
Per-share amount (antidilutive) ................................... $ 0.16
===========
</TABLE>
<PAGE> 1
EXHIBIT 12
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
Period Ended
September 30, 1998
------------------
Ratio of earnings to fixed charges 3.73x
For purposes of calculating the ratio of earnings to combined fixed charges and
preferred stock dividends, net earnings has been added to combined fixed charges
and preferred stock dividends, and that sum has been divided by such charges.
Fixed charges consist of imputed interest expense. In April 1998, the Company
issued 260,000 shares of 8% Series B Cumulative Preferred Stock.
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
OMEGA WORLDWIDE, INC.
<TABLE>
<CAPTION>
Jurisdiction of
Names Incorporation
-----
- -------------
<S> <C>
Omega (UK) Limited ........................................................ England
Omega (Australia) Pty. Limited ............................................ Australia
PHF No.1 Pty Limited ...................................................... Australia
PHF No.2 Pty. Limited ..................................................... Australia
Principal Healthcare Finance Pty. Limited ................................. Australia
Principal Healthcare Finance Trust......................................... Australia
Beheer-en Beleggingsmaatschappij Rocla BV.................................. Netherlands
Beheer-en Beleggingsmaatschappij Dilava BV................................. Netherlands
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-02-1998
<PERIOD-END> SEP-30-1998
<CASH> 19,611
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,956
<PP&E> 27,457
<DEPRECIATION> 157
<TOTAL-ASSETS> 88,992
<CURRENT-LIABILITIES> 30,341
<BONDS> 0
0
2,600
<COMMON> 1,226
<OTHER-SE> 52,861
<TOTAL-LIABILITY-AND-EQUITY> 88,992
<SALES> 0
<TOTAL-REVENUES> 5,127
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,666
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,882
<INCOME-TAX> 927
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,851
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
<PAGE> 1
EXHIBIT 99(a)
Report of Independent Auditors
Board of Directors
Principal Healthcare Finance Limited
We have audited the accompanying consolidated balance sheets of Principal
Healthcare Finance Limited and subsidiaries as of August 31, 1998 and 1997, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended August 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Principal
Healthcare Finance Limited and subsidiaries at August 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the three
years in the period ended August 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Chartered Accountants
Jersey, Channel Islands
Date: December 23, 1998
<PAGE> 2
PRINCIPAL HEALTHCARE FINANCE LIMITED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
------------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments in real estate
Real estate properties........................... $ 377,332 $ 274,982
Accumulated depreciation......................... (11,391) (4,294)
--------- ---------
365,941 270,688
Zero coupon investment............................. 28,997 -
Other investments.................................. 7,950 5,474
--------- ---------
402,888 276,162
Cash and short-term investments.................... 5,354 6,188
Accounts receivable................................ 17,233 3,520
Assets held for sale............................... 0 3,041
Cash on deposit as collateral -- restricted........ 17,452 18,056
Notes receivable................................... 8,790 -
Debt issue costs................................... 13,495 -
Cost in excess of tangible assets acquired, net of
$480 of amortization............................... 13,235 14,190
Other assets....................................... 1,094 652
--------- ---------
Total assets....................................... $ 479,541 $ 321,809
========= =========
Liabilities and Shareholders' Equity
LIABILITIES:
Accounts payable and other liabilities........... $ 10,838 $ 5,456
Revolving credit facility........................ 117,625 -
Deferred tax liability........................... 16,653 14,025
Long-term borrowings............................. 287,017 205,581
Loans from Omega (Worldwide in 1998)............. 32,584 83,745
--------- ---------
Total liabilities.................................. 464,717 308,807
Shareholders' equity:
Class A common stock $.016 par value:
Authorized -- 60,000,000 shares
Issued and outstanding-- 10,000,000 shares in 1998
And 4,000,000 in 1997...................... 161 65
Class B common stock $.016 par value:
Authorized -- 17,000,000 shares in 1997
Issued and outstanding -- None in 1998 and
6,000,000 shares in 1997...................... - 96
Additional paid-in capital....................... 14,472 14,472
Retained earnings deficit........................ (243) (1,697)
Foreign currency translation adjustments......... 434 66
--------- ---------
Total shareholders' equity......................... 14,824 13,002
--------- ---------
Total liabilities and shareholders' equity......... $ 479,541 $ 321,809
========= =========
</TABLE>
See accompanying notes.
-1-
<PAGE> 3
PRINCIPAL HEALTHCARE FINANCE LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
1998 1997 1996
---------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Rental income.................................... $ 47,542 $ 16,722 $ 8,248
Mortgage interest income......................... - 103 86
Other investment income.......................... 3,500 187 164
---------- ------------ ---------
51,042 17,012 8,498
Expenses:
Interest......................................... 34,572 12,403 7,421
Provisions for depreciation and amortization..... 7,202 2,959 1,357
General and administrative....................... 4,284 1,652 378
---------- ------------ ---------
46,058 17,014 9,156
Net income (loss) from operations.................. 4,984 (2) (658)
Non-operating income............................... 1,406 - -
---------- ------------ ---------
Net income (loss) before income taxes and
extraordinary charge from prepayment of debt..... 6,390 (2) (658)
Provision for income taxes:
Current.......................................... 184 202
Deferred......................................... 2,099 509 168
---------- ------------ ---------
2,283 711 168
---------- ------------ ---------
Net income (loss) before extraordinary charge for
prepayment of debt............................... 4,107 (713) (826)
Extraordinary charge from prepayment of debt....... (1,985) - -
---------- ------------ ---------
Net income (loss).................................. $ 2,122 $ (713) $ (826)
========== ============ =========
Other comprehensive income, net of taxes:
Foreign currency translation adjustment.......... $ 368 $ 57 $ 0
========== ============ =========
</TABLE>
See accompanying notes.
-2-
<PAGE> 4
PRINCIPAL HEALTHCARE FINANCE LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
CLASS A CLASS B ADDITIONAL RETAINED OTHER
------------------ ------------------ PAID EARNINGS COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT IN CAPITAL (DEFICIT) INCOME
------ ------- ------- ------- ----------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Class A Common
Stock as of June 28,
1995....................... 1,500 $ 24 - $ - $ 1,489 $ - $ -
Foreign currency translation
adjustment.................. 9
Net loss for 1996............. (826)
------ ------- ------ ------- ----------- --------- -------------
Balance at August 31, 1996...... 1,500 24 - - 1,489 (826) 9
Issuance of Class A Common
Stock...................... 2,500 41 3,994
Issuance of Class B Common
Stock...................... 6,000 96 8,989
Dividends paid................ (158)
Foreign currency translation 57
adjustment.................
Net loss for 1997............. (713)
------ ------- ------ ------- ----------- --------- -------------
Balance at August 31, 1997...... 4,000 $ 65 6,000 $ 96 $ 14,472 $ (1,697) $ 66
Dividends paid................ (668)
Recapitalization.............. 6,000 96 (6,000) (96)
Foreign currency translation 368
adjustment..................
Net income for 1998........... 2,122
------ ------- ------ ------- ----------- --------- -------------
Balance at August 31, 1998...... 10,000 $ 161 0 $ 0 $ 14,472 $ (243) $ 434
====== ======= ====== ======= =========== ========= =============
</TABLE>
See accompanying notes.
-3-
<PAGE> 5
PRINCIPAL HEALTHCARE FINANCE LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
---------------------------------
1998 1997 1996
-------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss) before extraordinary
charge from early payment of debt (which
did not involve a cash outlay)............. $ 2,122 $ (713) $ (826)
Adjustments to reconcile net income (loss)
to cash provided by operating activities
Depreciation and amortization.............. 7,202 2,959 1,357
Deferred tax provision..................... 2,099 509 168
Change in operating assets and liabilities
Accounts receivable..................... (14,726) (2,572) (888)
Accounts payable and accruals........... 3,111 2,542 930
Foreign currency translation ................ 201 120 7
-------- --------- -------
Cash provided by operating activities........ 9 2,845 748
INVESTING ACTIVITIES
Acquisition of real estate................... (96,447) (60,716) (91,071)
Proceeds from disposal of real estate........ 2,751 - -
Notes receivable............................. (8,696) - -
Quality Care Homes Plc acquisition........... (54,728) -
Other investments............................ 0 (6,566) (9,851)
Increase in cash on deposit as collateral.... 1,257 1,243 -
Proceeds from disposal of assets held for
sale........................................ 3,017 - -
Other........................................ 999 - -
-------- --------- -------
Cash used in investing activities............ (97,119) (120,767) (100,922)
FINANCING ACTIVITIES
Issuance of common stock..................... - 13,472 2,317
Proceeds from borrowings..................... 256,395 59,958 92,670
Payments of borrowings....................... (121,121) - -
Early extinguishment of debt................. (59,382) - -
Borrowing under revolving credit
facility................................... 116,366 - -
Short-term borrowings from (repayments to
Omega and Worldwide........................ (53,596) 50,875 7,398
Zero coupon investment....................... (27,400) - -
Debt issue costs............................. (14,318) - -
Dividends paid............................... (668) (158) -
Cost of raising capital...................... - (634) (1,614)
-------- --------- -------
Cash provided by financing activities........ 96,276 123,513 100,771
-------- --------- -------
Increase (decrease) in unrestricted cash
and cash equivalents....................... (834) 5,591 597
Unrestricted cash and cash equivalents at
beginning of period....................... 6,188 597 -
-------- --------- -------
Unrestricted cash and cash equivalents at
end of period.............................. $ 5,354 $ 6,188 $ 597
======== ========= =======
</TABLE>
See accompanying notes.
-4-
<PAGE> 6
PRINCIPAL HEALTHCARE FINANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Principal Healthcare Finance Limited (the "Company") was formed and
initially funded in June 1995 by Omega Healthcare Investors, Inc. ("Omega"). In
April 1998, Omega Worldwide, Inc. ("Worldwide") acquired a 33.375% interest in
the Company from Omega. The Company's results of operations and cash flows from
the date of incorporation to August 31, 1995 were not significant and are
combined with the results for the year ended August 31, 1996. The Company is a
Jersey, Channel Islands based company organized to purchase and lease back
nursing homes in the United Kingdom. The Company maintains its records in
British pounds sterling under accounting principles generally acceptable in the
United Kingdom. The accompanying financial statements are based on generally
accepted accounting principles in the United States and are stated in U. S.
dollars.
The consolidated financial statements of the Company include the accounts of
the Company and all wholly owned subsidiaries after elimination of all material
intercompany accounts and transactions.
CASH AND SHORT-TERM INVESTMENTS
Short-term investments consist of highly liquid investments with a maturity
date of three months or less when purchased. These investments are stated at
cost which approximates fair value.
INVESTMENTS IN REAL ESTATE
Investments in real estate properties are recorded at cost. The cost of the
properties acquired is allocated between land and buildings based generally upon
management's valuations and external appraisals. Depreciation for buildings is
recorded on the straight-line basis, using 40 to 50 year estimated useful lives.
The Company provides reserves for potential losses based upon management's
periodic review of its assets and classifies these reserves as reductions to the
related assets.
COST IN EXCESS OF TANGIBLE ASSETS ACQUIRED
The excess of the sum of the purchase cost and the deferred tax liability
recognized over the fair value of real estate and other tangible assets acquired
in connection with the purchase of Quality Care Homes plc is amortized on a
straight-line basis over a 30-year period. Amortization expense was
approximately $452,000 and $22,000 in 1998 and 1997, respectively.
IMPAIRMENT OF ASSETS
Impairment losses related to long lived assets, certain intangible assets
and goodwill related to those assets are recognized when expected future cash
flows are less than the carrying value of the assets. If indicators of
impairment are present, the Company evaluates the carrying value of the related
real estate investments in relationship to the future undiscounted cash flows of
the underlying operations. The Company adjusts the net book value of the leased
assets and other long lived assets to fair value if the sum of the expected
future cash flows is less than book value.
REVENUE RECOGNITION
Rental income is recognized on a straight-line basis over the terms of the
related master leases. Such income includes periodic increases based on
predetermined formulas as defined in the master leases and mortgage loan
agreements.
TRANSLATION
Translation from British pounds sterling has been performed under the
provisions of Financial Accounting Standards Board Statement No. 52 which
provides that balance sheet amounts are translated at the year end exchange rate
and income statement amounts are translated at the average annual rate. There
are no material amounts of exchange gains or losses included in the results of
operations for 1998, 1997 and 1996.
-5-
<PAGE> 7
INCOME TAXES
The Company is subject to UK income tax at a rate of 24% on its net rental
income after deducting related expenses, including interest. The Company's
subsidiary, Principal Healthcare Plc, is a UK resident company and is subject to
UK corporate tax at a rate of 33%.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. REAL ESTATE PROPERTIES
The Company's real estate properties, represented by 166 long-term care
facilities at August 31, 1998, are leased under provisions of master leases with
initial terms of thirty years. However, certain leases may be terminated after
10 or 20 years by exercise of a purchase option by the operator or upon giving
proper notice. Purchase options are generally either at fair market value or at
original purchase price increased by a stipulated annual percentage or by
reference for annual increases in a price index. Substantially all of the master
leases provide for minimum annual rentals which are subject to annual increases
based upon changes in the Retail Price Index in the United Kingdom with certain
minimum and maximum limits (generally 2% and 5%, respectively). There are no
provisions for payment of contingent rentals by tenants. Under the terms of the
leases, the lessee is responsible for all maintenance, repairs, taxes and
insurance on the leased properties. A summary of the Company's investment in
real estate properties is as follows:
<TABLE>
<CAPTION>
AUGUST 31
--------------
(IN THOUSANDS)
1998 1997
-------- ---------
<S> <C> <C>
Buildings........................... $320,732 $ 233,736
Land................................ 56,600 41,246
-------- ---------
377,332 274,982
Less accumulated depreciation....... 11,391 4,294
-------- ---------
Total............................... $365,941 $ 270,688
======== =========
</TABLE>
The following table summarizes the changes in real estate properties and
accumulated depreciation during 1998, 1997 and 1996:
<TABLE>
<CAPTION>
REAL ESTATE ACCUMULATED
PROPERTIES DEPRECIATION
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Balance at June 28, 1995................ $ - $ -
Additions for 1996...................... 92,795 1,357
--------- -------
Balance at August 31, 1996.............. 92,795 1,357
Additions for 1997...................... 182,187 2,937
--------- -------
Balance at August 31, 1997.............. 274,982 4,294
Additions for 1998...................... 97,491 6,824
Disposals for 1998...................... (2,783) (175)
Other, primarily currency adjustments... 7,642 448
--------- -------
Balance at August 31, 1998.............. $ 377,332 $11,391
========= =======
</TABLE>
The future minimum rentals expected to be received at August 31, 1998 for
the remainder of the initial terms of the leases are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
1999......... $ 42,798
2000......... 43,658
2001......... 44,531
2002......... 45,422
2003......... 46,330
Thereafter... 939,849
----------
$1,162,588
==========
</TABLE>
-6-
<PAGE> 8
3. INVESTMENT CONCENTRATIONS
As of August 31, 1998, all of the Company's real estate investments related
to long-term care facilities. The Company's real estate investments are operated
by 11 companies, including Exceler Healthcare Services Limited (24% of amount
invested) and Tamaris Plc (36% of amount invested). The Company's facilities are
located in England (77% of amount invested), Northern Ireland (17% of amount
invested) and Scotland (6% of amount invested). The following is a summary of
the amounts invested and the number of facilities owned at August 31:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------
NUMBER OF NUMBER OF
INVESTMENT FACILITIES INVESTMENT FACILITIES
COUNTY AMOUNT OWNED AMOUNT OWNED
-------------------- ------------- ---------- ------------- -------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Berkshire........... $ 3,780 2 $ 3,648 2
Cambridgeshire...... 1,328 1 1,282 1
Coventry............ - - 2,865 1
Cumbria............. 3,717 1 2,865 1
Derbyshire.......... 6,357 4 3,457 2
Durham.............. 46,693 19 49,977 21
Essex............... 2,470 1 5,471 2
Greater London...... 11,136 3 5,713 2
Greater Manchester.. 4,038 2 3,898 2
Hertfordshire....... 4,096 1 3,954 1
Kent................ 3,136 1 2,228 1
Leicestershire...... 3,349 1 3,233 1
Lincolnshire........ 6,662 3 6,431 3
Merseyside.......... 8,605 3 4,090 2
Norfolk............. 5,052 3 660 1
North Ayrshire...... 7,022 1 6,778 1
North Humberside.... 4,835 1 4,668 1
North Lincolnshire.. 1,170 1 - -
North Yorkshire..... 7,510 4 1,987 2
Northhamptonshire... 2,662 1 3,368 1
Northhumberland..... 8,048 3 5,165 2
Nottinghamshire..... 21,854 12 18,948 11
Oxfordshire......... 6,270 3 6,052 3
South Yorkshire..... 8,594 5 8,128 5
Staffordshire....... 14,508 13 11,800 4
Suffolk............. 10,618 4 10,249 4
Tyne & Wear......... 43,511 18 41,193 18
Warwickshire........ 1,488 1 1,436 1
West Midlands....... 20,920 12 17,530 10
West Yorkshire...... 21,574 6 18,258 5
--------- ----- -------- ---
Total England..... 291,003 130 255,332 111
Antrim.............. 19,253 11 - -
Armagh.............. 11,034 4 - -
Down................ 7,889 2 - -
Fermanagh........... 7,830 4 - -
Londonderry......... 10,132 6 - -
Tyrone.............. 7,398 3 - -
--------- -----
Total Northern
Ireland......... 63,536 30 - -
Dundee City......... 11,035 3 10,652 3
East Lothian........ 8,694 2 6,133 1
Glasgow............. 3,064 1 2,865 1
--------- ----- -------- ---
Total Scotland.... 22,793 6 19,650 5
--------- ----- -------- ---
Total............... $ 377,332 166 $274,982 116
========= ===== ======== ===
</TABLE>
Pursuant to leases the Company's tenants provide liquidity deposits and
letters of credit which generally represent monthly rent for a period of six
months. Additional security from operators is provided by covenants regarding
minimum working capital and net worth, liens on other operating assets of the
operators, provisions for cross default and by corporate guarantees.
Additional security with respect to the lease with Exceler Health Services
Limited is provided in the form of a six-month letter of credit and a six-month
payment guarantee by its ultimate parent, Sun Healthcare Group, Inc. (Sun),
which is a public company and NYSE listed. Sun's payment guarantee is
unconditional and non-cancellable for the term of the lease. Sun files annual,
quarterly and current reports, proxy statements and other information with the
Securities and Exchange Commission.
-7-
<PAGE> 9
The following is condensed financial data pertaining to Tamaris Plc:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
----------------------------
1998 1997
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from:
Operating Activities..$ (14,148) (4,874)
Financing Activities.. 18,507 (9,844)
Investing Activities.. (8,960) 17,893
Net Revenues.......... 59,158 31,172
Net Loss.............. (5,620) (4,999)
<CAPTION>
AS OF MARCH 31
---------------------------
1998 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total Assets..........$ 74,697 $ 22,016
Total Liabilities..... 42,527 15,902
Shareholders' Equity.. 32,170 6,114
</TABLE>
4. NOTES RECEIVABLE
Notes receivable is comprised of the following (IN THOUSANDS):
<TABLE>
<CAPTION>
<S> <C>
Notes receivable from tenant $ 5,998
Notes receivable from sale of stock 2,106
Other 686
-------
$ 8,790
=======
</TABLE>
The notes receivable from tenant and from stock sale relate to transactions
with Baneberry (See Note 11). The Company has a conditional obligation to fund
additional investment of approximately $8,360,000 with Baneberry, which would be
in partial satisfaction of the note receivable from tenant of certain conditions
are met. The advance will provide an interest initial yield of 10.8%.
The estimated fair values of the Company's notes receivable approximates
their face amounts. Face values are based on the estimates of management and on
rates prevailing for comparable loans.
5. BORROWING ARRANGEMENTS
In October 1997, the Company obtained through a wholly owned subsidiary, a
secured revolving credit facility permitting borrowings of approximately
$250,000,000. As of August 31, 1998, $117,625,000 has been drawn on the
facility. The facility matures on October 6, 2000 with each advance bearing
interest at LIBOR plus 2% (9.6% at August 31, 1998). During March of 1998, the
Company entered into an interest rate swap agreement with a maturity of 28
years. The swap agreement mitigates the Company's exposure to interest rate
movements by effectively converting a portion of its revolving credit borrowings
from variable to fixed rates. The net face amount of interest rate swap subject
to fixed rates as of August 31, 1998 was $105 million. This agreement involves
the exchange of fixed rate payments for variable rate payments. Fixed interest
rate payments are at a rate of 6.36%. Variable rate payments are based on
one-month British LIBOR (approximately 7.6%). Interest rate differentials paid
or received under these agreements are recognized over the period as adjustments
to interest expense. Gains and losses on terminated swap agreements are
amortized over the term of the borrowing as adjustments to interest expense. The
Company does not hold or issue interest rate swap agreements for trading
purposes. Subsequent to August 31, the Company paid approximately $17 million
associated with deferred cost to settle the hedge upon completion of permanent
financing in 1999.
The loans payable to Worldwide at August 31, 1998 consist of a short-term
loan of $7,504,000 which bears interest at 9.25%, and a $25,080,000 subordinated
loan which bears interest at 12.18% and matures in December 31, 2000. The
estimated fair value of the subordinated loan at August 31, 1998 is $26,928,000.
The carrying value of the short-term loan approximates its fair value. In
connection with the subordinated loan, the Company provided warrants to acquire
10,000,000 shares of stock at (pound)1.50 (approximately $2.50) per share. These
warrants expire June 30, 2001. At August 31, 1997, the subordinated loan was
payable to Omega and temporary loans outstanding bearing interest at 9.25%
totaled $59,537,000. These temporary loans were repaid in October from the
initial draw under the secured revolving credit facility.
-8-
<PAGE> 10
\ The following is a summary of other long-term borrowings all of which are
sterling denominated:
<TABLE>
<CAPTION>
AUGUST 31
----------------------
1998 1997
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Mortgage bonds.............. $250,800 $ -
Secured bank loan........... 16,730 64,556
Commercial mortgages........ - 34,588
Acquisition finance loan.... - 55,245
Loan notes and guarantees... - 18,087
Collateralized bank term
loan...................... 11,127 18,181
Overdrafts.................. - 6,854
Subordinated loan........... 8,360 8,070
-------- --------
$287,017 $205,581
======== ========
</TABLE>
Substantially all of the real estate properties are collateralized by
commercial mortgages and bank loans.
On December 12, 1997, the Company completed a $250,800,000
((pound)150,000,000) mortgage bond placement issued in two series. The first
series of bonds with a balance of $167,200,000 ((pound)100,000,000) have a final
maturity in 2025. The second series matures in 2027. The proceeds were primarily
used to repay certain outstanding borrowings totalling $190,000,000 at the date
of the offering. The bonds have a weighted average coupon of 7.52%
The secured bank loan matures on August 25, 2000 and bears interest to
maturity at rates fixed at the time each tranche of the loan was drawn down. The
average rate fixed on funds drawn down as at August 31, 1998 and 1997 was 8.7%
and 8.9%, respectively.
The collateralized bank term loan is secured by restricted cash of
$17,452,000, bears interest at 7.5% and matures on October 1, 2001.
The subordinated loan is due for repayment on December 31, 2000 and bears
interest over the remaining term of the loans at rates ranging from 12.1% to
12.9%. In connection with the loans, the Company provided warrants to acquire
3,333,333 shares of stock at (pound)1.50. These warrants expire June 30, 2001.
The carrying amount and the estimated fair value of the loan at August 31, 1998
are $8,360,000 and $8,976,000, respectively.
The borrowings from commercial mortgages, the acquisition finance loan and the
loan notes and guarantees were all repaid during the year from proceeds from the
secured revolving credit facility. The interest on the commercial mortgages had
varying interest rates ranging from 6.18% to 8.5%. The interest rate on the
acquisition finance loan was 1% per annum over LIBOR. The interest rate on the
loan notes and guarantees was 6.5% per annum.
The principal payments for each of the five years following August 31, 1998
is set forth below (IN THOUSANDS):
<TABLE>
<CAPTION>
<S> <C> <C>
1999......... $ 4,182
2000......... 21,275
2001......... 13,639
2002......... 1,304
2003......... -
Thereafter... 250,799
---------
$ 291,199
=========
</TABLE>
Interest expense during 1998, 1997 and 1996 was approximately $34,572,000,
$12,403,000 and $7,421,000, respectively.
The estimated fair value of the Company's long-term borrowings at August 31,
1997 approximates their face amounts. The aggregate carrying value and fair
value of borrowings at August 31, 1998 were $441,407,000 and $443,871,000,
respectively. Fair values are based on the estimates of management and on rates
currently prevailing for comparable loans.
6. PURCHASE OF QUALITY CARE HOMES PLC NURSING HOME FACILITIES
On June 30, 1997 the Company acquired all of the nursing home facilities of
Quality Care Homes plc through the purchase of all of its outstanding common
stock. The purchase price for net assets totaled $73,818,000, and it was funded
by acquisition financing of $55,245,000, the issue of loan notes for $18,087,000
and cash. As a result of the expected disposal of the assets of the nursing home
business, the Company effectively acquired only the nursing home facilities of
Quality Care Homes, the predecessor operator of the facilities. The assets which
were being held for sale during 1998 (started at the lower of carrying amount or
fair value) were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Land and buildings............. $ 4,524
Receivables and inventory.. ... 3,224
Cash........................... 23
Accounts payable and accruals.. (4,730)
-------
Assets held for resale......... $ 3,041
=======
</TABLE>
-9-
<PAGE> 11
During 1998, these assets were sold, realizing net proceeds equal to the
net carrying amount. No gain or loss was recognized from the sale. The disposal
of these assets involved a concurrent execution of long-term triple-net
operating leases with the purchaser. The assets acquired and liabilities assumed
recorded at their estimated fair values follow (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Investment properties................. $ 121,180
Accounts receivable and inventory..... 3,309
Cost in excess of tangible assets
acquired.............................. 22,231
Cash (primarily restricted deposits).. 20,061
Bank borrowings....................... (23,826)
Mortgages............................. (36,140)
Deferred income tax liability......... (13,811)
Accounts payable...................... (8,474)
Other-- net........................... (548)
---------
Net assets acquired................... $ 83,982
=========
</TABLE>
7. CAPITAL STOCK
At a special meeting held January 15, 1998, the shareholders approved a
recapitalization under which the distinction of Class B nonvoting stock was
eliminated.
The Company has issued warrants to subscribe for additional shares as follows:
<TABLE>
<CAPTION>
NUMBER EXERCISE
OF SHARES PRICE EXPIRATION DATE
---------- ----------- -----------------
<S> <C> <C> <C>
Class A shares........... 1,666,666 (Pound)1.00 December 31, 2000
Class A shares........... 750,000 (Pound)1.10 December 31, 2000
Class A shares........... 13,333,333 (Pound)1.50 June 30, 2001
</TABLE>
As to the warrants which expire in December, 2000, no value was assigned at
the date of issuance because the underlying securities were issued at their fair
value at that date. As to the warrants which expire in June, 2001, the Company
believes that the coupon rate for the subordinated debt was the prevailing
market rate on the date of the loan, and therefore the face amount of the
subordinated loans approximated its fair value on the date of issuance. In
addition, the exercise price on these warrants significantly exceeded the fair
value of the stock on the date of issuance since the warrants enabled the
purchase of shares at (Pound)1.50, while the current value of the shares at that
time was approximately (Pound)1.00. Based on these factors at the date of the
borrowing, no value was ascribed to the warrants when they were issued.
8. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31
-------------------------------
1998 1997 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
UK income tax on net rental income.. $ 184 $ 266 $ -
UK corporation tax credit........... - (64) -
------- -------- --------
184 202 -
Deferred............................ 2,099 509 168
------- -------- --------
$ 2,283 $ 711 $ 168
======= ======== ========
</TABLE>
The effective tax rate differs from the UK income tax rate primarily due to
depreciation and amortization expense which is not deductible for tax purposes
in the UK.
The primary components of the Company's deferred tax liability are as
follows:
<TABLE>
<CAPTION>
AUGUST 31
1998 1997
---- ----
(IN THOUSANDS)
Deferred tax liability
<S> <C> <C>
Accounts receivable.. $ 2,663 $ 522
Real estate.......... 13,811 13,331
Other................ 179 172
-------- -------
$ 16,653 $14,025
======== =======
</TABLE>
-10-
<PAGE> 12
9. RELATED PARTY TRANSACTIONS
The Company has an agreement with Worldwide under which Worldwide provides
investment advice, portfolio monitoring, administration and advisory services to
the Company. The agreement was formerly with Omega before Worldwide's
acquisition of an interest in Principal. The Company pays an annual fee of 0.9%
of the Company's invested assets (as defined) to Worldwide. The Company paid
approximately $3,295,000 and $1,341,000 during 1998 and 1997, respectively.
On February 26, 1998, a purchase/leaseback transaction with County
Healthcare Limited, a company in which a director of the Company has an
ownership interest, was completed at a purchase price of approximately
$4,370,000. The lease has a term of thirty years and an initial yield of 10.75%.
A loan of approximately $300,000 to County Healthcare (P2) Limited was closed on
the same date. The loan is due 1 April 2002 and bears interest at 10.75%. The
transaction was approved unanimously by the disinterested directors.
10. LOSS ON EARLY EXTINGUISHMENT OF DEBT
In November, 1997 the Company borrowed $56,000,000 under its secured
revolving credit facility to repay a portion of the $64,000,000 due under the
secured bank loan agreement (see Note 5). As a result of the repayment of the
bank loan, the Company paid prepayment fees and related expenses of
approximately $1,985,000 and recorded such amount as an extraordinary charge
from prepayment of debt.
11. NON-OPERATING INCOME
In July 1998, Principal sold its entire ownership interest in Baneberry
Healthcare Limited (Baneberry) which it acquired as part of Baneberry's
formation in November 1997. The Company realized sale proceeds of approximately
$4,000,000, resulting in a gain of approximately $1,900,000, which is included
in non-operating income. Of the ownership interest sold, 19.9% was sold to
Worldwide, and included in non-operating income is approximately $500,000
related to the Worldwide sale.
<PAGE> 1
EXHIBIT 99(b)
TAMARIS PLC
FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED
31 MARCH 1998 AND 1997
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
TAMARIS PLC
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TAMARIS PLC ("THE COMPANY") AND
ITS SUBSIDIARIES ("THE GROUP")
We have audited the accompanying consolidated balance sheets of Tamaris PLC and
its subsidiaries as at 31 March 1998 and 1997 and the related consolidated
profit and loss accounts and consolidated cashflow statements for the two years
ended 31 March 1998
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Company Directors are responsible for the preparation of financial
statements. It is our responsibility to form an independent opinion, based on
our audit, on those statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audits in accordance with Auditing Standards generally accepted
in the United Kingdom and the United States. An audit includes examination, on a
test basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and
judgements made by the Directors in the preparation of the financial statements,
and of whether the accounting policies are appropriate to the circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of the affairs of the Company and the Group as at 31 March 1998 and 1997 and of
the profit of the Group for the two years then ended and have been properly
prepared in accordance with accounting principles generally accepted in the
United Kingdom and the Companies Act 1985.
United Kingdom accounting standards vary in certain important respects from
accounting principles generally accepted in the United States. The application
of the latter would have affected the determination of consolidated net profit
for the two years ended 31 March 1998 and the determination of consolidated
shareholders' equity and consolidated financial position as at 31 March 1998 and
1997 to the extent summarised in note 35 to the consolidated financial
statements.
GRANT THORNTON
REGISTERED AUDITORS
CHARTERED ACCOUNTANTS
LONDON
29 JULY 1998 (EXCEPT FOR NOTE 35 AS TO WHICH
THE DATE IS 23 DECEMBER 1998)
<PAGE> 3
TAMARIS PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 1998
<TABLE>
<CAPTION>
NOTES 1998 1997
(Pound)'000 (Pound)'000
<S> <C> <C> <C>
TURNOVER 2
Continuing operations 29,952 19,124
Acquisitions 6,341 -
---------- ---------
36,293 19,124
Staff costs 5 (19,649) (10,995)
Depreciation (437) (332)
Other operating charges (13,700) (6,474)
---------- ---------
OPERATING PROFIT 3
Continuing operations 1,535 1,323
Acquisitions 972 -
---------- ---------
2,507 1,323
Profit on sale of fixed assets 4 - 1,622
---------- ---------
2,507 2,945
Net interest 7 (436) (293)
---------- ---------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 2 2,071 2,652
Taxation 8 (631) (359)
---------- ---------
PROFIT FOR THE FINANCIAL YEAR 9 1,440 2,293
Dividends 10 (962) (480)
---------- ---------
PROFIT TRANSFERRED TO RESERVES 22 478 1,813
========== =========
EARNINGS PER ORDINARY SHARE 11 0.19p 0.46p
========== =========
</TABLE>
There were no recognised gains or losses other than the profit for the financial
year.
The accompanying accounting policies and notes form an integral part of these
financial statements.
<PAGE> 4
TAMARIS PLC
NOTE OF HISTORICAL COST PROFITS AND LOSSES
FOR THE YEAR ENDED 31 MARCH 1998
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________________
1998 1997
Pound '000 Pound '000
<S> <C> <C>
Profit on ordinary activities before taxation 2,071 2,652
Realisation of revaluation gains of previous year - 472
Difference between historical cost depreciation charge and depreciation charge
based on revalued amounts - 8
---------- ---------
Historical cost profit on ordinary activities before taxation 2,071 3,132
========== =========
Historical cost profit transferred to reserves 478 2,293
========== =========
</TABLE>
<PAGE> 5
TAMARIS PLC
CONSOLIDATED BALANCE SHEET AT 31 MARCH 1998
<TABLE>
<CAPTION>
______________________________________________________________________________________________________________
NOTES 1998 1997
Pound'000 Pound'000
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets 12 26,671 7,995
Investments 13 208 427
--------- ---------
26,879 8,422
--------- ----------
CURRENT ASSETS
Debtors: amounts falling due after more than one year 15 8,639 852
Debtors 14 11,396 4,167
Cash at bank and on deposit 19e 3,800 4,701
--------- ---------
23,835 9,720
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 16 (15,901) (4,915)
--------- ---------
NET CURRENT ASSETS 7,934 4,805
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES 34,813 13,227
CREDITORS: AMOUNTS FALLING DUE AFTER
MORE THAN ONE YEAR 17 (10,189) (4,116)
--------- ---------
NET ASSETS 24,624 9,111
========= =========
CAPITAL AND RESERVES
Called up share capital 21 7,053 1,333
Share premium account 22 14,410 4,582
Other reserve 22 202 715
Profit and loss account 22 2,959 2,481
--------- ---------
SHAREHOLDERS' FUNDS 23 24,624 9,111
========= =========
EQUITY SHAREHOLDERS' FUNDS 20,124 9,111
NON-EQUITY SHAREHOLDERS' FUNDS 4,500 -
--------- ---------
24,624 9,111
========= =========
</TABLE>
The accompanying accounting policies and notes form an integral part of these
financial statements.
<PAGE> 6
TAMARIS PLC
COMPANY BALANCE SHEET AT 31 MARCH 1998
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________________
NOTES 1998 1997
Pound'000 Pound'000
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets 12 544 476
Investments 13 7,217 4,675
--------- ---------
7,761 5,151
--------- ---------
CURRENT ASSETS
Debtors: amounts falling due after more than one year 15 1,000 -
Debtors 14 19,029 2,506
Cash at bank and on deposit 131 1,441
--------- ---------
20,160 3,947
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 16 (3,335) (1,167)
--------- ---------
NET CURRENT ASSETS 16,825 2,780
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES 24,586 7,931
CREDITORS: AMOUNTS FALLING DUE AFTER
MORE THAN ONE YEAR 17 (37) (74)
--------- ---------
NET ASSETS 24,549 7,857
========= =========
CAPITAL AND RESERVES
Called up share capital 21 7,053 1,333
Share premium account 22 14,410 4,582
Merger reserve 22 2,833 1,742
Profit and loss account 22 253 200
--------- ---------
SHAREHOLDERS' FUNDS 23 24,549 7,857
========= =========
EQUITY SHAREHOLDERS' FUNDS 20,049 7,857
NON-EQUITY SHAREHOLDERS' FUNDS 4,500 -
--------- ---------
24,549 7,857
========= =========
</TABLE>
The accompanying accounting policies and notes form an integral part of these
financial statements.
<PAGE> 7
TAMARIS PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 1998
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________________
NOTES 1998 1997
(Pound )'000 (Pound)'000
<S> <C> <C> <C>
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES 25 (3,476) 1,782
========= =========
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid (634) (750)
Interest element of hire purchase agreements (24) (12)
Interest received 222 469
--------- ---------
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF FINANCE (436) (293)
--------- ---------
TAXATION
Tax (paid)/recovered (40) 52
--------- ---------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire tangible fixed assets (2,388) (1,301)
Loan to Tamaris International Limited (3,600) -
Purchase of investments (729) (325)
Receipts from sales of tangible fixed assets (net of expenses) - 13,714
Receipts from disposal of investment 198 -
--------- ---------
NET CASH (OUTFLOW)/INFLOW FROM CAPITAL EXPENDITURE
AND FINANCIAL INVESTMENT (6,519) 12,088
--------- ---------
ACQUISITIONS AND DISPOSALS 28
Purchase of subsidiary undertaking - (1,054)
Net cash taken over on purchase of subsidiary undertaking 273 -
Purchase of care home businesses (net of sale receipts) 1,431 (4,588)
Purchase of commercial property portfolio (5,410) -
--------- ---------
NET CASH OUTFLOW FROM ACQUISITIONS AND DISPOSALS (3,706) (5,642)
--------- ---------
EQUITY DIVIDENDS PAID (560) (374)
--------- ---------
MANAGEMENT OF LIQUID RESOURCES
Deposits 19e - (2,830)
--------- ---------
FINANCING
Capital element of hire purchase agreements (98) (57)
Receipts from borrowing 8,745 1,000
Repayment of borrowing (773) (4,480)
Issue of ordinary share capital 4,666 801
Share issue expenses (626) (99)
--------- ---------
NET CASH INFLOW/(OUTFLOW) FROM FINANCING 11,914 (2,835)
--------- ---------
(DECREASE)/INCREASE IN CASH 26 (2,823) 1,948
========= =========
</TABLE>
The accompanying accounting policies and notes form an integral part of theses
financial statements.
<PAGE> 8
TAMARIS PLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
1 ACCOUNTING POLICIES
a) ACCOUNTING CONVENTION
The financial statements are prepared under the historical cost convention,
except for investment properties.
b) ACCOUNTING STANDARDS
The financial statements have been prepared in accordance with applicable
accounting standards. The principal accounting policies of the Group have
remained unchanged from the previous year and are set out below.
c) BASIS OF CONSOLIDATION
The Group financial statements consolidate the financial statements of the
Company and its subsidiary undertakings (see note 13). The results of subsidiary
undertakings acquired during the year are included from the date of acquisition.
On acquisition of a subsidiary, all of the subsidiary's assets and liabilities
which exist at the date of acquisition are recorded at their fair values
reflecting their condition at that date.
The Company takes advantage of merger relief offered by Section 131 of the
Companies Act 1985 in respect of the consideration received in excess of the
nominal value of the equity shares issued in connection with the acquisition of
Caledonian Care Limited.
The Company has taken advantage of the exemption permitted by Section 230 of the
Companies Act 1985 and has not published its own profit and loss account in
these financial statements.
d) ASSOCIATED UNDERTAKINGS
When appropriate, undertakings, other than subsidiary undertakings in which the
Group has a long-term investment representing at least 20% of the voting rights
and over which it exerts significant influence, are treated as associated
undertakings. The Group's share of the profits less losses are included in the
Group profit and loss account.
The Group balance sheet includes the investment in the associated undertaking at
the Group's share of net assets. The Company balance sheet shows the investment
in the associated undertaking at cost.
e) INVESTMENTS
Investments are included at cost.
f) TANGIBLE FIXED ASSETS
Fixed assets are included at cost less depreciation.
The Group capitalises, as short leasehold interests, the costs associated with
the acquisition of the operating leases of the care home businesses that
comprise the continuing ordinary activities of the Group.
<PAGE> 9
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
g) DEPRECIATION
Depreciation is provided on the cost or valuation of tangible fixed assets less
estimated residual values over their estimated useful lives at the following
annual rates:
<TABLE>
<S> <C>
Freehold properties 50 years
Short leasehold interests period of lease
Plant and equipment 5% on net book value
Furniture and fittings 15% on net book value
Office equipment 10% on net book value
Motor vehicles 25% on cost
</TABLE>
h) INVESTMENT PROPERTIES
In accordance with Statement of Standard Accounting Practice No 19, certain of
the Group's properties are held for long-term investment and are included in the
balance sheet at their open market values. The surpluses or deficits on
revaluation of such properties are transferred to the investment property
revaluation reserve. Depreciation is not provided in respect of freehold
investment properties. Leasehold investment properties are not amortised where
the unexpired term is over twenty years.
This policy represents a departure from statutory accounting principles, which
require depreciation to be provided on all fixed assets. The Directors consider
that this policy is necessary in order that the financial statements may give a
true and fair view, because current values and changes in current values are of
prime importance rather than the calculation of systematic annual depreciation.
Depreciation is only one of many factors reflected in the valuation and the
amount which might otherwise have been shown cannot be separately identified or
quantified.
i) HIRE PURCHASE AND LEASING CONTRACTS
Assets held under finance lease and hire purchase contracts are capitalised in
the balance sheet and depreciated over their useful lives. The interest element
of leasing payments represents a constant proportion of the capital balance
outstanding and is charged to the profit and loss account over the period of the
agreement.
All other leases are regarded as operating leases and the payments made under
them are charged to the profit and loss account on a straight line basis over
the lease term.
j) GOODWILL
When a subsidiary company or business is acquired, the difference at the date of
acquisition between the fair value of tangible assets and liabilities acquired
and the consideration is written off directly to reserves.
For all future accounting periods, purchased goodwill and goodwill arising on
acquisition will be capitalised and amortised on a straight line basis over its
estimated useful economic life, following the implementation of Financial
Reporting Standard No 10.
<PAGE> 10
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
_______________________________________________________________________________
k) DEFERRED TAXATION
Deferred taxation is provided to take account of timing differences between the
treatment of certain items for accounts purposes and for taxation purposes, only
to the extent it is probable that a liability or asset will crystallise in the
foreseeable future. Unprovided deferred tax is disclosed as a contingent
liability.
Debit balances arising in respect of advance corporation tax on dividends
payable or proposed are carried forward to the extent that they are expected to
be recoverable.
l) PENSION COSTS
No Group or Company pension scheme exists. Where payments to an employee's own
pension scheme have been agreed the cost is charged to the profit and loss
account when incurred.
m) TURNOVER
Turnover represents the amount receivable for services provided.
<PAGE> 11
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
2 TURNOVER AND PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
The Group's turnover and results before taxation are principally attributable to
one activity, the provision and management of long-term facilities for the
elderly and for the physically and mentally disabled.
However, during the year, the Group acquired a portfolio of commercial property.
Segmental information in respect of these activities is set out in the table
below.
Turnover arises solely from activities within the United Kingdom.
The amounts shown for continuing operations include the following in respect of
acquisitions:
<TABLE>
<CAPTION>
1998
Pound'000
<S> <C>
Staff costs 2,924
Depreciation 27
Other operating charges 2,418
---------
5,369
=========
</TABLE>
SEGMENTAL INFORMATION
<TABLE>
<CAPTION>
TURNOVER PROFIT BEFORE TAX NET ASSETS
1998 1997 1998 1997 1998 1997
Pound'000 Pound'000 Pound'000 Pound'000 Pound'000 Pound'000
<S> <C> <C> <C> <C> <C> <C>
Care Homes
- - continuing operations 29,952 19,124 1,396 2,652 23,820 9,111
- - acquisitions 5,755 - 471 - 663 -
Commercial property
- - acquisitions 586 - 204 - 141 -
--------- --------- ------------ --------- ---------- ---------
36,293 19,124 2,071 2,652 24,624 9,111
========= ========= ============ ========= ========== =========
</TABLE>
<PAGE> 12
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
3 OPERATING PROFIT
Operating profit is stated after charging:
<TABLE>
<CAPTION>
1998 1997
Pound'000 Pound'000
<S> <C> <C>
Auditors' remuneration :
Audit services 94 50
Non audit services 139 152
Less amounts capitalised on acquisitions (99) (98)
Operating lease rentals: land and buildings 7,920 3,056
========= =========
</TABLE>
4 PROFIT ON SALE OF FIXED ASSETS
<TABLE>
<S> <C> <C>
1998 1997
Pound'000 Pound'000
Profit on sale of fixed assets in continuing operations - 1,622
========= =========
</TABLE>
Immaterial profits on the sale of fixed assets which comprise part of ordinary
activities are included within the operating profit of the Group.
5 STAFF COSTS
<TABLE>
<CAPTION>
1998 1997
Pound'000 Pound'000
<S> <C> <C>
Employee costs including Directors' emoluments during the year were:
Salaries and wages 18,536 10,375
Social security costs 1,078 578
Pension costs 35 42
--------- ---------
19,649 10,995
========= =========
</TABLE>
<TABLE>
<CAPTION>
NUMBER NUMBER
<S> <C> <C>
The average numbers of staff employed during the year were:
Management and administration 208 72
Nursing and ancillary services 2,413 1,431
-------- -------
2,621 1,503
======== =======
</TABLE>
<PAGE> 13
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
6 DIRECTORS' EMOLUMENTS
The information given in this note also constitutes part of the Report of the
Remuneration Committee.
<TABLE>
<CAPTION>
SALARY,
BENEFITS ANNUAL TOTAL PENSION
AND FEES BONUS CONTRIBUTIONS
1998 1997 1998 1997
Pound'000 Pound'000 Pound'000 Pound'000 Pound'000 Pound'000
<S> <C> <C> <C> <C> <C> <C>
EXECUTIVE DIRECTORS
W Fitch 40 - 40 283 - -
B A Maxwell- highest paid 93 - 93 173 21 33
G Willis 77 15 92 - 5 -
NON-EXECUTIVE DIRECTORS - FEES
B McFadzean 25 - 25 25 - -
R Pears 25 - 25 25 - -
--------- --------- --------- --------- ------------ ---------
260 15 275 506 26 33
========= ========= ========= ========= ============ =========
</TABLE>
The salary for Barbara-Ann Maxwell includes benefits in kind valued at
(Pound)5,000 (1997 - (Pound)8,000) in respect of company car, insurance,
permanent health insurance and personal accident and life cover. Her pension
contributions, which are to a money purchase scheme, includes (Pound)nil (1997 -
(Pound)20,000) from bonus allocation.
The salary for Graeme Willis includes benefits in kind valued at (Pound)8,000
(1997 - (Pound)nil) in respect of company car. His pension contributions are
to a money purchase scheme.
<TABLE>
<CAPTION>
NO OF DATE OF DATE OF EXERCISE
SHARE OPTIONS SHARES GRANT EXERCISE PRICE P/SHARE
<S> <C> <C> <C> <C>
William Fitch 3,536,570 9.9.93 10.9.95 to 2
9.9.98
Barbara-Ann Maxwell 3,536,570 9.9.93 10.9.96 to 2.25
9.9.03
Graeme Willis (granted as an employee) 125,000 23.6.95 26.4.98 to 2
23.6.05
</TABLE>
Further information regarding options is given at notes 21(i) and 21(ii).
The market price of the shares at the year end was 2.25p per share (1997 - 3.0p)
and the market price fluctuated from 2.0p per share to 3.5p per share during the
year (1997 - 2.25p to 3.25p).
<PAGE> 14
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
DIRECTORS' EMOLUMENTS (CONTINUED)
In respect of the Directors, no options were granted, exercised or lapsed during
the year, except for the exercise by CAP Investments Limited (a company
controlled by Barry McFadzean) which exercised its option over 3,536,570 shares
on 11 June 1997, at which time the market price of the shares was 2.75p each,
realising a gain of (Pound)26,524. The aggregate gain to the Company, in terms
of share premium, was (Pound)61,890.
Since the year end the following share options were granted to the Directors on
17 June 1998 under the terms of the 1997 Executive Share Option Scheme in
respect of ordinary shares of 0.25p each.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
<S> <C>
Barbara-Ann Maxwell 4,000,000
Graeme Willis 2,500,000
----------
6,500,000
==========
</TABLE>
The shares are exercisable between 18 June 2001 and 17 June 2008 and the
exercise price per share is 2p.
BONUS SCHEME
Under a bonus scheme introduced with effect from 1 April 1996, the remuneration
committee initiated a bonus pool from which William Fitch and Company would
receive five parts and Barbara-Ann Maxwell would receive three parts, paid as
follows: (1) an on account payment, representing 50% of the anticipated annual
bonus, would be made on publication of the interim results; and (2) the balance
immediately after the publication of the audited accounts. The pool is to be
funded by reference to a sliding scale based on the increase in the earnings per
share of the Company in any year, adjusted by the increase in RPI in the
previous calendar year. There is a cap on the pool of (Pound)300,000. In
addition the pool will receive (Pound)20,000 if the Price to Earnings ratio of
the Company at the end of the second working day following publication of its
annual results is more than 110% of the average of the Price to Earnings ratio
of the five to ten most comparable quoted companies in the opinion of the
Company's brokers. Conversely if the Price to Earnings ratio is less than 90%
(Pound)20,000 will be withdrawn from the bonus pool.
Graeme Willis is eligible for an annual bonus , the level of which is determined
at the discretion of the Remuneration Committee.
<PAGE> 15
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
7 NET INTEREST
<TABLE>
<CAPTION>
1998 1997
Pound'000 Pound'000
<S> <C> <C>
Interest payable:
On bank loans and overdrafts 359 587
Hire purchase interest 24 12
Other loan interest 275 163
--------- ---------
658 762
Interest receivable (222) (469)
--------- ---------
Net interest payable 436 293
========= =========
</TABLE>
8 TAXATION ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1998 1997
Pound'000 Pound'000
<S> <C> <C>
The tax charge is based on the profit for the year and represents:
Corporation tax at 31% (1997 - 33%) 631 359
========= =========
</TABLE>
The taxation charge for 1997 was reduced by rollover relief on property gains,
accelerated capital allowances, loss relief and other timing differences.
9 PROFIT FOR THE FINANCIAL YEAR
The Group profit for the year includes (Pound)1,015,000 (1997 - (Pound)499,000)
which is dealt with in the financial statements of the Company.
<PAGE> 16
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
10 DIVIDENDS
<TABLE>
<CAPTION>
1998 1997
Pound'000 Pound'000
<S> <C> <C>
EQUITY DIVIDENDS
Ordinary shares
Interim dividend of 0.02584p per share paid 201 121
12 February 1998 (1997 - 0.024610p)
Proposed final dividend of 0.06229p per share (1997 - 0.05663p) 704 359
--------- ---------
905 480
NON-EQUITY DIVIDENDS
Preference dividend of 7.2p per share 57 -
--------- ---------
962 480
========= =========
</TABLE>
The proposed final dividend will be payable on 16 September 1998, on the
qualifying ordinary shares in issue on 26 June 1998. The dividend on the
preference shares will be payable on 30 September 1998.
11 EARNINGS PER ORDINARY SHARE
The calculation of the earnings per share is based on the profits after taxation
and preference dividends of (Pound)1,383,000 (1997 - (Pound)2,293,000) and the
weighted average of 727,659,727 ordinary shares (1997 - 501,068,052 ordinary
shares) in issue during the year. The fully diluted earnings per share is not
materially different to the basic calculation.
<PAGE> 17
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
12 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FREEHOLD SHORT PLANT
LAND AND INVESTMENT LEASEHOLD FIXTURES MOTOR
BUILDINGS PROPERTIES INTERESTS AND FITTINGS VEHICLES TOTAL
Pound'000 Pound'000 Pound'000 Pound'000 Pound'000 Pound'000
<S> <C> <C> <C> <C> <C> <C>
GROUP
Cost or valuation
At 1 April 1997 1,186 - 5,699 1,402 182 8,469
Additions 499 - 1,126 907 316 2,848
Acquisitions 2,691 9,458 3,887 194 51 16,281
Disposals - - - - (23) (23)
--------- ---------- --------- ------------ --------- ---------
At 31 March 1998 4,376 9,458 10,712 2,503 526 27,575
--------- ---------- --------- ------------ --------- ---------
Depreciation
At 1 April 1997 24 - 77 327 46 474
Provided in year 31 - 285 71 50 437
Disposals - - - - (7) (7)
--------- ---------- --------- ------------ --------- ---------
At 31 March 1998 55 - 362 398 89 904
--------- ---------- --------- ------------ --------- ---------
Net book value at
31 March 1998 4,321 9,458 10,350 2,105 437 26,671
--------- ---------- --------- ------------ --------- ---------
Net book value at
31 March 1997 1,162 - 5,622 1,075 136 7,995
========= ========== ========= ============ ========= =========
</TABLE>
<PAGE> 18
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
TANGIBLE FIXED ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FREEHOLD PLANT
LAND AND FIXTURES AND MOTOR
BUILDINGS FITTINGS VEHICLES TOTAL
Pound'000 Pound'000 Pound'000 Pound'000
<S> <C> <C> <C>
COMPANY
Cost
At 1 April 1997 - 531 153 684
Additions 103 32 - 135
Disposals - - (23) (23)
--------- ------------ -------- ------
At 31 March 1998 103 563 130 796
--------- ------------ -------- ------
Depreciation
At 1 April 1997 - 170 38 208
Provided in year - 22 29 51
Disposals - - (7) (7)
--------- ------------ -------- ------
At 31 March 1998 - 192 60 252
--------- ------------ -------- ------
Net book value at
31 March 1998 103 371 70 544
========= ============ ======== ======
Net book value at
31 March 1997 - 361 115 476
========= ============ ======== ======
</TABLE>
<PAGE> 19
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
TANGIBLE FIXED ASSETS (CONTINUED)
The figures stated above include assets held under hire purchase agreements, as
follows.
<TABLE>
<CAPTION>
THE GROUP THE COMPANY
PLANT, MOTOR PLANT, FIXTURES MOTOR
FIXTURES VEHICLES AND FITTINGS VEHICLES
AND FITTINGS Pound'000 Pound'000 Pound'000
Pound'000
<S> <C> <C> <C> <C>
Net book amount at 31 March 1998 202 223 101 47
============ ======== ============ ========
Net book amount at 31 March 1997 160 69 112 57
============ ======== ============ ========
Depreciation provided in the year 21 33 11 10
============ ======== ============ ========
</TABLE>
The Directors consider that the market value of investment properties at the
year-end is not significantly different to cost.
13 FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
GROUP COST ADDITIONS DISPOSALS COST
1997 1998
Pound'000 Pound'000 Pound'000 Pound'000
<S> <C> <C> <C> <C>
Own shares held through Tamerise Limited 102 - - 102
Other participating interests - 106 - 106
Other investment (unlisted) 325 - (325) -
------- ------ -------- ------
427 106 (325) 208
======= ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
COMPANY COST ADDITIONS DISPOSALS COST
1997 1998
Pound'000 Pound'000 Pound'000 Pound'000
<S> <C> <C> <C> <C>
Shares in subsidiaries 4,248 2,761 - 7,009
Own shares held through Tamerise Limited 102 - - 102
Other participating interests - 106 - 106
Other investment (unlisted) 325 - (325) -
------- ------ -------- ------
4,675 2,867 (325) 7,217
======= ====== ======== ======
</TABLE>
<PAGE> 20
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
FIXED ASSETS INVESTMENTS (CONTINUED)
TAMERISE LIMITED
Tamerise Limited was incorporated in January 1991 and became the trustee of The
Tamaris Employees Share Option Scheme Trust ("the Trust") in the following
month. It is a wholly owned subsidiary of Tamaris plc but no Director of Tamaris
is a Director of Tamerise. Under the terms of the Trust, Tamerise may acquire
ordinary shares in Tamaris from time to time, either in the market, or by
subscription. Benefits may be conferred on selected employees of Tamaris and/or
its subsidiaries (both current and future subsidiaries) at the discretion of the
trustee by methods including a direct bonus payment in cash or in shares with no
payment required from the employee, a direct transfer of shares with payment of
all or part required by the employee or the transfer of shares to an employee
who exercises an option under Tamaris' existing share option schemes.
Tamerise Limited has bought the following Tamaris shares.
<TABLE>
<CAPTION>
Pound
<S> <C>
Year ended:
31 March 1991 1,500,000
31 March 1994 2,917,684
31 March 1996 883,536
----------
5,301,220
==========
</TABLE>
On 30 November 1997, 100,000 shares were transferred, at 2p per share, upon the
exercise of a share option. Options over a further 75,000 shares ceased to be
exercisable during the year.
All acquisitions have been funded by non-interest bearing loans from Tamaris
plc. The total Tamerise holding of 5,201,220 shares at the year-end represents
0.43% of Tamaris' current issued ordinary share capital. The market value of the
shares held by Tamerise at 31 March 1998 was (Pound)117,000, calculated at 2.25p
per share (1997 - (Pound)159,000 at 3p per share). Options granted to Group
employees under Tamaris' Approved Share Option Scheme may be satisfied by the
transfer of shares held by Tamerise, pursuant to the employees' trust. Details
of the unexercised options granted to date are detailed in note 21(i).
The dividends payable to Tamerise were credited against the Group profit and
loss account. Any costs involved in the administration of Tamerise are charged
to the general overheads of Tamaris.
INTEREST IN OTHER PARTICIPATING INTERESTS
During 1998, Tamaris acquired 15% of the issued ordinary share capital of
Tamaris International Limited, a care home company, registered in the United
States of America.
OTHER INVESTMENTS (UNLISTED)
During 1998, Tamaris acquired and disposed of an aggregate interest of 34% of
the issued ordinary share capital of The Nunnery Limited, a property investment
company, registered in the Isle of Man.
During 1997, Tamaris advanced (Pound)325,000 for subscription to the ordinary
share capital of GIO Limited, a property investment company, registered in the
Isle of Man. The interest was sold during 1998.
<PAGE> 21
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
FIXED ASSETS INVESTMENTS (CONTINUED)
INVESTMENT IN SUBSIDIARIES
The following were wholly owned subsidiary companies at 31 March 1998, all of
which have been consolidated in the Group financial statements. The share
capital of these companies was held either directly or indirectly (*) via an
intermediate holding company.
Name of subsidiary
Care home operating companies
- -----------------------------
Bearehill Limited
Belmont Nursing Home Limited, The
Bewick Waverley Limited
Caledonian Care Limited#
Caledonian Care (Turriff) Limited*
Cedarhurst Lodge Limited
Chapelfield View Limited
Chestnut Lodge Limited
Doulton Court Limited
Dounemead Limited
Duncare Limited *#
Edgewater Lodge Limited
Guthrie Court Limited
Keslaw Limited
Laudcare Limited
Leeland Limited
Lisnisky Limited
Lodge Care Services Limited
Lunan House Limited
Maldcare Limited
Meadowvale Care Limited
North East Pharmacies Limited
Osborne Limited
Quality Care Homes Limited (formerly Termrate Limited)
Ringdane Limited (formerly Tamaris (England) Limited)
Rosevale Lodge Limited
Saintfield Limited
Tamaris (England) Limited (formerly Ringdane Limited)
Tamaris (Scotland) Limited #
Tamaris (South East) Limited
Tamaris (Ulster) Limited +
Tamaris Healthcare Services Limited
Tammillec Limited (formerly Torrcare Limited)
Westview Lodge Limited
<PAGE> 22
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
NAME OF SUBSIDIARY
Investment and intermediate holding companies
- ---------------------------------------------
Lifecare International plc
Lodge Care PLC
Tamaris Estates Limited
Tamaris Healthcare plc
Trustee for ESST
- ----------------
Tamerise Limited
All companies were incorporated in England and Wales except where indicated: #
registered in Scotland, + registered in Northern Ireland
14 DEBTORS
<TABLE>
<CAPTION>
1998 1997
GROUP COMPANY GROUP COMPANY
Pound'000 Pound'000 Pound'000 Pound'000
<S> <C> <C> <C> <C>
Trade debtors 3,712 60 1,433 36
Other debtors 3,376 1,254 1,660 549
Amounts owed by group undertakings - 13,831 - 1,488
Amounts due from undertakings in
which the group has a participating interest 3,600 3,600 - -
Prepayments and accrued income 708 284 1,074 433
-------- ------- ------ ------
11,396 19,029 4,167 2,506
======== ======= ====== ======
</TABLE>
Group and Company prepayments include costs of (Pound)174,000 (1997 -
(Pound)279,000) incurred on anticipated future care home acquisitions.
Amounts owed by group undertakings are due within one year, but these amounts
are for financing purposes and are unlikely to be entirely called in by the
parent undertaking within the next twelve months.
Amounts due from other undertakings in which the parent company has a
participating interest are due from Tamaris International Limited (see note 13).
The loan earns interest at 15% per annum.
<PAGE> 23
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
15 DEBTORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1998 1997
Group Company Group Company
Pound'000 Pound'000 Pound'000 Pound'000
<S> <C> <C> <C> <C>
Prepayments 5,553 - - -
Other loans 1,000 1,000 - -
Other debtors 2,086 - 852 -
------- ------- ------- -------
8,639 1,000 852 -
======= ======= ======= =======
</TABLE>
Prepayments relate to a forward payment of rental costs which will be written
off over the lease period of 30 years.
Other loans arise on the sale of shares in The Nunnery Limited and the Company
has a charge over these shares pending repayment.
Other debtors relate to rent security deposits which are not expected to be
recovered within a period of twenty years.
16 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1998 1997
GROUP COMPANY GROUP COMPANY
Pound'000 Pound'000 Pound'000 Pound'000
<S> <C> <C> <C>
Bank loans and overdrafts 4,935 1,148 1,032 -
Other loans 650 - - -
Trade creditors 1,886 467 443 100
Amount owed to group undertakings - 206 - -
Corporation tax 1,270 395 679 202
Other taxes and social security costs 853 72 217 14
Proposed dividends 761 761 359 359
Hire purchase agreements 162 47 49 43
Accruals and deferred income 5,384 239 2,136 449
------- ------ ------ ------
15,901 3,335 4,915 1,167
======= ====== ====== ======
</TABLE>
Details of the security provided for bank and other loans and overdrafts are
given in note 19.
Amounts due under hire purchase agreements are secured on the assets to which
they relate.
Further details of the repayment periods of borrowings are given in note 18.
<PAGE> 24
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
An unsecured loan note for Pound1,500,000 in respect of the commercial property
acquisition was granted and repaid during the year (see note 28).
<PAGE> 25
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
17 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1998 1997
GROUP COMPANY GROUP COMPANY
Pound'000 Pound'000 Pound'000 Pound'000
<S> <C> <C> <C> <C>
Bank loans 2,945 - 954 -
Unsecured loan notes 3,000 - 3,000 -
Unsecured loan 39 - 39 -
Other loans 4,000 - - -
Hire purchase agreements 205 37 123 74
--------- -------- -------- ------
10,189 37 4,116 74
========= ======== ======== ======
</TABLE>
Details of the security provided for bank and other loans, overdrafts and
guarantees are given in note 19.
Amounts due under hire purchase agreements are secured on the assets to which
they relate.
Further details of the repayment periods of borrowings are given in note 18.
18 BORROWINGS
<TABLE>
<CAPTION>
1998 1997
GROUP COMPANY GROUP COMPANY
Pound'000 Pound'000 Pound'000 Pound'000
<S> <C> <C> <C> <C>
Within one year
Hire purchase agreements 162 47 49 43
Bank loans and overdrafts 4,935 1,148 1,032 -
Other loans 650 - - -
After one and within two years
Hire purchase agreements 136 37 49 44
Bank loans 508 - 52 -
Other loans 400 - - -
After two years and within five years
Hire purchase agreements 69 - 74 30
Bank loans 1,527 - 175 -
Other loans 3,600 - - -
Unsecured loan notes 3,000 - 3,000 -
Unsecured loan 39 - 39 -
After five years
Bank loans 910 - 727 -
--------- -------- -------- ------
15,936 1,232 5,197 117
========== ======== ======== ======
</TABLE>
<PAGE> 26
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
19 SECURED CREDITORS
a) ULSTER BANK LIMITED
Ulster Bank Limited has, as security for overdraft facilities
of (Pound)223,000 for Edgewater Lodge Limited and
(Pound)156,000 for Rosevale Lodge Limited, limited guarantees
from Tamaris plc.
b) BARCLAYS BANK PLC
i) Barclays Bank has a floating charge over the assets and
business of the subsidiary company Lunan House Limited as its
security for the loan facility of (Pound)1,280,000. The period
remaining for the repayment of the loan is 19 years and the
loan carries interest at 2.0% over the Bank's base lending
rate. The indebtedness to Barclays at the year end was
(Pound)1,254,896.
ii) Westview Lodge Limited has an overdraft facility of (Pound)
120,000 from Barclays Bank that is guaranteed by Tamaris plc.
Barclays also has a floating charge over Westview Lodge's
undertakings, property and assets as security for the
facility.
iii) Barclays Bank has a fixed and floating charge over the assets
and business of the subsidiary company Meadowvale Care Limited
as security for a loan facility of (Pound)1,500,000. The loan
is repayable upon disposal of the property. The indebtedness
to Barclays at the year end was (Pound)1,500,000.
iv) Barclays Bank has a fixed and floating charge over the assets
and business of the subsidiary company Quality Care Homes
Limited as security for a loan facility of (Pound)2,200,000.
The loan term is 5 years commencing 22 February 1998 and the
loan carries interest at 2% above the Bank's base lending
rate. Capital repayments are made at a rate of (Pound)110,000
per quarter. The indebtedness to Barclays at the year end was
(Pound)2,200,000.
c) NORWICH UNION MORTGAGES (GENERAL) LIMITED
Norwich Union has a first legal charge over a portfolio of commercial
property held by Tamaris Estates Limited, as security for a loan
facility of (Pound)4,500,000. The loan term is 5 years commencing 24
September 1997 and carries interest at 1.7% above the gross redemption
yield on 7% Treasury Stock 2002, payable quarterly in arrears. Capital
repayments are made at a rate of (Pound)100,000 per quarter with the
remaining balance repayable on the termination date. The indebtedness
to Norwich Union at the year end was (Pound)4,400,000.
d) CNC PROPERTY MANAGEMENT LIMITED
CNC Property Management Limited have a second legal charge over the
commercial property portfolio referred to above, as security for a
loan of (Pound)250,000 granted in conjunction with the acquisition of
the property portfolio. The terms of the loan are as per the Norwich
Union facility set out above, although Tamaris have the right of early
repayment without penalty.
e) CLYDESDALE BANK PLC
Clydesdale Bank has a fixed and floating charge over the assets of
Tamaris (Scotland) Limited as its security for the guarantee facility
of up to (Pound)3,080,000 made available to Tamaris (Scotland) Limited
in relation to the unsecured loan notes of (Pound)3,000,000. A deposit
of (Pound)2,830,000 has been made with Clydesdale Bank plc. It is
included under current assets but is not available for Group use unless
replaced by comparable security.
<PAGE> 27
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
20 PROVISION FOR LIABILITIES AND CHARGES
The deferred taxation not provided for in the financial statements is
set out below and represents a contingent liability at the balance
sheet date and is calculated using tax rates of 31% for the Group (1997
- 33%). There are no unprovided amounts for the Company.
<TABLE>
<CAPTION>
GROUP
UNPROVIDED
1998 1997
Pound'000 Pound'000
<S> <C> <C>
Accelerated capital allowances 43 60
Other timing differences - -
--------- --------
43 60
Less: Trading losses (43) (60)
--------- --------
- -
========= ========
</TABLE>
No provision has been made for the taxation that arises on the
chargeable profits from the sale of Group properties in 1997, as it is
the Directors' intention to claim roll-over relief on the acquisition
of replacement assets. The estimated amount of tax not provided is
(Pound)1,300,000 (1997 - (Pound)1,300,000).
21 CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
ORDINARY SHARES OF 0.25P PREFERENCE SHARES OF Pound1 TOTAL
NUMBER Pound'000 NUMBER Pound'000 Pound'000
AUTHORISED
<S> <C> <C> <C> <C> <C>
At 1 April 1997 800,000,000 2,000 - - 2,000
Increase 1,400,000,000 3,500 4,500,000 4,500 8,000
------------- ----- --------- ----- ------
At 31 March 1998 2,200,000,000 5,500 4,500,000 4,500 10,000
------------- ----- --------- ----- ------
ALLOTTED, CALLED UP AND
FULLY PAID
At 1 April 1997 533,161,250 1,333 - - 1,333
Allotment of new shares 488,177,655 1,220 4,500,000 4,500 5,720
------------- ----- --------- ----- ------
At 31 March 1998 1,021,338,905 2,553 4,500,000 4,500 7,053
------------- ----- --------- ----- ------
</TABLE>
<PAGE> 28
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
CALLED UP SHARE CAPITAL (CONTINUED)
TERMS OF PREFERENCE SHARES
The non-equity preference shares are cumulative convertible redeemable
preference shares ("CCRP") of (Pound)1 each and carry a cumulative dividend of
7.2% net per annum, payable half-yearly in arrears on 31 March and 30 September
in every year, except that the first Preference Dividend payment is payable on
30 September 1998 in respect of the period from the date of issue of the shares
to 30 September 1998.
The shares are capable of being converted into new Ordinary Shares in Multiples
of 500,000 preference shares, by providing written notice to the Company, and
are convertible at a deemed conversion price of 3p. At 31 March 1998, the
maximum number of new ordinary shares of 0.25p each, assuming full conversion,
is 150,000,000.
On a return of capital on a liquidation, the holders of the CCRP shares receive
capital and any preference dividends in arrears before distribution to the
holders of the ordinary shares.
The holders of the CCRP shares have no voting rights at general meeting other
than where preference dividends are more than six months in arrears, or a
resolution is proposed for the winding up of the Company.
SHARE ALLOTMENTS DURING THE YEAR ENDED 31 MARCH 1998
Pursuant to shareholders' authority given at the Annual General Meeting of
shareholders on 31 July 1996, 35,000,000 new ordinary shares of 0.25p each were
allotted by a Placing on 19 May 1997 at 2.7p per share. The difference between
the total consideration of (Pound)945,000 and the nominal value of the allotted
shares of (Pound)87,500 was, after deduction of expenses, credited to the share
premium account.
Pursuant to the exercise of an option granted to Barry McFadzean, a Director, on
9 September 1993 and subsequently assigned to CAP Investments Limited (a company
controlled by Barry McFadzean), 3,536,570 new ordinary shares of 0.25p each were
allotted on 11 June 1997 at 2.0p per share. The difference between the total
consideration of (Pound)70,731 and the nominal value of the allotted new shares
of (Pound)8,841 was, after deduction of expenses, credited to the share premium
account.
Pursuant to shareholders' authority given at the Annual General Meeting of
shareholders on 31 July 1996, 65,000,000 new ordinary shares of 0.25p each were
allotted by a vendor placing on 18 June 1997 at 2.5p per share, as consideration
for the acquisition of Bearehill Nursing and Residential Home. The difference
between the total consideration of (Pound)1,625,000 and the nominal value of the
allotted new shares of (Pound)162,500 was, after deduction of expenses, credited
to the share premium account.
Pursuant to shareholders' authority given at the Annual General Meeting of
shareholders on 31 July 1996, 43,636,364 new ordinary shares of 0.25p each were
allotted by a vendor placing on 28 July 1997 at 2.75p per share, regarding the
acquisition of the entire issued share capital of Caledonian Care Limited. The
difference between the allotment value of the shares totalling (Pound)1,200,000
and their par value of (Pound)109,091 was transferred to merger reserve.
<PAGE> 29
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
CALLED UP SHARE CAPITAL (CONTINUED)
Pursuant to shareholders' authority given at the Annual General Meeting of
shareholders on 31 July 1997, 92,654,545 new ordinary shares of 0.25p each were
allotted on 24 September 1997 at 2.75p per share regarding the acquisition of
commercial property from Colegate Management Limited. The difference between the
total consideration of (Pound)2,548,000 and the nominal value of the allotted
new shares of (Pound)231,636 was, after deduction of expenses, credited to the
share premium account.
Pursuant to shareholders' authority given at the Annual General Meeting of
shareholders on 31 July 1997, 43,636,364 new ordinary shares of 0.25p each were
allotted by a vendor placing on 15 December 1997 at 2.75p per share, as part
consideration for the acquisition of Meadowvale Care Home. The difference
between the total consideration of (Pound)1,200,000 and the nominal value of the
allotted new shares of (Pound)109,091 was, after deduction of expenses, credited
to the share premium account.
Pursuant to shareholders' authority given at the Extraordinary General Meeting
of shareholders on 14 January 1998, regarding the acquisition of care home
businesses from Westminster Health Care Limited and Quality Care Homes Limited,
and the subscription for ordinary shares by Roseview International Limited,
114,545,455 new ordinary shares of 0.25p each were allotted on 26 January 1998
at 2.75p per share. The difference between the total consideration of
(Pound)3,150,000 and the nominal value of the allotted new shares of
(Pound)286,364 was, after deduction of expenses, credited to the share premium
account.
Pursuant to shareholders' authority given at the Extraordinary General Meeting
on 14 January 1998, 4,500,000 new cumulative convertible redeemable preference
shares of (Pound)1 each were allotted on 27 January 1998, at par.
Pursuant to shareholders' authority given at the Extraordinary General Meeting
of shareholders' on 14 January 1998, 7,272,727 new ordinary shares of 0.25p each
were allotted on 25 February 1998 at 2.75p per share, as consideration for the
acquisition of 20% of the issued share capital of The Nunnery Limited. The
difference between the total consideration of (Pound)200,000 and the nominal
value of the allotted new shares of (Pound)18,181 was, after deduction of
expenses, credited to the share premium account.
Pursuant to shareholders' authority given at the Extraordinary General Meeting
of shareholders on 14 January 1998, 3,962,100 new ordinary shares of 0.25p each
were allotted on 5 March 1998 at 2.75p per share, as part settlement of a
liquidated debt. The difference between the total consideration of
(Pound)108,958 and the nominal part of the allotted new shares of (Pound)9,905
was, after deduction of expenses, credited to the share premium account.
Pursuant to shareholders' authority given at the Extraordinary General Meeting
of shareholders on 14 January 1998, 22,222,222 new ordinary shares of 0.25p each
were allotted by a Placing on 5 March 1998 at 2.25p per share. The difference
between the total consideration of (Pound)500,000 and the nominal value of the
allotted new shares of (Pound)55,556 was, after deduction of expenses, credited
to the share premium account.
Pursuant to shareholders' authority given at the Extraordinary General Meeting
of shareholders on 14 January 1998, 12,429,816 new ordinary shares of 0.25p each
were allotted on 19 March 1998 at 2.5p per share, as part settlement of a
liquidated debt. The difference between the total consideration of
(Pound)310,745 and the nominal value of the allotted new shares of (Pound)31,075
was, after deduction of expenses, credited to the share premium account.
Pursuant to shareholders' authority given at the Extraordinary General Meeting
of shareholders on 14 January 1998, 41,975,308 new ordinary shares of 0.25p each
were allotted, subject to listing, by a Placing on 26 March 1998 at 2.025p per
share. The difference between the total consideration of (Pound)850,000 and the
nominal value of the allotted new shares of (Pound)104,938 was, after deduction
of expenses, credited to the share premium account. The shares were admitted to
the Official List of the London Stock Exchange on 2 April 1998.
<PAGE> 30
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
CALLED UP SHARE CAPITAL (CONTINUED)
Pursuant to shareholders' authority given at the Extraordinary General Meeting
of shareholders on 14 January 1998, 2,306,184 new ordinary shares of 0.25p each
were allotted, subject to listing, on 25 February 1998 at 2.5p per share, in
part settlement of a liquidated debt. The difference between the total
consideration of (Pound)57,655 and the nominal value of the allotted new shares
of (Pound)5,765, was, after deduction of expenses, credited to the share premium
account. The shares were admitted to the Official List of the London Stock
Exchange on 2 April 1998.
ALLOTMENTS SINCE THE YEAR END
Pursuant to shareholders' authority, given at the Extraordinary General Meeting
of shareholders on 14 January 1998, 98,765,432 new ordinary shares of 0.25p each
were allotted on 30 April 1998 at 2.025p per share as consideration for the
acquisition of Walcott Limited. The difference between the total consideration
of (Pound)2,000,000 and the nominal value of the allotted new shares of
(Pound)246,914 was after deduction of expenses, credited to the share premium
account.
Pursuant to shareholders' authority given at the Extraordinary General Meeting
of shareholders on 14 January 1998, 100,582,300 new ordinary shares of 0.25p
each were allotted on 11 June 1998 at 2.0p per share as consideration for the
acquisition of Billinghay Limited. The difference between the total
consideration of (Pound)2,011,646 and the nominal value of the allotted new
shares of (Pound)251,456 was, after deduction of expenses, credited to the share
premium account.
<PAGE> 31
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
CALLED UP SHARE CAPITAL (CONTINUED)
A total of 22,409,710 (1997 - 10,909,710) options over the company's 0.25p
ordinary shares have been granted, as follows:
i) Under the Company's Executive Share Option Scheme, options
will be satisfied by the transfer of existing shares held by
Tamerise Limited pursuant to the Employees Trust:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS DATE OF GRANT DATE OF EXERCISE EXERCISE PRICE (P)
<S> <C> <C> <C> <C>
3,536,570 9.9.1993 10.9.1996 to 2.25
9.2.2003
125,000 23.6.1995 24.6.1998 to 2
23.6.2005
</TABLE>
Share options granted on 8 October 1993 for 100,000 shares
were exercised by G Barnfield on 30 November 1997 at 2p per
share. Further options granted to G Barnfield on 23 June 1995
ceased to be exercisable during the year and have subsequently
lapsed.
ii) William Fitch and Barry McFadzean entered into option
agreements with the Company on 9 September 1993 under which
they were each granted options over 3,536,570 ordinary shares
at a price of 2p per share, exercisable at any time after the
period of two years from the date of grant (but not later than
five years from the date of grant) or within a period of six
months in the event of death, cessation as a Director, change
of control of the Company or it undergoing a scheme of
arrangement. Barry McFadzean subsequently assigned the benefit
of his option agreement to CAP Investments Limited, a company
controlled by him. CAP Investments Limited exercised their
option on 11 June 1997.
iii) Following approval at the Extraordinary General Meeting on 12
September 1997, the following share options were granted on 17
June 1998 under the terms of the 1997 Executive Share Option
Scheme in respect of ordinary shares of 0.25p each.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
<S> <C>
Barbara-Ann Maxwell - Director 4,000,000
Graeme Willis - Director 2,500,000
Philip Baines - Company Secretary 1,000,000
Other Executives 4,000,000
----------
11,500,000
==========
</TABLE>
The shares are exercisable between 18 June 2001 and 17 June 2008 and
the exercise price per share is 2p.
<PAGE> 32
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
WARRANTS
During 1997 the Group acquired the Lodge Care homes under operating
leases from Principal Healthcare Finance Limited ("Principal"). As part
of that transaction, on 1 August 1996, Tamaris issued to Principal a
warrant to subscribe for up to 25,116,976 ordinary shares at an
exercise price of 3.9p per share. The warrant may be exercised in whole
or in part at any time between the first and tenth anniversary of the
issue of the warrant. The warrant is transferable in whole or in part
without restriction.
22 SHARE PREMIUM ACCOUNT AND RESERVES
<TABLE>
<CAPTION>
SHARE
PREMIUM MERGER PROFIT AND
ACCOUNT RESERVE OTHER RESERVE LOSS ACCOUNT
Pound'000 Pound'000 Pound'000 Pound'000
GROUP
<S> <C> <C> <C> <C>
At 1 April 1997 4,582 - 715 2,481
Arising on share allotments 10,454 1,091 - -
Share issue expenses (626) - - -
Goodwill written off - (1,604) - -
Reserve movement - 513 (513) -
Profit for the year - - - 478
------ -------- ----- ------
At 31 March 1998 14,410 - 202 2,959
====== ======== ===== ======
</TABLE>
The Other reserve represents a capital reserve arising on acquisition
of subsidiary companies in previous years.
The cumulative amount of goodwill arising from acquisitions in current
and prior years which has been written off to Group reserves, net of
goodwill on acquired interests since disposed of, is (Pound)3,678,000
(1997 - (Pound)2,074,000).
<TABLE>
<CAPTION>
SHARE
PREMIUM MERGER PROFIT AND
ACCOUNT RESERVE LOSS ACCOUNT
Pound'000 Pound'000 Pound'000
COMPANY
<S> <C> <C> <C>
At 1 April 1997 4,582 1,742 200
Arising on share allotments 10,454 1,091 -
Share issue expenses (626) - -
Profit for the year - - 53
------- ------ ------
At 31 March 1998 14,410 2,833 253
======= ====== ======
</TABLE>
<PAGE> 33
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
23 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1998 1997
GROUP COMPANY GROUP COMPANY
Pound'000 Pound'000 Pound'000 Pound'000
<S> <C> <C> <C> <C>
Retained profit for the financial year 478 53 1,813 19
New ordinary share capital subscribed 12,765 12,765 1,801 1,801
New preference share
Capital subscribed 4,500 4,500 - -
Share issue expenses (626) (626) (99) (99)
Goodwill written off (1,604) - (1,000) -
-------- ------- --------- ---------
15,513 16,692 2,515 1,721
Shareholders' funds at 1 April 1997 9,111 7,857 6,596 6,136
-------- -------- --------- ---------
Shareholders' funds at 31 March 1998 24,624 24,549 9,111 7,857
======== ======== ========= ========
</TABLE>
24 COMMITMENTS UNDER OPERATING LEASES
The Company and Group have commitments under operating leases in
respect of care home properties for payments of (Pound)15,556,000 in
the year to 31 March 1999 (1997 - (Pound)6,461,000). The leases to
which these amounts relate all expire after more than five years.
25 NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1998 1997
Pound'000 Pound'000
<S> <C> <C>
Operating profit 2,507 1,323
Depreciation charges 437 332
Increase in debtors (2,568) (1,533)
Increase in creditors 1,701 1,660
Lease rental paid in advance (5,553) -
-------- -------
Net cash (outflow)/inflow from operating activities (3,476) 1,782
======== =======
</TABLE>
<PAGE> 34
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
26 RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
1998 1997
Pound'000 Pound'000
<S> <C> <C>
(Decrease)/increase in cash in the year (2,823) 1,948
Cash (inflow)/outflow from financing (8,524) 3,537
-------- -------
Change in net debt resulting from cash flows (11,347) 5,485
Inception of hire purchase agreements (293) (103)
Deposit guaranteeing loan notes - 2,830
-------- -------
Movement in net debt in the year (11,640) 8,212
Net debt at 1 April 1997 (496) (8,708)
-------- -------
Net debt at 31 March 1998 (12,136) (496)
======== =======
</TABLE>
27 ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
AT 1 APRIL NON-CASH AT 31 MARCH
1997 CASH FLOW ITEMS 1998
Pound'000 Pound'000 Pound'000 Pound'000
<S> <C> <C> <C> <C>
Cash at bank and in hand 1,871 (901) - 970
Bank overdrafts and short term loans (1,032) (1,922) - (2,954)
-------- -------- -------- --------
839 (2,823) - (1,984)
Bank loans (954) (3,972) - (4,926)
Hire purchase agreements (172) 98 (293) (367)
Loan notes (3,000) - - (3,000)
Deposit guaranteeing loan notes 2,830 - - 2,830
Other loans (39) (4,650) - (4,689)
-------- -------- -------- --------
(496) (11,347) (293) (12,136)
======== ======== ======== ========
</TABLE>
Non-cash items represent the inception of new hire purchase agreements.
28 ACQUISITIONS
During the year the Group acquired a number of care home businesses and
a portfolio of commercial office buildings. Details of the capitalised
values of each transaction are given below. Apart from the acquisition
of the entire share capital of Caledonian Care Limited, in each case
only the business and certain assets and liabilities
<PAGE> 35
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
were acquired. In these circumstances, it is not practical to provide
details of profits or losses for financial periods before acquisition.
Details of the contribution to and utilisation of Group cash flow is
given at note 29.
<PAGE> 36
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
ACQUISITIONS (CONTINUED)
BEAREHILL NURSING HOME
On 18 June 1997, Bearehill Limited, a newly formed wholly owned Tamaris
subsidiary, acquired the freehold property, related fixed assets and business
of Bearehill Nursing and Residential Care Home (60 beds), for (Pound)1,625,000.
This was financed by the issue of 65,000,000 ordinary shares in Tamaris, at a
deemed price of 2.5p per share. The home was simultaneously sold to and leased
back from IHP Limited for (Pound)1,685,000 on a 21 year operating lease.
The assets acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE
AND FAIR
VALUE
Pound'000
<S> <C>
Purchase consideration 1,625
Sale proceeds (net of costs) (1,680)
---------
Profit on disposal - credited to profit and loss account (55)
Costs of acquiring lease - capitalised as short leasehold interests 104
---------
49
=========
Satisfied by:
Shares 1,625
Cash (net) (1,576)
---------
49
=========
</TABLE>
<PAGE> 37
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
ACQUISITIONS (CONTINUED)
CALEDONIAN CARE LIMITED
On 28 July 1997, Tamaris acquired the entire issued ordinary share capital of
Caledonian Care Limited, a company registered in Scotland, for a consideration
of Pound 1,200,000, satisfied by the issue of 43,636,364 ordinary shares at a
deemed price of 2.75p per share. The company comprised of two homes, Livingston
Nursing Home (60 beds) and Turriff Nursing Home (54 beds).
Goodwill arising on the acquisition has been taken to reserves. The purchase of
Caledonian Care Limited has been dealt with by the acquisition method of
accounting. Advantage has been taken of merger relief offered by section 131 of
the Companies Act 1985 in respect of the premium on the issue of shares to
finance the acquisition.
The profit after taxation of Caledonian Care Limited for the period from 1
April 1997, the beginning of the subsidiary's financial year, to the date of
acquisition was (Pound)293,270, including profit on disposal of fixed assets
of (Pound)546,156. The loss after taxation for the period from acquisition to
31 March 1998 was (Pound)51,376.
The assets and liabilities of Caledonian Care Limited acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE
AND FAIR
VALUE
Pound'000
<S> <C>
Tangible fixed assets 77
Current assets
Debtors 158
----------
Total assets 235
----------
Creditors
Bank overdrafts 46
Trade creditors 325
Other creditors and accruals 124
Hire purchase creditors 10
----------
Total liabilities 505
----------
Net liabilities (270)
Purchased goodwill taken to reserves 1,470
----------
1,200
==========
Satisfied by:
Shares 1,200
==========
</TABLE>
<PAGE> 38
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
ACQUISITIONS (CONTINUED)
COMMERCIAL PROPERTY PORTFOLIO
On 24 September 1997, Tamaris Estates Limited, a newly formed wholly owned
subsidiary of Tamaris, acquired a portfolio of commercial office buildings from
Colegate Management Limited for a consideration of (Pound)8,923,000. This was
part financed by the issue of 92,654,545 ordinary shares at 2.75p per share
and a (Pound)1,500,000 unsecured loan note to the vendor. The balance of the
consideration was financed by long-term borrowings, as more fully explained in
notes 19d and 19e.
The assets acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE
AND FAIR
VALUE
Pound'000
<S> <C>
Investment properties 8,923
Costs of acquisition 535
----------
Net assets acquired 9,458
==========
Satisfied by:
Shares 2,548
Unsecured loan note 1,500
Cash 5,410
----------
9,458
==========
</TABLE>
<PAGE> 39
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
ACQUISITIONS (CONTINUED)
LAURELS LODGE NURSING HOME
On 4 September 1997, Tamaris exercised an option in the lease of Laurels Lodge
Nursing Home, to acquire the freehold of that property for (Pound)1,660,000. The
home was simultaneously sold to and leased back from IHP Limited for
(Pound)1,750,000 on a 21 year operating lease.
The assets acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE
AND FAIR
VALUE
Pound'000
<S> <C>
Purchase consideration 1,660
Sale proceeds (net of costs) (1,688)
----------
Profit on disposal - credited to profit and loss account (28)
Costs of acquiring lease - capitalised as short leasehold interests 46
----------
18
==========
Satisfied by:
Cash (net) 18
==========
</TABLE>
<PAGE> 40
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
ACQUISITIONS (CONTINUED)
MEADOWVALE CARE HOME
On 15 December 1997, Meadowvale Care Limited, a newly formed wholly owned
subsidiary of Tamaris, acquired the freehold property, related fixed assets and
business of Meadowvale Care Home (52 beds) for a consideration of
(Pound)1,500,000, satisfied by the issue of 43,636,364 ordinary shares at 2.75p
each and the balance from the Group's existing cash resources.
The assets acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE
AND FAIR
VALUE
Pound'000
<S> <C>
Tangible fixed assets 1,500
Costs of acquisition 163
----------
Net assets acquired 1,663
==========
Satisfied by:
Shares 1,200
Cash 463
----------
1,663
==========
</TABLE>
<PAGE> 41
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
ACQUISITIONS (CONTINUED)
WESTMINSTER CARE HOMES
On 27 January 1998, two wholly owned subsidiaries of Tamaris, Ringdane Limited
and Tammillec Limited, acquired the freehold land and buildings, related fixed
assets and business of 12 homes, (674 beds) from Westminster Health Care Limited
for an aggregate consideration of (Pound)20,050,000.
Ringdane Limited acquired 7 homes situated in England for a consideration of
(Pound)11,000,000 satisfied by the issue of 4,500,000 cumulative convertible
redeemable preference shares of (Pound)1 at par and (Pound)6,500,000 in cash.
The homes were simultaneously sold to and leased back from Carlton Healthcare
Properties Limited for (Pound)11,000,000 on 21 year operating leases.
Tammillec Limited acquired 5 homes situated in Northern Ireland for a
consideration of (Pound)9,050,000 in cash. The homes were simultaneously sold
to and leased back from Atlantic Healthcare Finance Limited for
(Pound)9,050,000 on 25 year operating leases.
The assets acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE
AND FAIR
VALUE
Pound'000
<S> <C>
Purchase consideration 20,050
Sale proceeds (20,050)
------------
-
Costs of acquiring leases - capitalised as short leasehold interests 1,747
------------
Net assets acquired 1,747
============
Satisfied by:
Preference shares of (Pound)1 each 4,500
Cash (net) (2,753)
------------
1,747
============
</TABLE>
<PAGE> 42
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
ACQUISITIONS (CONTINUED)
QUALITY CARE HOMES
On 27 February 1998, Termrate Limited, a wholly owned subsidiary of Tamaris at
that date, acquired the care home businesses of 37 homes (1,889 beds) owned, by
Quality Care Homes Limited, and was granted operating leases by Principal
Healthcare Finance Limited for the properties at which those businesses are
located. Additionally, from 30 June 1997 the Company assumed responsibility
through a management agreement executed by a subsidiary for the operations of
the care homes. Simultaneous with the execution of operating leases Termrate
Limited acquired certain other assets and assumed the burden of certain other
liabilities associated with those businesses, at net book value. On 10 March
1998 Termrate Limited changed its name to Quality Care Homes Limited.
The assets and liabilities acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE
AND FAIR
VALUE
Pound'000
<S> <C>
Tangible fixed assets 1,218
Debtors 1,610
Cash at bank and in hand 348
Bank overdrafts (29)
Creditors (2,916)
----------
231
Costs of acquiring leases - capitalised as short leasehold interests 1,827
----------
Net assets acquired 2,058
==========
Satisfied by:
Cash 2,058
==========
</TABLE>
<PAGE> 43
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
ACQUISITIONS (CONTINUED)
DOUNEMOUNT HOMES
On 3 March 1998, Dounemead Limited, a wholly owned subsidiary of Tamaris,
acquired the freehold land and buildings, related fixed assets and business of
two nursing homes (81 beds) from Dounemount Limited for an aggregate
consideration of (Pound)2,418,000 paid in cash.
The homes were simultaneously sold to and leased back from Care Home Properties
Limited for (Pound)2,505,000 on 21 year operating leases.
The assets acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE
AND FAIR
VALUE
Pound'000
<S> <C>
Purchase consideration 2,418
Sale proceeds (net of costs) (2,462)
----------
Profit on disposal - credited to profit and loss account (44)
Costs of acquiring leases - capitalised as short leasehold interests 121
----------
77
==========
Satisfied by:
Cash (net) 77
==========
</TABLE>
<PAGE> 44
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
29 CASH FLOW FROM ACQUISITIONS
The business undertakings acquired during the year made the following
contribution to and utilisation of Group cash flow.
<TABLE>
<CAPTION>
1998 1997
Pound'000 Pound'000
<S> <C> <C>
Net cash inflow from operating activities 540 494
Returns on investment and servicing of finance (349) (42)
Capital expenditure and financial investment (255) (214)
--------- ---------
(64) 238
========= =========
</TABLE>
Operating activities excludes central overhead.
30 PENSION CONTRIBUTIONS
Contributions to employees' own pension schemes are accrued and payable
during the term of employment.
31 CAPITAL COMMITMENTS
The Company and Group had contracted capital commitments at the year
end of (Pound)nil (1997 - (Pound)394,000).
32 CONTINGENT LIABILITIES
Tamaris and/or its subsidiaries have given charges, guarantees or cross
guarantees to lessors and bankers to assist the trading of other Group
companies. Liabilities and commitments covered by these guarantees are
all reported within these financial statements.
There is a contingent liability to deferred taxation as set out in note
20.
Tamaris has guaranteed the lease rentals of Northview Lodge Residential
Care Home, which it manages on behalf of the owner.
33 RELATED PARTY TRANSACTIONS
There were no transactions with Directors or related parties during the
year other than as disclosed as Directors Emoluments in note 6.
<PAGE> 45
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
34 POST BALANCE SHEET EVENTS
On 30 April 1998, the Group acquired the entire issued ordinary share
capital of Walcott Limited, a property company, for (Pound)2,000,000
satisfied by the issue of 98,765,432 new ordinary shares at 2.025p per
share.
On 11 June 1998, the Group acquired the entire issued share capital of
Billinghay Limited, a property company, for (Pound)2,011,646
satisfied by the issue of 100,582,300 new ordinary shares at 2p per
share.
Subsequent to the year end a bank loan has been taken out by Tamaris
Estates Limited for (Pound)1,000,000 that is secured over the Company
interest in and debt due from Tamaris International Limited.
35 RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)
<TABLE>
<CAPTION>
AUDITED AUDITED
YEAR ENDED YEAR ENDED
31 MARCH 31 MARCH
1998 1997
Pound'000 Pound'000
<S> <C> <C>
Net profit before dividends per UK GAAP 1,440 2,293
Capitalised short leasehold interests (1) (4,728) (5,011)
Amortisation of goodwill (2) (160) (104)
Revalued assets (3) - 480
Deferred taxation (4) - (725)
--------- -------
Net (loss) per US GAAP (3,448) (3,067)
========= =======
Closing shareholders' equity per UK GAAP 24,624 9,111
Capitalised short leasehold interests (1) (10,350) (5,622)
Capitalisation and amortisation of goodwill (2) 3,359 1,915
Cumulative Redeemable Preference Shares (3) (4,500) -
Deferred taxation (4) (1,300) (1,300)
--------- -------
Closing shareholders' equity per US GAAP 11,833 4,104
========= =======
Changes in shareholders' equity on a US GAAP basis:
Shareholders' equity at beginning of period - 4,104 5,949
Net (loss) (3,448) (3,067)
Dividends (962) (480)
New ordinary shares issued (net of issue costs) 12,139 1,702
--------- -------
Shareholders' equity at the end of period 11,833 4,104
========= =======
</TABLE>
<PAGE> 46
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
________________________________________________________________________________
The following are descriptions of US GAAP reconciling items:
(1) Under UK GAAP, the group capitalise, as short leasehold
interests, the costs associated with the acquisition of care
home operating leases that comprise the continuing ordinary
activities of the group. Such costs are amortised over the
period of the lease to which they relate. Under US GAAP, such
costs are expensed in the period incurred.
(2) Under UK GAAP, prior to the introduction of Financial
Reporting Standard No 10, goodwill arising on acquisition
could be written off immediately to reserves. Under US GAAP,
goodwill is amortised over the estimated economic life of the
asset which has been determined to be 20 years.
(3) Under UK GAAP, preference shares with mandatory redemption
features are classified as nonequity interests and are a
component of total shareholders' funds. Under US GAAP such
redeemable preference shares are classified outside
shareholders' funds.
(4) Under UK GAAP, deferred taxation is provided only to the
extent that a liability or asset will crystallise in the
foreseeable future (partial provision basis). Under US GAAP, a
full provision basis is adopted for both deferred tax
liabilities and assets. Deferred tax assets not expected to be
utilised are reserved for with a valuation allowance.
Additional disclosures are as follows:
1. Under UK GAAP returns on investment, servicing of finance,
taxation, dividends paid and financial investment are shown as
separate activities in the consolidated statement of cash
flows. Under US GAAP, changes to such balances are generally
included in operating activities as to returns on investment,
servicing of finances and taxation, with the remaining items
shown as financing activities. Under UK GAAP, capital
expenditure and acquisitions and disposals are shown as
separate activities. Under US GAAP, changes to such balances
are generally included in investing activities. The sum of
cash flows stemming from operating activities, returns on
investment and servicing of finance and taxation under UK GAAP
is the same in all material respects to cash flows from
operating activities under US GAAP.
2. In 1998 the US Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging
Activities," effective for fiscal years beginning after June
15, 1999.
The new standard requires companies to record derivatives on
the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value cash flows. This statement
shall not have any impact on the company, since it does not
have any derivative instruments and does not use hedge
accounting.
<PAGE> 1
EXHIBIT 99(c)
================================================================================
[MORAN LOGO]
MORAN
MORAN HEALTH CARE GROUP
PTY LIMITED
AND
CONTROLLED ENTITIES
AUDITED FINANCIAL STATEMENTS
ACN 008 585 242
AS AT 30 JUNE 1998
================================================================================
<PAGE> 2
CONTENTS
PAGE
NUMBER
DIRECTORS' REPORT........................................................1-2
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF
MORAN HEALTH CARE GROUP PTY LIMITED........................................3
STATEMENT BY DIRECTORS.....................................................4
PROFIT & LOSS ACCOUNT
FOR THE YEAR ENDED 30 JUNE 1998............................................5
BALANCE SHEET AS AT 30 JUNE 1998...........................................6
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 1998............................................7
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.......................................8-20
<PAGE> 3
DIRECTORS' REPORT
Your directors present their report on the accounts of the economic entity for
the year ended 30 June, 1998.
DIRECTORS:
The following persons hold office as directors of Moran Health Care Group Pty
Limited at the date of this report:
D J MORAN S MORAN
G R MORAN J R HEWSON
P G MORAN P A PHIN
PRINCIPAL ACTIVITIES:
The principal continuing activity of the economic entity constituted by Moran
Health Care Group Pty Limited and the entities it controlled from time to time
during the year was the provision of health care for the sick and aged. There
have been no significant changes in the nature of activities of the economic
entity during the financial year.
OPERATING RESULTS:
The consolidated (loss)/profit and extraordinary items of the economic entity
after income tax was ($700,000) (1997: $66,000).
DIVIDENDS:
There were no dividends paid or declared during the financial year.
DIRECTORS' BENEFITS:
No director has received or become entitled to receive, during or since the
financial year, a benefit because of a contract made by the chief entity,
controlled entity or a related body corporate with a director, a firm of which a
director is a member, or an entity in which a director has a substantial
financial interest other than the benefits as disclosed in Note 29 in the notes
to and forming part of the accounts. This statement excludes a benefit included
in the aggregate amount of emoluments received or due and receivable by
directors shown in Note 30 to the accounts, or the fixed salary of a full-time
employee of the parent entity, controlled entity or related body corporate.
OPTIONS:
No options for shares in the company have been granted during the financial year
and there were no options outstanding at the end of the financial year.
INDEMNIFYING OFFICER OR AUDITOR:
The company has not, during or since the financial year, in respect of any
person who is or has been an officer or auditor of the company or of a related
body corporate:
- - indemnified or made any relevant agreement for indemnifying against a
liability incurred as an officer or auditor, including costs and
expenses in successfully defending legal proceedings; or
<PAGE> 4
- - paid or agreed to pay a premium in respect of a contract insuring
against a liability incurred as an officer or auditor for the costs or
expenses to defend legal proceedings.
ROUNDING OF AMOUNTS TO NEAREST THOUSAND DOLLARS:
The company is of a kind referred to in regulation 3.6.05(6) of the Corporations
Regulations, relating to the rounding off of amounts in the consolidated
accounts and directors' report. Amounts have been rounded off in the accounts,
consolidated accounts and directors' report in accordance with section 311 of
the Corporations Law and regulation 3.6.05.
This report is made in accordance with a resolution of the directors.
Director ..................................................
D J Moran
Director ..................................................
S Moran
Sydney
30 September 1998
<PAGE> 5
INDEPENDENT AUDIT REPORT TO THE MEMBERS
---------------------------------------
OF MORAN HEALTH CARE GROUP PTY LIMITED
---------------------------------------
SCOPE:
- ------
We have audited the consolidated financial statements, being the Statement by
Directors, Profit and Loss Account, Balance Sheet, Statement of Cash Flows and
notes to and forming part of the consolidated financial statements of Moran
Health Care Group Pty Limited for the year ended 30 June 1998. The consolidated
financial statements include the company and the entities it controlled at the
year's end or from time to time during the financial year. The company's
directors are responsible for the consolidated financial statements. We have
conducted an independent audit of these consolidated financial statements in
order to express an opinion on them to the members of the company.
Our audit has been conducted in accordance with Australian Auditing Standards to
provide reasonable assurance whether the consolidated financial statements are
free of material misstatement. Our procedures included examination, on a test
basis, of evidence supporting the amounts and other disclosures in the
consolidated financial statements, and the evaluation of accounting policies and
significant accounting estimates. These procedures have been undertaken to form
an opinion whether, in all material respects, the consolidated financial
statements are presented fairly in accordance with Accounting Standards and
other mandatory professional reporting requirements and statutory requirements
so as to present a view which is consistent with our understanding of the
economic entity's financial position, the results of its operations and its cash
flows.
The audit opinion expressed in this report has been formed on the above basis.
AUDIT OPINION:
In our opinion, the consolidated financial statements of Moran Health Care Group
Pty Limited are properly drawn up:
(a) so as to give a true and fair view of:
(i) the state of affairs as at 30 June 1998, and of the loss and
cash flows for the financial year ended on that date of the
economic entity; and
(ii) the other matters required by Divisions 4, 4A and 4B of Part
3.6 of the Corporations Law to be dealt with in the
consolidated financial statements;
(b) in accordance with the provisions of the Corporations Law; and
(c) in accordance with applicable Accounting Standards and other mandatory
professional reporting requirements.
Australian Accounting Standards vary in certain important respects from
Generally Accepted Accounting Principles in the United States of America (US
GAAP). The application of US GAAP would have affected the financial statements
to the extent summarised in Note 29 to the financial statements.
Stirling Warton Williams
Chartered Accountants
R C Williams
Partner
Sydney
30 September 1998
(Note 29, 25 November 1998)
<PAGE> 6
STATEMENT BY DIRECTORS
In the opinion of the directors of the company:
(a) the accompanying consolidated financial statements are drawn up in
accordance with Divisions 4, 4A and 4B of Part 3.6 of the Corporations
Law so as to give a true and fair view of:
(i) the state of affairs as at 30 June 1998 and the loss and cash
flows for the financial year ended on that date of the
economic entity; and
(ii) the other matters dealt with by these divisions;
(b) at the date of this statement, there are reasonable grounds to believe
that the company will be able to pay its debts as and when they fall
due.
(c) At the date of this statement there are reasonable grounds to believe
that the company and the controlled entities identified in Note 22 will
be able as an economic entity to meet any obligations or liabilities to
which they are, or may become, subject by virtue of the deed of cross
guarantee described in Note 23. The deed of cross guarantee has been
entered into by the parties identified in Note 22 to take advantage of
relief from accounting requirements available through class orders
issued by the Australian Securities Commission. At the date of this
statement the company and the subsidiaries identified in Note 22 are
within the classes of companies affected by those class orders.
This statement is made in accordance with a resolution of the Board of Directors
and is signed for and on behalf of the directors by:
Director ........................... Director .........................
D J Moran S Moran
30 September 1998
<PAGE> 7
PROFIT & LOSS ACCOUNT
FOR THE YEAR ENDED 30 JUNE 1998
<TABLE>
<CAPTION>
NOTES ECONOMIC ENTITY
----- ---------------
1998 1997
---- ----
$'000 $'000
<S> <C> <C> <C>
Operating (loss)/profit before abnormal items and income tax
3(a) (691) 66
Abnormal items before income tax 3(b) (9) -
-------------------------------
Operating (loss)/profit before income tax (700) 66
Income tax benefit/(expense) attributable to operating profit or
loss 4 - -
-------------------------------
Operating (loss)/profit after income tax (700) 66
(Loss)/profit on extraordinary items after income tax - -
-------------------------------
Operating (loss)/profit and extraordinary items after income tax
attributable to members of the chief entity (700) 66
Retained profits at the beginning of the financial year 44,519 44,453
-------------------------------
43,819 44,519
Accumulated losses attributable to entities no longer controlled
2,495 -
-------------------------------
RETAINED PROFITS AT THE END OF THE FINANCIAL YEAR 46,314 44,519
===============================
</TABLE>
The profit and loss account should be read in conjunction with the accompanying
notes.
<PAGE> 8
BALANCE SHEET AS AT 30 JUNE 1998
<TABLE>
<CAPTION>
NOTES ECONOMIC ENTITY
1998 1997
$'000 $'000
<S> <C> <C> <C>
CURRENT ASSETS
Cash 6 2,111 161
Receivables 7 10,573 6,509
Inventories 8 15,641 10,847
Other 9 1,714 3,898
--------- ---------
TOTAL CURRENT ASSETS 30,039 21,415
--------- ---------
NON-CURRENT ASSETS
Receivables 10 12,640 5,277
Investments 11 35,024 -
Property, plant and equipment 12 123,876 157,713
--------- ---------
TOTAL NON-CURRENT ASSETS 171,540 162,990
--------- ---------
TOTAL ASSETS 201,579 184,405
--------- ---------
CURRENT LIABILITIES
Creditors and borrowings 13 32,536 15,269
Provisions 14 8,150 5,165
--------- ---------
TOTAL CURRENT LIABILITIES 40,686 20,434
--------- ---------
NON-CURRENT LIABILITIES
Creditors and borrowings 15 41,500 47,875
Provisions 16 5,892 4,416
Other 17 9,903 5,928
--------- ---------
TOTAL NON-CURRENT LIABILITIES 57,295 58,219
--------- ---------
TOTAL LIABILITIES 97,981 78,653
--------- ---------
NET ASSETS 103,598 105,752
--------- ---------
SHAREHOLDERS' EQUITY
Share Capital 18 14,588 14,588
Reserves 19 42,649 46,594
Retained profits 46,314 44,519
--------- ---------
SHAREHOLDERS' EQUITY ATTRIBUTABLE TO MEMBERS OF THE CHIEF
ENTITY 103,551 105,701
OUTSIDE EQUITY INTERESTS IN CONTROLLED ENTITIES 27 47 51
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 103,598 105,752
--------- ---------
</TABLE>
The balance sheet should be read in conjunction with the accompanying notes
<PAGE> 9
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 1998
<TABLE>
<CAPTION>
NOTES ECONOMIC ENTITY
1998 1997
$'000 $'000
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers 114,636 125,261
Payments to suppliers and employees (105,779) (112,565)
--------- ----------
8,857 12,696
Interest received 144 266
Interest and other costs of finance paid (6,368) (5,517)
Income tax paid - (141)
--------- ----------
NET CASH INFLOW FROM OPERATING ACTIVITIES 24 2,633 7,304
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for subsidiary acquired (net of cash acquired) (3,082) (12,375)
Payment for property, plant and equipment (14,580) (4,827)
Proceeds from sale of property, plant and equipment 48,175 5,509
Investment in related entities (23,934) -
Other investments (1,624) -
--------- ----------
NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES 4,955 (11,693)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds/(repayment) of borrowings - bank (16,106) 9,910
Proceeds of borrowings - other 10,505 -
Proceeds from accommodation and tenant bonds 5,484 7
Repayment of accommodation and tenant bonds (42) -
Repayment of other borrowings (4,900) (9,505)
--------- ----------
NET CASH INFLOW/(OUTFLOW) FROM FINANCING ACTIVITIES (5,059) 412
--------- ----------
NET INCREASE/(DECREASE) IN CASH HELD 2,529 (3,977)
OVERDRAFT AT THE BEGINNING OF THE FINANCIAL YEAR (4,397) (420)
--------- ----------
OVERDRAFT AT THE END OF THE FINANCIAL YEAR 6 (1,868) (4,397)
--------- ----------
</TABLE>
The statement of cash flows should be read in conjunction with the accompanying
notes.
<PAGE> 10
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements have been prepared and presented
in accordance with applicable Accounting Standards, other mandatory
professional reporting requirements and the Corporations Law. The
consolidated financial statements have also been prepared on the basis
of historical costs and do not take into account changing money values
or, except where stated, current valuations of non-current assets. The
concept of accruals accounting has been adopted in the preparation of
the consolidated financial statements. The accounting policies have
been consistently applied, unless otherwise stated.
The following is a summary of the significant accounting policies
adopted by the economic entity in the preparation of the consolidated
financial statements:
(a) PRINCIPLES OF CONSOLIDATIONS:
The consolidated accounts comprise the accounts of Moran
Health Care Group Pty Limited and its controlled entities.
Details of the controlled entities are contained in Note 22.
A controlled entity is any entity controlled by Moran Health
Care Group Pty Limited. Control exists where Moran Health Care
Group Pty Limited has the capacity to dominate the
decision-making in relation to the financial and operating
policies of another entity so that the other entity operates
with Moran Health Care Group Pty Limited to achieve the
objectives of Moran Health Care Group Pty Limited.
All inter-company balances and transactions between entities
in the economic entity, including any unrealised profits or
losses, have been eliminated on consolidation. Where a
controlled entity has entered or left the economic entity
during the year , its operating results have been included
from the date control was obtained or until the date control
ceased.
(b) DEPRECIATION:
Depreciation is provided on all fixed assets so as to write
off the cost of each depreciable fixed asset over its expected
useful life.
Buildings utilised in the provision of health care for the
sick and aged have been depreciated so as to write off the
valuation of each asset over its remaining expected useful
life.
(c) INCOME TAX:
Tax effect accounting procedures are followed whereby the
income tax expense in the profit and loss account is matched
with the accounting profit or loss (after allowing for
permanent differences). The future tax benefit relating to tax
losses and timing differences is not carried forward as an
asset unless the benefit can be regarded as being virtually
certain of realisation.
<PAGE> 11
(d) LINEN, PHARMACY, FOOD, CLEANING, SURGICAL & MEDICAL SUPPLIES:
Linen, pharmacy, food, cleaning, surgical & medical supplies
are included in current inventories at the lower of cost or
net realisable value.
(e) EMPLOYEE ENTITLEMENTS:
Provision is made for employee entitlements arising from
services rendered by employees to balance date. Employee
entitlements expected to be settled within one year together
with entitlements arising from wages, salaries and annual
leave which will be settled after one year, have been measured
at their nominal amount. Other employee entitlements payable
later than one year have been measured at the present value of
the estimated future cash outflows to be made for those
entitlements.
Contributions are made by the economic entity to employee
superannuation funds and are charged as expenses when
incurred.
(f) LEASES:
Where a non-current asset is acquired by means of a finance
lease, the minimum lease payments are discounted at the
interest rate implicit in the lease. The discounted amount is
established as a non-current asset at the beginning of the
lease term and amortised on a straight line basis over its
expected economic life. A corresponding liability is also
established and each lease payment is allocated between the
principal component and the interest expense. Operating lease
payments are charged to the profit and loss account in the
periods in which they are incurred.
(g) BORROWING EXPENSES:
Borrowing expenses are deferred to future periods to the
extent that such costs are expected to give rise to a future
benefit and are amortised over the period of the loan on a
straight line basis.
(h) PROPERTIES HELD FOR DEVELOPMENT AND RESALE:
INVENTORIES - CURRENT:
Properties held for development and resale are stated at the
lower of cost and net recoverable value. Cost includes the
cost of acquisition, development and interest during
development. After development is completed, interest and
other holding charges are expensed as incurred.
Profits are recognised on unconditional exchange of contracts.
(i) REVALUATION OF NON-CURRENT ASSETS:
Land, buildings and bed licences are reviewed annually by the
directors based on existing use. The carrying amount of
property, plant and equipment is reviewed annually by
directors to ensure it is not in excess of the recoverable
amount from those assets. The recoverable amount is assessed
on the basis of the expected net cash flows which will be
received from the assets employment and subsequent disposal.
The expected net cash flows have not been discounted to
present values in determining recoverable amount. No provision
has been made for any potential capital gains tax liability
arising on disposal of these land, buildings and bed licences.
<PAGE> 12
(j) CASH:
For purposes of the statement of cash flows, cash includes
deposits at call which are readily convertible to cash on hand
and which are used in the cash management function on a
day-to-day basis, net of bank overdrafts.
(k) INVESTMENTS
Investments are brought to account at cost or at directors'
valuation. The carrying amount of investments is reviewed
annually by directors to ensure it is not in excess of the
recoverable amount of these investments. The recoverable
amount is assessed from the shares' market value or the
underlying net assets in the particular companies. The
expected net cash flows from investments have not been
discounted to their present value in determining the
recoverable amounts. Dividends are brought to account in the
profit and loss account when received except for dividends
from controlled entities which are brought to account when
they are proposed by the controlled entity.
(l) COMPARATIVE INFORMATION:
Where necessary prior year amounts have been reclassified to
facilitate comparison.
<TABLE>
<CAPTION>
ECONOMIC ENTITY
1998 1997
$'000 $'000
2. OPERATING REVENUE
<S> <C> <C>
Fee revenue 103,576 116,473
Sales revenue 9,337 4,906
Other revenue
- Interest 165 266
- Proceeds from sale of non-current assets 48,175 5,509
- Other 1,862 1,703
--------------- --------------
163,115 128,857
--------------- --------------
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
ECONOMIC ENTITY
1998 1997
$'000 $'000
<S> <C> <C>
3. OPERATING (LOSS)/PROFIT
(a) Operating (loss)/profit before abnormal items and income
tax is arrived at after:
(i) Crediting as income:
Interest received
- controlled entities - -
- other 165 266
Profit on sale of non-current assets 13 266
------------- --------------
(ii) Charging as expenses:
Amortisation of borrowing costs 315 -
Depreciation
- buildings 2,065 705
- plant and equipment 649 3,537
Interest paid
- parent entity - 573
- controlled entities - -
- other 4,220 5,517
Loss on sale of non-current assets - 474
Provisions
- employee entitlements 4,468 693
- doubtful debts 53 153
- sundry (17) (478)
-------------- --------------
(b) The operating (loss)/profit after income tax is also arrived at
after crediting and charging the following abnormal items
Charging as expenses:
Adjustment of employee on-costs in respect of nursing
homes acquired (no income tax applicable) 296 -
Prepayment fees on previous borrowing facility (no
income tax applicable) 797 -
Loss on sale of Rouse Hill land (no income tax
applicable) 358 -
Crediting as income:
Prior year depreciation adjustment on nursing homes
acquired (no income tax applicable)
- buildings (1,348) -
- plant and equipment (94) -
-------------- --------------
Abnormal items after income tax 9 -
-------------- --------------
</TABLE>
<PAGE> 14
4. INCOME TAX
(a) The aggregate amount of income tax attributable to the
financial year differs from the prima facie charge on the
operating profit due mainly to the benefit of tax losses and
timing differences not brought to account.
(b) The directors estimate that the potential future income tax
benefit at 30 June 1998 in respect of tax losses and timing
differences not brought to account is $14,370,000 (1997:
$14,500,000).
This benefit for tax losses and timing differences will only
be obtained if:
(i) the economic entity derives future assessable income
of a nature and of an amount sufficient to enable the
benefit from the deductions for the losses and timing
differences to be realised;
(ii) the economic entity continues to comply with the
conditions for deductibility imposed
by tax legislation; and
(iii) no changes in tax legislation adversely affect the
economic entity in realising the benefit from the
deductions for the losses and timing differences.
<TABLE>
<CAPTION>
ECONOMIC ENTITY
1998 1997
$'000 $'000
<S> <C> <C>
5. DIVIDENDS:
No dividends were paid or declared during the year
6. CASH:
Cash at bank and on hand 2,111 161
============== ==============
Reconciliation of cash
Cash at the end of the financial year as shown in the statement of cash flows
is reconciled to items in the balance sheet as follows:
Cash 2,111 161
Bank overdraft (note 13) (3,979) (4,558)
-------------- --------------
(1,868) (4,397)
============== ==============
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
ECONOMIC ENTITY
1998 1997
$'000 $'000
<S> <C> <C>
7. RECEIVABLES - CURRENT:
Trade debtors 4,260 5,565
Less Provision for doubtful debts 268 215
--------------- ---------------
3,992 5,350
Other debtors 6,179 1,159
Amounts owing by related entities 402 -
=============== ===============
10,573 6,509
=============== ===============
8. INVENTORIES - CURRENT:
Linen, pharmacy, food, cleaning, surgical & medical supplies
231 402
--------------- ---------------
Land and capitalised development costs 14,715 9,798
Trade in properties 695 647
--------------- ---------------
15,410 10,445
=============== ===============
15,641 10,847
=============== ===============
9. OTHER ASSETS - CURRENT:
Property, plant and equipment for sale
- at directors' valuation 1997 - 3,350
Prepayments 569 473
Unamortised borrowing costs 1,145 75
--------------- ---------------
1,714 3,898
=============== ===============
10. RECEIVABLES - NON-CURRENT:
Other debtors 12,640 5,277
=============== ===============
11. INVESTMENTS - NON-CURRENT:
Shares in related corporations 25,211 -
Other investments 9,813 -
-------------- ---------------
35,024 -
============== ===============
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
ECONOMIC ENTITY
1998 1997
$'000 $'000
<S> <C> <C>
12. PROPERTY, PLANT AND EQUIPMENT:
Freehold land, buildings and bed licences
- at directors' valuation 1997 102,220 143,104
- at cost 17,631 3,888
--------------- ---------------
119,851 146,992
Less: Accumulated depreciation 765 -
--------------- ---------------
119,086 146,992
--------------- ---------------
Plant and equipment - at cost 17,104 32,928
Less: Accumulated depreciation 12,314 22,207
--------------- ---------------
4,790 10,721
=============== ===============
Total Property, plant and equipment 123,876 157,713
=============== ===============
VALUATION OF FREEHOLD LAND, BUILDINGS AND BED LICENCES:
The revaluations of freehold land, buildings and bed licences were
based on the assessment of the current market value in accordance with
accounting policy note 1(i).
No provision for deferred income tax is raised in respect of any
potential capital gains tax.
13. CREDITORS AND BORROWINGS - CURRENT:
Bank overdraft - secured 3,979 4,558
Secured loans - 231
Trade and other creditors 28,557 10,480
=============== ===============
32,536 15,269
=============== ===============
14. PROVISIONS - CURRENT:
Employee entitlements 8,142 5,140
Sundry provisions 8 25
=============== ===============
8,150 5,165
=============== ===============
15. CREDITORS AND BORROWINGS - NON-CURRENT:
Secured loans - banks 32,000 47,875
Secured loans - other 9,500 -
=============== ===============
41,500 47,875
=============== ===============
</TABLE>
<PAGE> 17
THE SECURITY CONSISTS OF:
1) A Deed of Charge by each entity in favour of various banks and other lenders.
2) Real Property Mortgages over land owned by various entities in favour of
various banks.
3) Deeds of Covenant relating to various Nursing Home licences between various
entities and the banks.
<TABLE>
<CAPTION>
ECONOMIC ENTITY
1998 1997
$'000 $'000
<S> <C> <C>
16. PROVISIONS - NON-CURRENT:
Employee entitlements 5,892 4,416
=============== ==============
17. OTHER LIABILITIES - NON-CURRENT:
Accommodation and tenant bonds 6,269 885
Amount payable to parent entity 134 5,034
Other creditors 3,500 9
--------------- ---------------
9,903 5,928
=============== ===============
18. SHARE CAPITAL:
(a) Authorised - 200,000,000 ordinary
shares of 50 cents each
100,000 100,000
=============== ==============
(b) Issued and paid up -29,176,820 ordinary
shares of 50 cents each fully paid
14,588 14,588
=============== ==============
19. RESERVES
(a) Composition:
Asset revaluation reserve 34,884 41,549
Capital profits reserve 1,000 1,039
Asset realisation reserve 6,765 4,006
=============== ===============
f 42,649 46,594
=============== ===============
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
ECONOMIC ENTITY
1998 1997
$'000 $'000
<S> <C> <C>
(b) Movements:
ASSET REVALUATION RESERVE
Balance 1 July 1997 41,549 46,188
Revaluation reserve attributable to entities no longer
controlled (2,678) -
Write-down of freehold land, buildings and bed licences
to recoverable amount (1,060) (3,192)
Transfer to asset realisation reserve (2,759) (1,447)
Sundry adjustments (168) -
--------------- ---------------
Balance 30 June 1998 34,884 41,549
=============== ===============
ASSET REALISATION RESERVE
Balance 30 June 1997 4,006 2,559
Transfer from asset revaluation reserve 2,759 1,447
--------------- ---------------
Balance 30 June 1998 6,765 4,006
=============== ===============
CAPITAL PROFITS RESERVE
Balance 30 June 1997 1,039 1,039
Entities no longer controlled (39) -
--------------- ---------------
Balance 30 June 1998 1,000 1,039
=============== ===============
20. REMUNERATION OF AUDITORS
Amounts received, or due and receivable by the auditors for:
- - auditing the accounts 65 41
- - other services - -
---------------- -------------
65 41
================ =============
21. CAPITAL EXPENDITURE COMMITMENTS
Capital expenditure commitments contracted for:
- building projects and fixed assets 13,485 -
=============== ==============
</TABLE>
<PAGE> 19
22. INVESTMENT IN CONTROLLED ENTITIES
<TABLE>
<CAPTION>
NAME OF ENTITY COUNTRY OF EQUITY HOLDING
-------------- INCORP. --------------
----------
1998 1997
% %
<S> <C> <C> <C>
CHIEF ENTITY
Moran Health Care Group Pty Limited Australia
CONTROLLED ENTITIES
Mudgee Nursing Home Pty Limited Australia 100 100
Quakers Hill Nursing Home Pty Limited Australia 100 100
Shellharbour Private Hospital Pty Limited Australia 100
Reid Douglas Pty Ltd Australia 100 100
Skiana Pty Limited Australia 100 100
Peter Anna Pty Limited Australia 100 100
Macquarie Private Hospital Pty Limited Australia 100 100
Moran Travel Pty Ltd Australia 100 100
Rose Bay Private Hospital Pty Limited Australia 100 100
Nazdot Pty Limited Australia 100 100
Moran Hospitals Pty Limited Australia 100 100
Bellevue Private Hospital Pty Limited Australia 100 100
Cansino Pty Ltd Australia 100 100
Erolville Pty Limited Australia 100 100
Hunter Valley Industries Pty Ltd Australia 100 100
Greenway Park Developments Pty Ltd Australia 100
Moran Rental Properties Pty Limited Australia 100 100
St James Nursing Home Pty Limited Australia 100 100
Rosaropa Pty Limited Australia 100 100
DJ Moran Investments Pty Ltd Australia 100 100
DJ Moran (ACT) Pty Limited Australia 100 100
Wistaria Investments Pty Ltd Australia 100 100
Maitland Industries Pty Ltd Australia 100 100
Pender Bros Pty Limited Australia 100 100
Paddington Lessor Pty Ltd Australia 100 100
The Carmichael Private Hospital Pty Limited Australia 100
Moran Real Estate Pty Ltd Australia 100 100
Moran Health Care Group (WA) Pty Limited Australia 100 100
</TABLE>
<PAGE> 20
Moran Health Care Group (WA) Pty Limited Australia 100 100
22. INVESTMENT IN CONTROLLED ENTITIES
<TABLE>
<CAPTION>
NAME OF ENTITY COUNTRY OF EQUITY HOLDING
-------------- INCORP. --------------
----------
<S> <C> <C> <C>
Strategic Construction Pty Ltd Australia 100 100
Berwick Unit Trust Australia 97 97
Halls Head Retirement Village Trust Australia 100 100
Moran Health Care Group (Australia) Pty Australia
Limited 100 -
</TABLE>
A controlling interest of 50.1% in the following entities was sold on
6 November 1997:
Shellharbour Private Hospital Pty Limited
Greenway Park Developments Pty Limited
The Carmichael Private Hospital Pty Limited
A non-controlling interest of 49.9% in the following entities was
acquired on 6 November 1997:
Bigge Street Private Hospital & Clinic Pty Limited
Stecchi Pty Limited
Yalandi Pty Limited
23. DEED OF CROSS GUARANTEE
Moran Health Care Group Pty Limited and its controlled entities are
parties to a deed of cross guarantee which has been lodged with and
approved by the Australian Securities Commission. Under the deed of
cross guarantee, each company within the economic entity guarantees the
debts of the other companies.
The aggregate assets and liabilities of the companies as at 30 June 1998
and their aggregate net (loss)/profit for the year then ended (after
eliminating inter-company investments and other inter-company
transactions), are as follows:
<TABLE>
<CAPTION>
1998 1997
$'000 $'000
<S> <C> <C>
Assets 201,579 184,405
Liabilities 97,981 78,653
Net (loss)/profit after tax (700) 66
</TABLE>
<PAGE> 21
24. RECONCILIATION OF OPERATING (LOSS)/PROFIT AFTER INCOME TAX TO THE NET
CASH FLOWS FROM OPERATIONS
<TABLE>
<CAPTION>
ECONOMIC ENTITY
1998 1997
$'000 $'000
<S> <C> <C>
Operating (loss)/profit after income tax (700) 66
Non Cash flows in operating profit/(loss)
Depreciation and amortisation 1,272 4,242
Provision for doubtful debts 52 185
Provision other (18) -
Provision for employee entitlements 935 (547)
(Loss)/profit on sale of non-current assets 13 (208)
Share of losses in related entities 153 -
Cash flow in operating activities but not in operating losses
Sick leave funding entitlement 208 -
Changes in assets and liabilities
Trade debtors and prepayments (1,751) 2,262
Inventories 1,761 567
Trade and other creditors 708 328
Payable to related entities - 627
Sundry provisions - (493)
Provisions for income tax - (141)
-------------- ---------------
Net cash inflow/outflow from operating activities 2,633 7,304
============== ===============
</TABLE>
25. STATEMENT OF OPERATIONS BY SEGMENTS
The economic entity operates in the health care industry in Australia.
26. SUPERANNUATION COMMITMENTS
The following superannuation plans have been established for the
provision of benefits to employees of the entities in the economic
entity on retirement, death, or disability:
National Healthcare Superannuation Fund
Moran Health Care Group Superannuation Fund
The Westland Superannuation Plan
Benefits provided under these plans are based on contributions for each
employee. The company contributes between the rate of six and ten
percent of the gross earnings of the employees.
<PAGE> 22
27. OUTSIDE EQUITY INTERESTS IN CONTROLLED ENTITIES
<TABLE>
<CAPTION>
ECONOMIC ENTITY
1998 1997
$'000 $'000
<S> <C> <C>
Outside equity interest comprises:
Trust capital 5 5
Reserves 42 46
--------------- ---------------
47 51
=============== ===============
Movements during the year:
Opening balance 51 -
Minority interest in controlled entities acquired during the
year - 52
Share of decrease in asset revaluation reserve - (1)
Trust distribution (4) -
--------------- ---------------
47 51
=============== ===============
28. EVENTS SUBSEQUENT TO BALANCE DATE
(a) Nursing homes with a book value of approximately $85 million
are expected to be sold under a sale and leaseback arrangement
entitling the group to a long term lease with associated
management rights of the nursing home facilities. The
syndicated facility of secured bank loans and overdraft of
$35,979,000 is expected to be repaid in October 1998 out of
the proceeds of this sale. This is expected to result in an
extraordinary cost of $2,417,000 on early repayment of
borrowings.
(b) In August 1998 the Group entered into an agreement to acquire
80.1% of two UK companies with long term leases and associated
management rights over 34 UK nursing homes for approximately
$7.5 million.
29. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP):
<CAPTION>
NOTES
<S> <C> <C> <C>
Operating (loss)/profit and extraordinary items after income
tax attributable to members of the chief entity as per
Australian Accounting Standards. (700) 66
Interest expense attributable to construction of Rose Bay
Nursing Home (FAS34) 1 202 190
Profit on disposal of non-current assets 3 2,759 1,447
--------------- ---------------
Operating (loss)/profit and extraordinary items after income
tax attributable to members of the chief entity as per US GAAP 2,261 1,703
=============== ===============
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
ECONOMIC ENTITY
1998 1997
$'000 $'000
<S> <C> <C> <C>
Shareholders' equity per Australian Accounting Standards
103,598 105,752
Interest expense attributable to construction of Rose Bay
Nursing Home (FAS34) 1 202 190
Writeback of asset revaluation reserve to restate land and
buildings to cost 2 (34,884) (41,549)
--------------- ---------------
Shareholders' equity as per US GAAP 68,916 64,393
=============== ===============
</TABLE>
The following explanatory notes relate to the US GAAP reconciling items:
(1) Capitalisation of interest during the construction of a new nursing
home property was an option under Australian Accounting Standards which
the company did not exercise. Under US GAAP (FAS34), the capitalisation
of interest on certain assets is obligatory and so interest at the rate
applicable during the building program has been included in the cost of
assets and added back to revenue.
(2) US GAAP requires long-term or non-current assets to be valued at the
lower of historical cost and recoverable value. Australian Accounting
Standards permit revaluation of long-term assets subject to an
overriding requirement that they not be carried at an amount in excess
of their recoverable amount. To the extent that this company carries
its freehold property at valuation, the excess of the value over
historical cost has been written back against shareholders' equity.
(3) The restating of certain assets at historical cost gives rise to an
additional profit on disposal of non-current assets to the extent of
the revaluation increment which has now been written back.
